Case Title: American Standard Insurance Company v. Wisconsin Department of Revenue

Citation: 

Docket Number: 1997AP001106

State: wisconsin

Court: Wisconsin Supreme Court

Date: 1998-12-16T00:00:00Z

Document:
SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
97-1105, 97-1106 
 
 
Complete Title 
of Case: 
 
97-1105: 
American Family Mutual Insurance Company,  
 
Petitioner-Appellant, 
 
v. 
Wisconsin Department of Revenue,  
 
Respondent-Respondent-Petitioner. 
97-1106: 
American Standard Insurance Company,  
 
Petitioner-Appellant, 
 
v. 
Wisconsin Department of Revenue,  
 
Respondent-Respondent-Petitioner 
 
 
ON REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at:  214 Wis. 2d 577, 571 N.W.2d 710 
 
 
 
(Ct. App 1997-Published) 
 
 
Opinion Filed: 
December 16, 1998 
Submitted on Briefs: 
 
Oral Argument: 
November 10, 1998 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Dane 
 
JUDGE: 
Angela B. Bartell 
 
 
JUSTICES: 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating:  
 
 
ATTORNEYS: 
For the respondent-respondent-petitioner the 
cause was argued by F. Thomas Creeron, III, assistant attorney 
general with whom on the briefs was James E. Doyle, attorney 
general. 
 
 
 
 
For the petitioner-appellant there was a brief by 
Timothy C. Frautschi and Foley & Lardner, Milwaukee and oral 
argument by Timothy C. Frautschi. 
 
 
Nos. 97-1105 & 97-1106 
 
1 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear in 
the bound volume of the official reports. 
 
 
Nos. 
97-1105 & 97-1106 
 
STATE OF WISCONSIN               :        
        
 
 
 
 
IN SUPREME COURT 
 
 
American Family Mutual Insurance Company, 
 
 
Petitioner-Appellant, 
 
 
v. 
 
Wisconsin Department of Revenue, 
 
 
Respondent-Respondent-Petitioner. 
 
FILED 
 
DEC 16, 1998 
 
Marilyn L. Graves 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
American Standard Insurance Company of 
Wisconsin, 
 
 
 
Petitioner-Appellant, 
 
 
v. 
 
Wisconsin Department of Revenue, 
 
 
 
Respondent-Respondent- 
 
 
 
Petitioner. 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
cause remanded. 
¶1 
SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE.   This is a 
review of a published decision of the court of appeals, American 
Family Mut. Ins. Co. v. Department of Revenue, 214 Wis. 2d 577, 
571 N.W.2d 710 (Ct. App. 1997).  The court of appeals reversed 
an order of the circuit court for Dane County, Angela B. 
Bartell, Judge.  The circuit court affirmed a decision of the 
Nos. 97-1105 & 97-1106 
 
2 
Wisconsin 
Tax 
Appeals 
Commission 
upholding 
the 
Wisconsin 
franchise tax, Wis. Stat. §§ 71.43(2) and 71.45(2)(a)3. (1987-
88),1 as a "nondiscriminatory franchise tax" within 31 U.S.C. 
§ 3124(a)(1) (1991).  We reverse the decision of the court of 
appeals.   
¶2 
Our review is limited to the single issue of whether 
the 
Wisconsin 
franchise 
tax, 
Wis. 
Stat. 
§§ 71.43(2) 
and 
71.45(2)(a)3. (1987-88), is a "nondiscriminatory franchise tax" 
within 31 U.S.C. § 3124(a)(1).  A state franchise tax is 
discriminatory under federal law if in the calculation of the 
franchise tax, interest income from federal obligations is 
included but interest income from state or local obligations is 
excluded. 
¶3 
This case has been argued by the parties on the 
assumption that obligations issued under the four bond statutes 
identified by American Family Mutual Insurance Company and 
American Standard Insurance Company of Wisconsin are state or 
local obligations for purposes of the issue addressed in this 
case.  We therefore assume for purposes of this case that 
obligations authorized by the four bond statutes are state or 
                     
1 The calendar years in issue are 1984 to 1991.  All 
references 
are 
to 
the 
1987-88 
Wisconsin 
Statutes 
unless 
otherwise noted because the 1987-88 Statutes were in effect for 
many of the years in question.  Furthermore, Wis. Stat. 
§ 71.01(2)(4)(1985-86), the earlier franchise tax statute, and 
Wis. Stat. §§ 71.43(2) and 71.45(2)(a)3.(1989-90), the later 
franchise tax statutes, are substantially similar to the 1987-88 
franchise tax statutes.  The parties do not distinguish among 
the tax years and pose the same arguments for all the tax years 
in question. 
Nos. 97-1105 & 97-1106 
 
