In 2008, the Wisconsin Tax Appeals Commission ruled that the following categories of computerized medical equipment are exempt from property tax:
Magnetic resonance imaging (MRI) equipment
Radiation oncology and linear accelerator equipment
Nuclear medicine equipment
Digital imaging equipment
City of LaCrosse v. Wisconsin Dep’t of Revenue and Gundersen Clinic, Ltd. (Gundersen Clinic).1 The Dane County Circuit Court recently affirmed the commission’s ruling, and the city is not appealing. Therefore, the commission’s ruling is now final.
The Gundersen Clinic case has important implications not only for owners and lessees of computerized medical equipment located in Wisconsin, but also for owners and lessees of other devices that are connected to and operated by computers. Wisconsin taxpayers should take immediate steps to evaluate whether to correct their personal property tax reporting for such equipment.
Statutory Exemption of Computer Equipment
The ruling in Gundersen Clinic is based on Wis. Stat. § 70.11(39), which exempts from property tax “mainframe computers, minicomputers, personal computers, networked personal computers, … electronic peripheral equipment, tape drives, [and] printers.” The exemption does not apply to “equipment with embedded computerized components.” The Computer Exemption Guidelines (Guidelines) published by the Wisconsin Department of Revenue state with respect to medical devices that “certain electronic imaging and monitoring devices” are exempt if they are “computers or electronic peripheral equipment” and cite as examples of exempt medical devices “ultrasound imaging device, magnetic resonance imaging device (MRI), and computerized axial tomography.” The Guidelines state that x-ray imaging equipment, on the other hand, is taxable because it is “not a computer or connected to and operated by a computer.”
The Gundersen Clinic Ruling
In the Gundersen Clinic case, the taxpayer reported the above categories of medical equipment as exempt in its personal property statements for the years at issue. The city assessor reclassified all but ultrasound and MRI equipment as taxable. The taxpayer objected to the reclassifications, and the State Board of Assessors ruled for the taxpayer. The city appealed to the Tax Appeals Commission.
Both the city and the taxpayer moved for summary judgment based on their respective experts’ opinions as to the meaning of “electronic peripheral equipment” versus “embedded computerized components.” The commission ultimately did not rest its decision on expert testimony, but rather on statutory construction and the burden of proof.
In deciding for the taxpayer, the commission made several rulings that have broad application beyond medical devices: (1) When a municipality seeks review of a State Board of Assessors determination that is favorable to the taxpayer, the municipality has the burden of overcoming the presumption of correctness of the board’s determination by presenting competent, credible, and unambiguous evidence demonstrating that the determination is incorrect. (2) Wis. Stat. § 70.11(39) delineates mutually exclusive categories of exempt and taxable computer equipment. (3) The DOR’s Computer Exemption Guidelines are authoritative because they do not conflict with § 70.11(39), but rather give effect to the statute by further defining the distinctions between the exempt and taxable categories it establishes. (4) The commission accepted the Guidelines’ and taxpayer’s expert’s definition of electronic peripheral devices as devices “connected to and operated by a computer” and concluded that the city’s expert evidence was insufficient to meet the city’s burden of proof.
Implications for Exemption of Other Computer-Controlled Equipment
Although the Gundersen Clinic case specifically addresses computerized medical equipment, it has much broader implications. The DOR’s Guidelines apply Wis. Stat. § 70.11(39) to more than 40 different categories of electronic equipment. By recognizing the Guidelines as authoritative, the decision in Gundersen Clinic fortifies the position that other types of devices that are connected to and controlled by computers similarly qualify as electronic peripheral devices and are entitled to the exemption.
The scope of the computer exemption is tempered by the commission’s prior ruling that multifunction document processing equipment that combines a computer server, scanner, printer, and fax capabilities (MFD) is not exempt. Xerox Corp. v. Wis. Dep’t of Revenue.2 The commission’s reasoning in Xerox was that for devices to qualify as electronic peripherals, the computers to which they are connected and by which they are controlled must be “external.”
Claiming the Exemption
Disputes regarding the scope of the computer exemption arise when taxpayers report equipment as exempt in their personal property statements, and the assessor reclassifies the equipment as taxable. Regardless of whether computerized equipment is state assessed (i.e., owned or leased by manufacturers) or locally assessed, objections to the assessment of such equipment are filed with the State Board of Assessors, not with the local board of review. The deadline for filing a computer objection is 60 days from the date of the assessment notice (or notice of reclassification), which is longer than the typical time to file a local board of review objection.
Wisconsin taxpayers who own or lease computers and computer-controlled devices and who have reported such equipment as taxable in the past should carefully consider whether to instead report such equipment as exempt based on Gundersen Clinic. If the assessor reclassifies such equipment as taxable, taxpayers should consult their legal advisors about filing a timely objection to preserve their rights.