April 12, 2024 – Resort to affidavits by a legislative fiscal analyst was appropriate to interpret an ambiguous property tax statute, the Wisconsin Court of Appeals (District II) has held.

In Wisconsin Department of Revenue v. Master’s Gallery Foods, Inc., 2022AP1909 (March 20, 2024), the Court of Appeals held that those affidavits showed that the legislature meant to exempt from the property tax only manufacturing equipment that had been reported to local governments for assessment and not equipment that had been reported to the Department of Revenue for assessment.

Disputed Assessment​​

In July 2018, the state Department of Revenue (DOR) assessed the value of the machinery, equipment, furniture, fixtures, and other personal property of Master’s Gallery Foods, Inc., (Master’s) at about $2.8 million.

Master’s is a Wisconsin corporation that makes and sells cheese and cheese products from a facility located in Sheboygan County.

Master’s filed an objection to the assessment with the state Board of Assessors (Board).

Master’s claimed the assessed value of the property was about $1.3 million. The company argued that DOR had mis-applied Wis. Stat. section 70.111(27).

Section 70.111(27) exempts from the property tax “machinery, tools, and pattern” if they are not “used in manufacturing.”

The Board sustained DOR’s assessment. Master’s filed a petition for review with the state Tax Appeals Commission.

Dueling Interpretations

The Commission issued a final order in which it concluded that some of the assessed property was exempt from taxation.

DOR sought review of the Commission’s order by filing a petition for certiorari review in Sheboygan Couty Circuit Court.

The circuit court concluded that the Commission had erred in interpreting section 70.111(27)(b) and ruled that DOR’s assessment was correct. Master’s appealed.

Strictly Construed

Judge Lisa Neubauer, writing for a three-judge panel, explained that the Wisconsin Supreme Court has held that statutory provisions that exempt property from taxation are to be strictly construed, with the presumption that the property in question is taxable.

Neubauer noted that under section 70.05, most property in Wisconsin is assessed by local governments but property owned by businesses that engage in manufacturing as defined in section 70.995(1)-(2) is assessed by DOR.

Judge Neubauer pointed out that after the legislature enacted section 70.111(27), DOR issued guidance that that section’s exemption only applied to personal property assessed by a local government and not property assessed by DOR.

Ambiguous Statute

Judge Neubauer then concluded that section 70.111(27) was ambiguous because it contained no definition for the phrase “used in manufacturing.”

Master’s argued that the Commission had been correct in looking to the definition of “manufacturing” contained in a related statute, section 70.11(27)a3.

That subsection defines “[m]anufacturing as “engaging in an activity classified as manufacturing under section 70.995,” and the Commission concluded that Master’s machines, tools, and patterns (MTP) was exempt under section 70.111(27) if it was not used in any part of the cheese production process.

But Judge Neubauer noted that Master’s MTP had been assessed by DOR under section 70.995(1)(a), which means that under that section it was “manufacturing property.”

“Thus, MTP that is submitted to the Department for assessment is necessarily ‘used in manufacturing’ and thus not exempt under section 70.111(27),” Neubauer wrote.

“Construing section 70.111(27) not to exempt MTP that is assessed by the Department is consistent with the strict construction we are to afford exemptions under Chapter 70.”

LFB Affidavits

Judge Neubauer concluded that because section 70.111(27) was ambiguous, the Court of Appeals could look to extrinsic evidence under the rubric for statutory interpretation set by the Supreme Court.

That evidence included two affidavits made out by a fiscal analyst with the Legislative Fiscal Bureau (LFB).

Neubauer pointed out that, according to those affidavits, the legislature asked LFB to estimate the fiscal impact of: 1) exempting personal property from the property tax; and 2) compensating local governments for the resultant loss of tax revenue.

Furthermore, Judge Neubauer noted, the affidavits showed that LFB estimated that: 1) non-manufacturer property owners paid $74.4 million in property taxes in 2017 on MTP assessed by local governments; and 2) manufacturer property owners paid $41.3 million in property taxes in 2017 on MTP assessed by DOR.

Neubauer then pointed out that an omnibus motion submitted to the legislature after receipt of LFB’s analysis recommended that the legislature exempt non-manufacturing MTP and offset the exemption by paying local governments $74.4 million each year.

“Thes materials clarify that section 70.111(27) was enacted to exempt from taxation only MTP that is reported to local assessors,” Judge Neubauer wrote.

“Construing the exemption to apply only to locally assessed property harmonizes it with its related statutes, gives the exemption a strict but not unreasonable reading as required under Wis. Stat. section 70.109, and prevents overlap with the exemption in Wis. Stat. section 70.11(27) for MPT that is assessed by the Department,” Neubauer wrote.

As a result, Judge Neubauer concluded that the Commission erred by concluding that section 70.111(27) was unambiguous and exempted MTP submitted to DOR for assessment if it wasn’t used in manufacturing.