May 10, 2010 – The Wisconsin Supreme Court recently clarified the test for determining when the price of admission to a public place or event – here, to the Milwaukee Symphony Orchestra (MSO) – is subject to an “entertainment” sales tax.

Section 77.52(2)(a)2 imposes a 5 percent gross receipts tax (sales tax) on "the sale of admissions to amusement, athletic, entertainment or recreational events or places.”

In Milwaukee Symphony Orchestra, Inc. v. Wisconsin Dept. of Revenue, 2010 WI 33 (May 5, 2010), the question was whether MSO concerts are “entertainment events or places.”

The Wisconsin Tax Appeals Commission (Tax Commission) denied the MSO’s claim for a sales tax refund of almost $720,000 for the four-year period 1992-96. The appeals court affirmed the Tax Commission’s holding and reversed the judgment of the circuit court.

Standard of review

The Wisconsin Supreme Court (court) – in an opinion by Chief Justice Shirley S. Abrahamson – reviewed the Tax Commission’s decision, giving “due weight” deference to the Tax Commission’s interpretation of section 77.52(2)(a)2.

Courts applying “due weight” deference, the court explained, “will sustain an agency’s statutory interpretation if it is not contrary to the clear meaning of the statute and no more reasonable interpretation exists.”

The “primary purpose” test

The Tax Commission, the court explained, “has interpreted the phrase ‘entertainment event’ … to mean an event that is 50 percent or more entertainment.” That is, if the event is “primarily entertaining,” it is subject to sales tax.

This so-called “primary purpose” test, the court wrote, implied that a place or event with an “educational purpose” could not have “entertainment” as its primary purpose. If “education” is the primary purpose of an event, the thinking goes, it is not subject to sales tax.

The MSO argued that − as stated in its articles of incorporation − it is organized for an educational purpose, thus precluding assessment of sales tax under section 77.52(2)(a)2.

However, the Tax Commission rejected this argument – as it did in Milwaukee Repertory Theater, Inc. v. Wisconsin Dept. of Revenue (WTAC Dec. 15, 2000) – holding that an organization’s stated purpose does not shield it from sales tax liability. Instead, it will consider many factors in determining whether events are primarily for entertainment.

The supreme court clarified the Tax Commission’s “primary purpose” test: “The determination of primary purpose is a holistic one, which looks to the motivation, mission, or purpose of the sponsoring organization, as well as any evidence of the motivation and reaction of those paying admission and ultimately the nature of the place or event itself. No formulaic inquiry is possible. The inquiry is akin to what may be described in other areas of law as assessing the ‘totality of the circumstances.’”

The Tax Commission’s interpretation of the statute, the court held, was reasonable and no more reasonable interpretation is presented.

Establishing the “primary purpose” of the MSO

The Tax Commission considered the undisputed and extensive record, the court explained, and concluded that the concert performances were “primarily entertaining.” According to the supreme court, this conclusion was reasonable.

MSO argued that fine art institutions are educational ones, and the dictionary definition of  “education” supports their position.

But the Tax Commission found that while the MSO’s activities may be directed at educating the public, other evidence – like an audiences’ perspective, MSO’s marketing and advertising efforts, and the nature of the concerts themselves – support the conclusion that MSO events are “entertainment” for purposes of sales tax liability.

Justice Patience D. Roggensack − concurring in part, dissenting in part − concurred that tickets to MSO’s classical and pops concerts are taxable under the sales tax statute, but tickets to youth concerts are not. Justice Michael J. Gableman joined.

By Joe Forward, Legal Writer, State Bar of Wisconsin