3 
local obligations.  We note that three of the bond statutes 
contain language stating that the obligations shall not be 
deemed the debt of any city or municipality or state.  See Wis. 
Stat. §§ 66.40(13)(c), 66.431(5)4.b., 234.14(1987-88). 
¶4 
We conclude that the interest income from three state 
and local obligations identified by American Family Mutual 
Insurance Company and American Standard Insurance Company of 
Wisconsin is not excluded from the calculation of the franchise 
tax under Wis. Stat. §§ 71.43(2) and 71.45(2)(a)3. (1987-88) 
during the tax years in question.  We further conclude that the 
interest income from the "Brewer bonds" falls outside the time 
period of our inquiry and does not affect the determination of 
whether the Wisconsin franchise tax was a nondiscriminatory 
franchise tax under 31 U.S.C. § 3124(a)(1) in the tax years in 
question.  Accordingly we conclude that the Wisconsin franchise 
tax is a "nondiscriminatory franchise tax" within 31 U.S.C. 
§ 3124(a)(1).  The decision of the court of appeals is reversed 
and 
the 
cause 
is 
remanded 
for 
further 
proceedings 
not 
inconsistent with this opinion.  
I 
¶5 
This case was presented to the Tax Appeals Commission 
on stipulation of the parties.  The facts are not in dispute and 
for purposes of this review can be briefly stated.   
¶6 
American Family Mutual Insurance Company and American 
Standard 
Insurance 
Company 
of 
Wisconsin 
(the 
insurance 
companies) are both organized as insurance companies under 
chapter 611 of the Wisconsin Statutes.  American Standard is a 
Nos. 97-1105 & 97-1106 
 
4 
wholly owned subsidiary of American Family.  Both insurance 
companies 
sell automobile, 
homeowner, 
health 
and business 
insurance coverage.  Both companies are subject to the Wisconsin 
franchise tax.  Subchapter VII of Wis. Stat. chapter 71 (1987-
88) governs the income tax and franchise tax imposed on 
insurers. 
¶7 
On its Wisconsin franchise tax returns for calendar 
years 1984 to 1991, American Family failed to report the 
interest income it earned on federal obligations.  Similarly, on 
its franchise tax returns for calendar years 1987 to 1991, 
American Standard failed to report the interest income it earned 
on federal obligations. 
¶8 
The insurance companies assert that they need not 
include interest income from federal obligations in calculating 
the franchise tax because the state excluded interest income 
from several state or local obligations in calculating the 
franchise tax.  In other words, the insurance companies are 
asserting that to the extent that the Wisconsin franchise tax is 
calculated on the basis of interest income from federal 
obligations, the tax is invalid as violating a federal statute 
and the supremacy clause of the U.S. Constitution.  
¶9 
The Wisconsin Department of Revenue determined that 
the insurance companies were not entitled to exclude the 
interest income earned on federal obligations in calculating 
their state franchise tax and assessed additional taxes on each 
insurance company.  Both insurance companies petitioned the 
Wisconsin Department of Revenue for a redetermination of the 
Nos. 97-1105 & 97-1106 
 
5 
assessment relating to the interest income.  The Department 
denied the petition.  The insurance companies then appealed the 
assessments to the Wisconsin Tax Appeals Commission, which 
upheld the assessments.  
¶10 The circuit court affirmed the Wisconsin Tax Appeals 
Commission.  The court of appeals reversed the order of the 
circuit court, holding the franchise tax discriminatory within 
31 U.S.C. § 3124(a)(1), because "[w]ithout question the plain 
language of § 71.45(2)(a), Stats., defining 'net income' in 
federal terms, reaches interest on federal obligations," while 
"several other Wisconsin statutes exempting interest on state 
and municipal obligations from taxation."  American Family, 214 
Wis. 2d at 586.  
II 
¶11 The single issue before this court is whether the 
Wisconsin state franchise tax is a "nondiscriminatory franchise 
tax" within 31 U.S.C. § 3124(a)(1) (1991).  If it is a 
"nondiscriminatory franchise tax," interest income from federal 
obligations may be included in the calculation of the Wisconsin 
franchise tax.  
¶12 A determination of this issue involves interpretation 
of federal and state statutes.  Numerous cases discuss the 
applicable standard of review in tax cases and the deference, if 
any, to be accorded to a decision of the Tax Appeals Commission.  
¶13 The parties "hotly contested" the standard of review 
in the court of appeals.  American Family, 214 Wis. 2d at 581.  
After a lengthy discussion of the applicable standard of review, 
Nos. 97-1105 & 97-1106 
 
