Wisconsin Tax Appeals Commission Docket No. 01-T-102

STATE OF WISCONSIN

TAX APPEALS COMMISSION

EPCO LIMITED PARTNERSHIP

OF WISCONSIN

311 Parkview Court

Hartland, WI 53029,

Petitioner,

vs.

WISCONSIN DEPARTMENT OF REVENUE

P.O. Box 8907

Madison, WI 53708,

Respondent.

DOCKET NO. 01-T-102

DECISION AND ORDER

RICHARD F. RAEMISCH, COMMISSIONER:

The above-entitled matter was submitted to the Tax Appeals Commission on stipulated facts and exhibits. Petitioner is represented by Attorney Scott V. Lowry, of Waukesha, Wisconsin. Respondent, Wisconsin Department of Revenue ("the Department"), is represented by Attorney Neal E. Schmidt, of Madison, Wisconsin.

Based on the stipulated facts, related exhibits, and briefs of the parties, the Commission finds, concludes, and orders as follows:

FINDINGS OF FACT

The Commission adopts the following facts based on the facts stipulated by the parties, with references to exhibits omitted:

1. James E. Turner and L. Jean Turner ("the Turners") are husband and wife.

2. The Turners were the sole partners of EPCO Limited Partnership of Wisconsin ("EPCO"), a domestic limited partnership.

3. On January 2, 1998, the Turners became the sole partners of a limited liability partnership, EPCO of WI, LLP ("EPCO LLP").

4. On January 2, 1998, EPCO owned 11.002 acres of real estate ("the real estate") in Waukesha County, Wisconsin.

5. On January 2, 1998, EPCO transferred the real estate to EPCO LLP, for no additional consideration other than assumption of debt and receipt by the Turners of an interest in EPCO LLP, and recorded the transfer on February 3, 1998.

6. Petitioner claimed no transfer fee was due on the real estate transfer because the conveyance was exempt under Wis. Stat. § 77.25(15m).

7. Under the date of May 22, 2001, the Department mailed a Notice of Additional Assessment of Real Estate Transfer Fee to petitioner, stating it had disallowed the claimed exemption and the conveyance was subject to a transfer fee of $7,500.00, plus interest of $3,116.71, and a penalty of $1,875.00, for a total of $12,491.71.

8. On June 1, 2001, petitioner filed a petition for redetermination with the Department, and on June 25, 2001, petitioner filed a supplement to the petition for redetermination. The petition for redetermination included documents showing petitioner had again conveyed the real estate to "correct the conveyance dated January 2, 1998" and recorded it on February 3, 1998. The conveyance was from EPCO to the Turners.

9. The petition for redetermination also included documents showing the Turners transferred the above-described real estate to EPCO LLP on May 25, 2001.

10. The Department denied petitioner's petition for redetermination on June 22, 2001. Petitioner then filed a timely petition for review with the Commission.

APPLICABLE STATUTES

77.21 Definitions. In this subchapter:
(1) "Conveyance" includes deeds and other instruments for the passage of ownership interests in real estate, including contracts and assignments of a vendee's interest therein, . . . and including leases for at least 99 years but excluding leases for less than 99 years, easements and wills.
77.22 Imposition of real estate transfer fee.
(1) There is imposed on the grantor of real estate a real estate transfer fee at the rate of 30 cents for each $100 of value or fraction thereof on every conveyance not exempted or excluded under this subchapter. In regard to land contracts the value is the total principal amount that the buyer agrees to pay the seller for the real estate. This fee shall be collected by the register at the time the instrument of conveyance is submitted for recording. Except as provided in s. 77.255, at the time of submission the grantee or his or her duly authorized agent or other person acquiring an ownership interest under the instrument, or the clerk of court in the case of a foreclosure under s. 846.16(1), shall execute a return, signed by both grantor and grantee, on the form prescribed under sub. (2). The register shall enter the fee paid on the face of the deed or other instrument of conveyance before recording, and, except as provided in s. 77.255, submission of a completed real estate transfer return and collection by the register of the fee shall be prerequisites to acceptance of the conveyance for recording. The register shall have no duty to determine either the correct value of the real estate transferred or the validity of any exemption or exclusion claimed. If the transfer is not subject to a fee as provided in this subchapter, the reason for exemption shall be stated on the face of the conveyance to be recorded by reference to the proper subsection under s. 77.25.
77.25 Exemptions from fee. The fees imposed by this subchapter do not apply to a conveyance:
* * *
(3) Which, executed for nominal, inadequate or no consideration, confirms, corrects or reforms a conveyance previously recorded.
* * *
(8) Between parent and child, stepparent and stepchild, parent and son-in-law or parent and daughter-in-law for nominal or no consideration.
* * *
15(m) Between a partnership and one or more of its partners if all of the partners are related to each other as spouses, as lineal ascendants, lineal descendants or siblings, whether by blood or by adoption, or as spouses of siblings and if the transfer is for no consideration other than the assumption of debt or an interest in the partnership.
(15s) Between a limited liability company and one or more of its members if all of the members are related to each other as spouses, as lineal ascendants, lineal descendants or siblings, whether by blood or by adoption, or as spouses of siblings and if the transfer is for no consideration other than the assumption of debt or an interest in the limited liability company.
178.05 Partnership property.
(1) All property originally brought into the partnership stock or subsequently acquired, by purchase or otherwise, on account of the partnership is partnership property.

