S.C. Johnson & Son, Inc. v. Wisconsin Department of Revenue

SUNDBY, J.

(dissenting). Johnson's Wax is one of Wisconsin's oldest manufacturers, well known for its philanthropy and enlightened management. It has four main facilities in the state: Its corporate headquarters located in the City of Racine; its main U.S. manufacturing facility, known as Waxdale, located about six miles west of its corporate headquarters; its entomology research laboratory, located about three miles north of its corporate headquarters; and the subject property, known as Armstrong Park. The park consists of approximately ninety-five acres on which are constructed various outdoor recreational facilities and two major buildings: the Johnson Mutual Benefit Association (JMBA) Recreation and Fitness Center and the Child Care Center. Armstrong Park is not open to the public and is devoted to recreational, child care and *730corporate meeting purposes. In 1991, 1992 and 1993, the JMBA Center, exclusive of the child care facility, was used over fifty percent of the time for business purposes. Johnson's expects that business use as a percentage of total use will continue to expand in future years.

When the business use of the JMBA Center is added to the child care use, the non-recreational use of the subject property was 76% in 1991, 76.4% in 1992, and 77.3% in 1993.

The JMBA Center consists of approximately 101,800 square feet. It contains a large kitchen designed to serve 800 people at a sit-down dinner in the oversized gymnasium. Its Farley Aquatic Center has a large apron or patio adjacent to the pool designed to accommodate company social events or dinner parties. It also has offices, a conference area, a multi-purpose room used for both recreation and business meetings, and telephone/computer booths for corporate use.

The Child Care Center was built in 1991. It contains 16,919 square feet, not including a 4,272 square foot mezzanine. The Child Care Center was constructed to provide child care for those of Johnson's 2,700 employees who have young children. Johnson's believes that the recreational and child care facilities, as well as the conference and social facilities, will attract and retain first-rate employees and increase the productivity of employees.

In 1993, the Wisconsin Department of Revenue denied Johnson's request that Armstrong Park be classified as "manufacturing property" under § 70.995(1), Stats. The Wisconsin Tax Appeals Commission affirmed the department's denial. However, the commission found: "The undisputed evidence shows that the Armstrong Park recreational facilities are classi*731fied in group 28 of the [Standard Industrial Classification Manual] and that, pursuant to § 70.995(2)(k), Armstrong Park is 'deemed prima facie manufacturing property

The commission concluded, however, that the department had overcome the prima facie effect of the undisputed evidence by showing that Armstrong Park failed to meet any of the criteria required by § 70.995(1) and (3), Stats., to be classified as manufacturing property. The commission concluded that the department had "nearly total discretion" under § 70.995(4) to determine what, if any, portion of the subject property to assess. The commission therefore granted the department's motion for summary judgment.

I conclude that the department does not have "nearly total discretion" under § 70.995(4), STATS. Section 70.995(4) provides in part:

Whenever real property or tangible personal property is used for one, or some combination, of the processes mentioned in sub. (3) and also for other purposes, the department of revenue, if satisfied that there is substantial use in one or some combination of such processes, may assess the property under this section. For all purposes of this section the department of revenue shall have sole discretion for the determination of what is substantial use and what description of real property or what unit of tangible personal property shall constitute "the property" to be included for assessment purposes ....

(Emphasis added.)

The commission credits the department with discretion which is not conferred by § 70.995(4), STATS. The department's "nearly total discretion" under this section is exercised only to classify what part of a mixed *732use is manufacturing and what part is not. The commission's "discretion" in this case is to decide a question of law: Are auxiliary services "in support of' manufacturing processes properly classified as manufacturing activities? The answer to that question is not found in § 70.995(1) but in § 70.995(2) which provides in part:

In addition to the criteria set forth in sub. (1), property shall be deemed prima facie manufacturing property and eligible for assessment under this section if it is included in one of the following major group classifications set forth in the standard industrial classification manual, 1987 edition, published by the U.S. office of management and budget....

(Emphasis added.)

Johnson's property is included in the STANDARD Industrial Classification (SIC) Manual as "28 — CHEMICALS AND ALLIED PRODUCTS." SIC Manual 132 (1987). The legislative history of § 70.995, Stats., shows that the legislature substituted for a lengthy list of activities that were not considered manufacturing, the classification schedules appearing in the SIC Manual. The legislature adopted the SIC Manual as a convenient, accurate, and uniform method of classifying property. When the legislature adopted this approach, it also adopted the construction which the Industry and Commodity Classification Branch of the U.S. Bureau of the Census has given to the classifications which the Bureau has established. This process is analogous to Wisconsin's adoption of most of the federal rules of civil procedure. We have repeatedly held that the construction given to the federal counterparts of our rules of civil procedure are at least persuasive. *733See Schauer v. DeNeveu Homeowner's Assoc., Inc., 194 Wis. 2d 62, 73, 533 N.W.2d 470, 474 (1995).

The Chief of the Industry and Commodity Classification Branch of the Bureau of the Census informed Johnson's as follows:

Recreational facilities and child care facilities maintained by a company solely for the benefit of its employees will be classified in the SIC major group of the company — in Johnson's case, a manufacturing classification, Major Group 28, Chemicals and Allied Products. On the other hand, if the facilities are used by the general public, they will be classified as Services activities rather than Manufacturing — Major Group 79 for recreational centers and Major Group 83 for child day care facilities.

If Johnson's made its recreational facilities and child care facilities available to the general public, at least in part, the department would then have the "nearly total discretion" to determine what percent of the use, if any, may be classified as manufacturing. However, Johnson's does not allow the general public to use the recreational or child care facilities of Armstrong Park. Therefore, there is no occasion for the department to exercise its discretion under § 70.995(4), Stats.

Because the legislature has adopted the SIC MANUAL to classify manufacturing property, the classifications thereunder must be given effect unless the classification is clearly contrary to the definition of "manufacturing property" in § 70.995(1)(a), STATS. I do not find anything in the definition of "manufacturing property" which requires that the department reject the classification system developed by the Technical Committee on Industrial Classification of the Census *734Bureau. The SIC MANUAL classifies "establishments." Id. at 11. An establishment is an economic unit, generally at a single physical location, where business is conducted or where services or industrial operations are performed. Id. at 12. However, "establishments" may have "auxiliaries." Id. at 13. "Auxiliaries are establishments primarily engaged in performing management or support services for other establishments of the same enterprise." Id. The SIC MANUAL gives as an example of an auxiliary establishment primarily engaged in performing management or support services, "(10) Recreational facilities such as gymnasiums, golf courses, and swimming pools, maintained by an enterprise for the benefit of its employees." Id. at 15. The MANUAL does not list child care centers as auxiliary establishments, undoubtedly because few employers are large enough or enlightened enough to provide such facilities for its employees. However, in response to Johnson's request that the Bureau classify the child care center, the Bureau informed Johnson's that: "Child day care facilities maintained by an enterprise solely for the benefit of its employees are classified as auxiliaries."

The basic flaw in the department's and the commission's reasoning is their failure to appreciate that the legislature by adopting the SIC MANUAL has adopted the concept of "auxiliary establishments." The legislature has recognized that the Standard Industrial Classification developed by the Bureau's Technical Committee on Industrial Classification provides a fairer and more realistic classification of industrial establishments. I would reverse the trial court's decision and instruct the court to remand this matter to the commission and the department with instructions that they are to include property devoted *735to auxiliary services for a manufacturing establishment as "manufacturing property."