6 
the court of appeals determined, as had the circuit court, that 
it would decide the issue de novo, giving no deference to the 
decision of the Tax Appeals Commission.  American Family, 214 
Wis. 2d at 584. 
¶14 The parties spent little time on the standard of 
review in this court, and we spend no time on it, because 
regardless of the standard of review, the result is the same.  
We therefore adhere to the de novo standard of review applied by 
the circuit court and court of appeals.  
¶15 First, we examine the applicable federal law, 31 
U.S.C. § 3124, and then we examine the applicable provisions of 
the Wisconsin franchise tax statute. 
¶16 Simply stated, on the one hand 31 U.S.C. § 3124 
exempts from state taxation interest income from federal 
obligations, but on the other hand it allows income from federal 
obligations to be included in the calculation of a state 
franchise tax if the state franchise tax is "a nondiscriminatory 
franchise tax."  Thus Congress has consented to including 
interest income from federal obligations in the calculation of 
certain state franchise taxes.   
¶17 The applicable federal statute states:  
 
31 U.S.C. § 3124.  Exemption from taxation.  (a) 
Stocks and obligations of the United States Government 
are exempt from taxation by a State or political 
subdivision of a State.  The exemption applies to each 
form of taxation that would require the obligation, 
the interest on the obligation, or both, to be 
considered in computing a tax, except – 
 
Nos. 97-1105 & 97-1106 
 
7 
(1) a nondiscriminatory franchise tax or another 
nonproperty tax instead of a franchise tax, imposed on 
a corporation . . . . 
¶18 A state franchise tax is discriminatory within 31 
U.S.C. § 3124(a)(1) if the calculation of the state franchise 
tax includes interest income from federal obligations but not 
from state obligations.2  State franchise taxes that are 
calculated by including income from both state and federal 
obligations have been upheld by the courts.3  Thus under 31 
U.S.C. § 3124(a)(1) Wisconsin is prohibited from including 
interest income from federal obligations in the calculation of 
its franchise tax unless it also includes interest income from 
state and local obligations in the calculation of the franchise 
tax. 
¶19 We turn now to the Wisconsin franchise tax applicable 
to insurers.  The Wisconsin franchise tax is imposed on an 
insurer "[f]or the privilege of exercising its franchise or 
                     
2 See Memphis Bank & Trust Co. v. Garner, 459 U.S. 392, 398 
(1983) (a state tax discriminates against federal obligations 
"by including in the tax base income from federal obligations 
while excluding income from otherwise comparable state and local 
obligations"). 
3 See, e.g., Centerre Bank of Crane v. Director of Revenue, 
744 S.W.2d 754 (Mo. 1988); Department of Revenue v. First Union 
Bank, 513 So. 2d 114 (Fla. 1987), appeal dismissed, 485 U.S. 949 
(1988); Garfield Trust Co. v. Director, Div. of Taxation, 508 
A.2d 
1104 
(N.J.), 
appeal 
dismissed, 
379 
U.S. 
925(1986); 
Schwinden v. Burlington Northern, Inc., 691 P.2d 1351 (Mont. 
1984); Astoria Fed. Sav. & Loan Ass'n v. State, 222 A.D.2d 36, 
644 N.Y.S.2d 926 (1996), appeal dismissed without op., 88 N.Y.2d 
1064, 651 N.Y.S.2d 407, 674 N.E.2d 337 (1996), appeal denied, 89 
N.Y.2d 807, 655 N.Y.S.2d 887, 678 N.E.2d 500, cert. denied, 118 
U.S. Ct. 48 (1997); Fort Wayne Nat'l Corp. v. Indiana Dep't of 
State Revenue, 621 N.E.2d 668 (Ind. Tax. Ct. 1993). 
Nos. 97-1105 & 97-1106 
 