CONCLUSIONS OF LAW

1. The conveyance of real estate on January 2, 1998 from EPCO to EPCO LLP is subject to the Wisconsin real estate transfer fee and is not exempt from that fee under Wis. Stat. § 77.25(15m).

2. The re-recording on May 25, 2001 of the original deed with a different grantee, stating that it was a correction of the original conveyance, did not affect the imposition of the transfer fee on the original conveyance.

OPINION

The basic facts in this case are straightforward and not in dispute.

EPCO, a partnership consisting of the Turners, conveyed real estate to EPCO LLP, a limited liability partnership also consisting of the Turners, for no monetary consideration. EPCO believed the conveyance was exempt from the real estate transfer fee, and paid no fee.

The Department disagreed, and issued an assessment based on the real estate's value of $2,500,000, plus interest and penalty, for a total of $12,491.71.

EPCO then conveyed the above real estate to the Turners with language on the deed being re-recorded "to correct the [earlier] conveyance". The Turners then conveyed the real estate to EPCO LLP on May 25, 2001.

Under Wisconsin law, the original conveyance from EPCO to EPCO LLP did not fit within the exemption claimed by petitioner under Wis. Stat. § 77.25(15m). This provision exempts from the transfer fee conveyances between a partnership and its partners if they are related to each other in specified ways. The transfer was from one partnership to another and does not fall under § 77.25(15m) or any other recognized exemption in § 77.25.

There have been similar cases before the Commission. In Sunset Meadows Partnership v. Wis. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-409 (WTAC 1999), family members in Sunset Meadows Partnership transferred real estate to Sunset Meadows, L.L.C., which had the same family members as partners as did Sunset Meadows Partnership. In upholding the Department's assessed transfer fee, the Commission held that "Current exemptions do not apply to transfers between partnerships and LLCs, even if members of a family are partners or members of those entities. In this situation, the transfer is between legal entities, not between a legal entity and family members comprising that legal entity". Id. As in the instant case, there is no family member exemption where the transfer is between partnerships rather than from a partnership to exempted family members. The Commission in Sunset Meadows also cited J. & R. Hotel Partnership v. Wisconsin Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-286 (WTAC 1997), where the Commission held that a partnership to LLC transfer was subject to a transfer fee even though the husband and wife had the same ownership interests in each entity. Id. There is no statutory provision which exempts a transfer when it is from partnership to partnership, regardless of the types of relationships between the partners.

The "correction" deed did not, in fact, correct the original warranty deed transfer. Once real estate was conveyed from EPCO to EPCO LLP, the transfer was complete under § 706.02(1). The real estate was now under EPCO LLP. The "correction" deed attempted to transfer the real estate from EPCO to the Turners. This was an attempt to nullify, not correct, the original transfer. As previously held by the Commission in J. & R. Hotel, and cited in Sunset Meadows:

. . . a conveyance is exempt from the transfer fee under § 77.25(3) only if it confirms, corrects or reforms a conveyance previously recorded, not if it nullifies a conveyance previously recorded. [Emphasis in original.]

Sunset Meadows Partnership, at ¶ 400-409.

Therefore, because the Commission rules that the original transfer of the deed from EPCO to EPCO LLP was complete pursuant to § 706.02(1), the transfer was subject to the fee imposed by § 77.22.

Petitioner also argues that, since a transfer from EPCO to the Turners and then from the Turners to EPCO LLP would be exempt from a transfer fee under § 77.25(15m), a transfer from EPCO to EPCO LLP should also be exempt. We disagree. Although the single transfer and the double transfers above achieve the same end result, the Legislature exempted one type of transfer (from partnership to family member(s)) and not the other (from partnership to partnership, even though both may consist of the same family members). In Comet Co. v. Department of Taxation, 243 Wis. 117, 123 (1943), also cited by the Commission in J. & R. Hotel, Infra, the Supreme Court said:

Even if the language in that exemption provision were ambiguous, it would be subject to the well-established rules of construction that tax exemptions, deductions, and privileges are matters purely of legislative grace and tax statutes are to be strictly construed against the granting of the same, and one who claims an exemption must point to an express provision granting such exemption by language which clearly specifies the same, and thus bring himself clearly within the terms thereof. (Citations omitted.) [Emphasis added.]

Because § 77.25(15m) refers to an exemption between a "partnership and one or more of its partners if all the partners are related to each other as spouses . . ." and does not exempt transfers between partnerships even if the members are related, the Department correctly assessed a transfer fee in this case.

Finally, pursuant to § 178.05(1) "[a]ll property originally brought into the partnership stock or subsequently acquired, by purchase or otherwise, on account of the partnership is partnership property". Once the real estate was brought into EPCO, it became EPCO real estate, not Turner real estate as partners of EPCO. The original transfer was between non-exempt partnerships, not between individual members of the partnerships.

Therefore,

IT IS ORDERED

That the Department's denial of petitioner's petition for redetermination is affirmed.

Dated at Madison, Wisconsin, this 26th day of April, 2002.

WISCONSIN TAX APPEALS COMMISSION

___________________________________________

Don M. Millis, Commission Chairperson

___________________________________________

Thomas M. Boykoff, Commissioner

____________________________________________

Richard F. Raemisch, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"

June 12, 2002 Petition for rehearing denied pursuant to s. 227.49(3)

June 25, 2002 Appealed to Waukesha County Circuit Court (02CV1493)