Rental Case Analysis

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If not reversed by the Supreme Court, the decision creates what may be only a one-time windfall for municipalities.

Presumably, companies that rent property for less than a month, but are willing to rent for more than a month if the customer wishes, will respond to the decision by eliminating that option.

Thus, the only long-term effect of the decision may be to eliminate a business arrangement that is desirable to both lessees and lessors, with no benefit to anyone.

In their briefs to the court of appeals, both parties argued that the statute unambiguously supported their respective interpretations; thus, neither examined legislative history as to the purpose of the statute, were the statute to be found ambiguous.

Independent research reveals no explanation for why the Legislature would make property rented for periods of less than a month exempt, but property also available for periods longer than one month taxable.

The only thing certain about legislative intent is that the statute was passed to effectively overrule the court of appeals’ decision in Village of Menomonee Falls v. Falls Rental World, 135 Wis.2d 393, 400 N.W.2d 478 (Ct.App.1986).

Like United Rentals, Falls Rental World was in the business of renting personal property. When the Village taxed their rental property, Falls Rental argued that the property was “merchants’ stock-in-trade” and thus, exempt from taxation pursuant to sec. 70.111(17).

However, the court disagreed, and held that, because the property was rented, rather than sold, it was not stock-in-trade. Several years later, the Legislature enacted subsec. (22), exempting rental property held for terms of less than a month. As noted, nothing in the legislative history explains why the exemption doesn’t include all rental property.

Tax exemptions are generally construed in favor of taxation; however, they should also be given a “strict but reasonable construction.” Deutsches Land, Inc. v. City of Glendale, 225 Wis.2d 70, 80, 591 N.W.2d 583 (1999).

The legislative history, the court’s opinion in the case at bar, and the briefs of the parties can all be searched in vain for any explanation of why it could plausibly be reasonable to exempt rental property held exclusively for rental periods of less than a month, but to tax any property, if it is also available for a longer term.

Accordingly, if the Supreme Court were to grant review in this case and find the statute ambiguous, it seems likely it would reverse, finding the interpretation of the court and the city to be strict, but not reasonable.

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Most goods that are commonly leased for periods of longer than a month would likely qualify as “stock-in-trade.” Automobile dealers, for example, sell cars, and also lease them for terms of dozens of months.

Perhaps, the Legislature drafted the statute as it did, because it deemed property rented for more than a month to be “stock-in-trade,” and thus, already exempt under subsec. (17). This is pure speculation, though.

Ultimately, there appears no reasonable basis for the distinction drawn by the court, and if the Supreme Court were to find the statute ambiguous, it should rule in favor of the taxpayer, unless the taxing municipality can offer some reasonable basis for the distinction.

Unless the decision is reversed, however, lessees and lessors of personal property have little choice but to artificially limit the lengths of their leases to one month or less, solely to avoid an arbitrary distinction in the tax laws.

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David Ziemer can be reached by email.