8 
doing business in this state in a corporate capacity."  Wis. 
Stat. § 71.43(2) (1987-88).  
¶20 The Wisconsin franchise tax is calculated on the basis 
of an insurer's federal taxable income adjusted to include 
interest income received or accrued during the taxable year to 
the extent such interest income was used as a deduction in 
determining the insurer's federal taxable income.  Wis. Stat. 
§ 71.45(2)(a)3. (1987-88).4  To calculate an insurer's federal 
taxable income the federal tax code includes interest income 
from federal obligations and allows a deduction for interest 
income from certain state and local obligations.  Thus under 
Wis. Stat. § 71.45(2)(a) of the Wisconsin franchise tax statute, 
in calculating the franchise tax the insurers are to include 
interest 
income 
from 
all 
federal 
and 
state 
and 
local 
obligations. 
¶21 The problem, according to the insurance companies, is 
that the Wisconsin legislature exempted interest income from 
four state or local obligations from the calculation of the 
state franchise tax.  Thus the insurance companies contend that 
                     
4 Wisconsin Stat. § 71.45(2)(a)3. provides:  
71.45 Income computation. . . . (2) Determination of 
net income.  (a) . . . "Net income" of an insurer 
 . . . means federal taxable income . . .  adjusted as 
follows: 
 
3.  By adding to federal taxable income an amount 
equal to interest income received or accrued during 
the taxable year to the extent such interest income 
was used as a deduction in determining the company's 
federal taxable income.  
Nos. 97-1105 & 97-1106 
 
9 
the Wisconsin franchise tax is discriminatory because it 
includes interest income from federal obligations in the 
calculation of the state franchise tax but excludes interest 
income from certain state or local obligations from the 
measuring base of the state franchise tax.  Because the 
Wisconsin franchise tax is discriminatory, argue the insurance 
companies, the inclusion of interest income from federal 
obligations in the calculation of the state franchise tax 
violates federal law and is therefore unconstitutional.  
¶22 The question before us is whether the Wisconsin 
legislature has, as the insurance companies contend, exempted 
interest income from the four state or local obligations they 
identify from the calculation of the state franchise tax.  The 
four state or local obligations identified by the insurance 
companies, 
the 
interest 
income 
of 
which 
is 
exempt 
from 
calculation of the Wisconsin franchise tax, are as follows:  
¶23 (1)  Housing 
authority 
bonds. 
 
The 
legislature 
declared that these bonds are "to be issued for an essential 
public 
and 
governmental 
purpose 
and 
to 
be 
public 
instrumentalities and, together with interest thereon and income 
therefrom, 
shall 
be 
exempt 
from 
taxes." 
 
Wis. 
Stat. 
§ 66.40(14)(a) (1987-88). 
¶24 (2)  City redevelopment authority bonds.  The legis-
lature declared that these bonds are "issued for an essential 
public and governmental purpose and, together with interest 
thereon and income therefrom, shall be exempt from all taxes."  
Wis. Stat. § 66.431(5)(a)4.c (1987-88). 
Nos. 97-1105 & 97-1106 
 
10
¶25 (3)  Housing 
and 
community 
development 
authority 
bonds.  The legislature declared that community development 
authority bonds issued after January 28, 1987, are "issued for 
an essential public and governmental purpose and to be public 
instrumentalities and, together with interest thereon and income 
therefrom, are exempt from taxes."  Wis. Stat. § 66.4325(5m) 
(1987-88); and  
¶26 (4)  Wisconsin 
Housing 
and 
Economic 
Development 
Authority 
(WHEDA) 
bonds 
to 
fund 
professional 
sports 
and 
entertainment home stadiums.  The legislature declared that 
interest income received on notes issued by WHEDA to fund a 
professional sports and entertainment home stadiumwhich is 
exempt from property tax under Wis. Stat. § 70.11(36)"is exempt 
from taxation" under subchapter VII of chapter 71.  See Wis. 
Stat. § 71.45(1m) (1991-92).5  Subchapter VII, as we stated 
previously, governs the income tax and franchise tax imposed on 
insurers. 
¶27 The insurance companies' principal argument is that 
according to the plain words of these four bond statutes, the 
interest income from these four state or local obligations is 
exempt from all taxation, including the state franchise tax.  
According to the insurance companies, the four bond statutes 
                     
5 Unlike the other three bond statutes, this tax exemption 
is contained in chapter 71, not in the statute authorizing 
issuance of the bonds.  Wisconsin Stat. § 234.65(1)(a) (1991-92) 
authorizes issuance of the WHEDA bonds to finance construction 
of a professional sports and entertainment home stadium for the 
Milwaukee Brewers.  
Nos. 97-1105 & 97-1106 
 
11
trump the express language of the Wisconsin franchise tax 
statute, Wis. Stat. § 71.45(2)(a)3., which includes interest 
income from state or local obligations in the calculation of the 
franchise tax.  We disagree with the insurance companies' 
interpretation of the statutes.  
¶28 We agree with the insurance companies that the four 
bond statutes exempting interest income from taxes present an 
apparent conflict with the state franchise tax law, which 
includes interest income from state or local obligations to 
calculate the franchise tax.  When confronted with apparently 
inconsistent legislation, a court should ascertain the intent of 
the legislature and when possible construe the statutes on the 
same subject matter, harmonizing the provisions to give each 
full force and effect.  Cross v. Soderbeck, 94 Wis. 2d 331, 343, 
288 N.W.2d 779 (1980); Glinski v. Sheldon, 88 Wis. 2d 509, 519, 
276 N.W.2d 815 (1979).  "[W]hen there are several statutes 
relating to the same subject matter they should be read together 
and harmonized if possible."  Milwaukee v. Milwaukee County, 27 
Wis. 2d 53, 56, 133 N.W.2d 393 (1965).  
¶29 We examine first Wis. Stat. § 71.45(1m) (1991-92), the 
most recent bond statute identified by the insurance companies. 
 This section governs interest income from the obligations 
authorized to fund Brewers stadium.  
¶30 For purposes of argument only, we accept the insurance 
companies' contention that Wis. Stat. § 71.45(1m) (1991-92), 
which exempts the interest income received on "Brewer bonds" 
from taxation under subchapter VII, exempts the interest income 
Nos. 97-1105 & 97-1106 
 
12
from both the income and franchise taxes.  The insurance 
companies argue that the exemption was effective August 2, 1991, 
so that it applies to the 1991 tax year in issue in this case.  
¶31 Wisconsin Stat. § 71.45(1m) (1991-92) exempts interest 
income received from "Brewer bonds" authorized to finance 
property 
that 
would 
be 
exempt 
from 
property 
tax 
under 
§ 70.11(36) (1991-92).  Wisconsin Stat. § 71.45(1m) (1991-92) 
provides as follows: 
 
71.45 Income computation.  
 
 . . .  
 
(1m) Certain Interest Income Excluded.  Interest 
received on bonds or notes issued by the Wisconsin 
housing and economic development authority under s. 
234.65 to fund an economic development loan to finance 
construction, renovation or development of property 
that would be exempt under s. 70.11(36) is exempt from 
taxation under this subchapter (emphasis added). 
¶32 The exemption of the "Brewer bonds" from taxes under 
subchapter VII thus depends on their exemption from property tax 
under Wis. Stat. § 70.11(36) (1991-92).  The 1991 law specifies 
that "[t]he treatment of section 70.11(36) of the statutes takes 
effect on January 1, 1992."  1991 Wis. Act 37, § 22(2).  Thus we 
conclude that Wis. Stat. § 71.45(1m) takes effect on January 1, 
1992, not August 2, 1991.  Because the last tax year in issue in 
this case is 1991, the exemption for interest income received on 
"Brewer bonds" falls outside the time period of our inquiry and 
does not affect the determination of whether the Wisconsin 
Nos. 97-1105 & 97-1106 
 
13
franchise tax was a nondiscriminatory franchise tax under 31 
U.S.C. § 3124(a)(1) in the tax years in question.6 
¶33 The other three bond statutes and the franchise tax 
statute can be harmonized to give each full force and effect by 
acknowledging the legislature's adoption of the long-accepted 
difference between an income tax and a franchise tax.7   
¶34 The legislature has recognized in the franchise tax 
statute that the franchise tax is not a tax on income at all.  
Rather, the state franchise tax is a charge made by the state 
against a corporation for the privilege of doing business in the 
state, and the items included in calculating the franchise tax 
are used to measure the value of that privilege.  The Wisconsin 
franchise tax statute uses a net income calculation under Wis. 
Stat. § 71.45(2) to determine the taxable value of the franchise 
                     
6 By 1995 Wis. Act 27, § 3405r, the legislature has 
expressly exempted interest income from the obligations issued 
under the four bond statutes from income tax imposed on insurers 
under Wis. Stat. § 71.43(1).  See Wis. Stat. § 71.45(1t) (1995-
96).  Wisconsin Stat. § 71.45(1t) (1995-96) states: 
The interest and income from the following obligations 
are exempt from the tax imposed under s. 71.43(1) [the 
income tax]: 
 
(b) Those issued under s. 66.40;  
(c) Those issued under s. 66.431;  
(d) Those issued under s. 66.4325; 
(e) Those issued under s. 234.65 to fund an economic 
development loan to finance construction, renovation 
or development of property that would be exempt under 
s. 70.11(36). 
 
7 We need not determine whether the "Brewer bonds" statute 
can be harmonized with Wis. Stat. § 71.45(2)(a)3. using a 
similar analysis. 
Nos. 97-1105 & 97-1106 
 
14
privilege the insurer exercised.  The privilege is taxed, not 
the income. 
¶35 The state franchise tax is thus distinct from the 
state income tax, which directly taxes income.  As this court 
long ago recognized, when a privilege tax such as a franchise 
tax is imposed, "receipts or capital are not taxed as such but 
are taken as a mere measure of a tax."  Northwestern Mut. Life 
Ins. Co. v. State, 163 Wis. 484, 499-500, 155 N.W. 609 (1915), 
amended, 163 Wis. 507, 158 N.W. 328 (1916), affirmed 247 U.S. 
132 (1918).  As the court of appeals has recently explained, 
"[a]n income tax is levied on the income earned by the 
corporation, while a valid, nondiscriminatory franchise tax is 
measured by the income of the corporation."8   
¶36 Because the legislature did not intend the franchise 
tax to be a direct tax on interest income from state or local 
obligations, it could not have intended that interest income 
from the three bonds be excluded from the calculation of the 
franchise tax.  In other words, a bond statute prohibiting the 
taxation of interest income from a certain obligation is not 
applicable when calculating the franchise tax, which is not a 
tax on the interest income.  This interpretation of the 
                     
8 Savings League of Wisconsin v. Wisconsin Revenue Dep't, 
141 Wis. 2d 918, 925, 416 N.W.2d 650 (Ct. App. 1987), appeal 
dismissed for want of a substantial federal question, 488 U.S. 
806 (1988) (emphasis in original).  See also Mobil Oil Corp. v. 
Ley, 142 Wis. 2d 108, 115, 416 N.W.2d 680 (Ct. App. 1987)("the 
tax 
levied 
remains 
a 
franchise 
tax 
calculated 
by 
net 
income . . . not a direct tax on income"). 
Nos. 97-1105 & 97-1106 
 
15
franchise tax statute and the three bond statutes gives effect 
to the language of the franchise statute, which calculates the 
franchise tax including the interest income from federal 
obligations and state and local obligations, and to the three 
bond statutes exempting the interest income from taxes. 
¶37 Aside from the very nature of the franchise tax, other 
factors indicate that the legislature did not intend the 
interest income from the three bond statutes to be excluded from 
calculating the franchise tax.   
¶38 First, the legislative history of the franchise tax 
statute and the three bond statutes demonstrates that the 
legislature did not intend the interest income from these 
obligations to be exempt in calculating the franchise tax during 
the years in question.  
¶39 The state franchise tax in issue in this case was 
first enacted in 1965,9 and insurance companies were not subject 
to the franchise tax until 1972.10  Two of the bond statutes were 
enacted prior to the enactment of the 1965 Wisconsin franchise 
tax.  The housing authority bonds were instituted in 1935 and 
exempted from taxes in 1937.11  The city redevelopment authority 
bonds were authorized in 1958 and amended in 1959 to create a 
                     
9 Section 74af, c. 163, Laws of 1965.  See Savings League, 
141 Wis. 2d at 925. 
10 Sections 364-66, c. 125, Laws of 1972.   
11 See c. 525, Laws of 1935 (currently codified at Wis. 
Stat. § 66.40). 
Nos. 97-1105 & 97-1106 
 
16
tax exemption.12  It is reasonable to conclude that when the 
legislature adopted these two bond statutes, it intended that 
the interest income be exempt from income tax but not from the 
calculation of a franchise tax that had not yet been adopted.  
¶40 The third bond statute relating to the housing and 
community development authority was enacted in 1967 to enable 
the city of Milwaukee to terminate the operation of any housing 
authority 
created 
under 
Wis. 
Stat. 
§ 66.40 
and 
of 
any 
redevelopment authority created under Wis. Stat. § 66.431 and to 
establish a housing and urban development authority.13  The 
legislature amended the statute in 1987 to include a tax 
exemption in Wis. Stat. § 66.4325(5m).14 
¶41 The legislative history shows that the community 
development authority bond statute was created for the same 
purposes as the other two bond statutes, was to cover the same 
subject matter as the other two bond statutes and was to replace 
the other two bond authorities if the city chose to do so.  The 
tax 
exemption 
language 
in 
this 
third 
bond 
statute 
is 
substantially similar to the tax exemption language in the other 
two bond statutes.  It is reasonable to conclude from these 
similar purposes and language that the legislature intended the 
interest income from the housing and community development 
                     
12 See c. 3, Sp. Sess., Laws of 1958, and c. 515, Laws of 
1959.  
13 See c. 273, Laws of 1967.  The statute was amended to 
apply to all cities by § 6, c. 311, Laws of 1975.  
14 See 1987 Wis. Act 27, § 1228m. 
Nos. 97-1105 & 97-1106 
 
17
authority bonds to have the same tax exemption as did the 
interest income from the bonds they replaced, namely an 
exemption from income tax, not from the calculation of the 
franchise tax.  
¶42 After examining this legislative history in light of 
the nature of the 
franchise 
tax, 
we 
conclude 
that the 
legislature intended the exemption of interest income from taxes 
in all three bond statutes to be the same: to exempt the 
interest income from the bonds from state income tax, but not 
from the calculation of the franchise tax. 
¶43 A second indication that the legislature did not 
intend to exclude the interest income from these three bonds 
from the calculation of the franchise tax is that the insurance 
companies' interpretation would render part of the franchise tax 
unconstitutional. 
 
If 
the 
Wisconsin 
franchise 
tax 
were 
interpreted to exclude from the calculation of the franchise tax 
interest income from bonds issued under the three bond statutes 
while including interest income from federal obligations, the 
franchise tax would violate 31 U.S.C. § 3124(a)(1) and be 
unconstitutional to the extent that it was calculated on the 
basis of interest income from federal obligations.  
¶44 A cardinal rule of statutory interpretation is that 
the legislature intended to adopt a constitutional statute and 
that a court should preserve a law and hold it constitutional 
when possible.  2A Sutherland Stat. Const. § 45.11 at 48-49 (5th 
ed. 1992); State ex rel. Hammermill Paper Co. v. La Pante, 58 
Wis. 2d 32, 46-47, 205 N.W.2d 784 (1973).  A court should avoid 
Nos. 97-1105 & 97-1106 
 
18
interpreting a statute in such a way that would render it 
unconstitutional when a reasonable interpretation exists that 
would render the legislation constitutional.  "Given a choice of 
reasonable interpretations of a statute, this court must select 
the construction which results in constitutionality."  State ex 
rel. Strykowski v. Wilkie, 81 Wis. 2d 491, 526, 261 N.W.2d 434 
(1978).15 
¶45 The 
insurance 
companies 
have 
not 
suggested 
any 
plausible reason why the legislature would abandon its right to 
include interest income from federal obligations in measuring 
the taxable value of a corporation's privilege of doing business 
in order to exempt interest income from three specialized kinds 
                     
15 Legislative acts are presumed constitutional, and the 
presumption is particularly strong in the area of taxation.  GTE 
Sprint Communications Corp. v. Wisconsin Bell, 155 Wis. 2d 184, 
192, 454 N.W.2d 797 (1990) (citing Madden v. Kentucky, 309 U.S. 
83, 88 (1940)).  Unconstitutionality must be established beyond 
a reasonable doubt. Treiber v. Knoll, 135 Wis. 2d 58, 64, 398 
N.W.2d 756 (1987). 
Nos. 97-1105 & 97-1106 
 
19
of bonds.16  It is more reasonable to conclude that the 
legislature intended to adopt a constitutional franchise tax 
calculated by including interest income from federal as well as 
state or local obligations.17 
¶46 The insurance companies assert that the Wisconsin 
statutes do not permit the interpretation we have set forth.  
Citing Wis. Stat. § 71.45(2) (1989-90), the insurance companies 
                     
16 Other state courts have similarly interpreted language of 
legislation exempting interest income from particular bonds in 
applying 31 U.S.C. § 3124(a)(1).  See, e.g., Astoria Fed. 
Savings, 222 A.D.2d at 43-44 (legislative intent that interest 
income from certain state bonds be exempt from income tax, not 
franchise tax); Connecticut Bank & Trust Co. v. Tax Comm'r, 178 
Conn. 243, 423 A.2d 883, 886 (Conn. 1979) (statute exempting 
interest income from certain state bonds does not "reflect a 
legislative intent to extend immunity to a tax upon a franchise, 
measured by net income from all sources"); National Bank v. 
Department 
of 
Revenue, 
642 
P.2d 
811, 
818 
(Alaska 
1982) 
(inclusion of otherwise exempt state bond interest income for 
purposes of the business tax required to avoid prohibited 
discrimination against federal securities); Liberty Mut. Ins. 
Co. v. Commissioner of Revenue, 405 Mass. 352, 541 N.E.2d 566, 
569 (Mass. 1989) (although legislation exempts income from 
certain state bonds from taxation, the income is not exempt from 
forming part of the base on which the excise tax is levied on 
the privilege of doing business in the state). 
17 The State argues that the court should give weight to the 
Wisconsin Department of Revenue's interpretation of the statutes 
and 
the 
Department's 
consistent 
practice 
of 
instructing 
taxpayers that income from all state and local obligations must 
be included in the calculation of the state franchise tax.  The 
Department submitted an affidavit to the Tax Appeals Commission 
stating that it is the practice of the department to include 
income from state and local bonds in the measure of net income 
in determining the franchise tax for insurers for the taxable 
years 1984 through 1991.  Because we are persuaded by the other 
factors we have enumerated, we have not given any weight to, and 
need not determine what weight, if any, should be given to the 
interpretation, practice or affidavit of the Department. 
Nos. 97-1105 & 97-1106 
 
20
argue that the definition of net income for income tax purposes 
is the same as the definition of net income for franchise tax 
purposes.18  They claim "that a holding that interest on the 
Wisconsin bonds in question is includable in net income for 
franchise tax purposes, therefore, would ipso facto be a holding 
that such interest is includable in net income for income tax 
purposes also.  In other words, the interest would not be exempt 
for any purpose."  Brief for Petitioner-Appellant at 19. 
¶47 Although Wis. Stat. § 71.45(2) defines income for both 
the income tax and the franchise tax, the insurance companies' 
argument is based on an incorrect reading of Wis. Stat. 
§ 71.45(2).  To interpret § 71.45(2) we must examine Wis. Stat. 
§ 71.43(2), which sets forth overarching statements governing 
the relation of the income tax on insurance corporations to the 
franchise tax imposed on insurers.  Section 71.43(2) states that 
all provisions of chapter 71 relating to income taxation of 
insurance corporations shall apply to franchise taxes imposed on 
insurers "unless the context requires otherwise."19 
                     
18 At oral argument the State pointed out that Wis. Stat. 
§ 71.45(2)(a)3. 
(1989-90) 
distinguishes 
the 
treatment 
of 
interest income for purposes of determining the net income for 
the state income tax imposed on an insurer, § 71.43(1), and for 
the franchise tax, § 71.43(2).  Thus the 1989-90 statute appears 
to recognize that interest income to calculate "net income" may 
be different for income and franchise tax purposes. 
19 Wis. Stat. § 71.43(2) governing the franchise tax imposed 
on insurers provides inter alia: 
All provisions of this chapter and ch. 73 relating to 
income 
taxation 
of 
corporations 
shall 
apply 
to 
franchise taxes imposed under this subsection, unless 
the context requires otherwise.  The tax imposed by 
Nos. 97-1105 & 97-1106 
 
21
¶48 Thus 
the 
legislature 
recognizes 
that 
differences 
between the income tax and the franchise tax might require 
different interpretations of the statutes for purposes of the 
income and franchise taxes.  The legislature has thus made clear 
in Wis. Stat. § 71.43(2) that the computation of net income for 
calculating the franchise tax imposed on insurers may, where the 
context requires, be different from the calculation of net 
income for purposes of the income tax.   
¶49 We conclude that in the context of Wis. Stat. 
§ 71.45(2)(a) and 31 U.S.C. § 3124(a)(1), interest income from 
obligations authorized under these three bond statutes is to be 
included 
in 
the 
calculation 
for 
franchise 
tax 
purposes, 
regardless of how the interest income is treated for income tax 
purposes.   
¶50 All 
these 
legislative 
indicators 
support 
the 
conclusion that the legislature intended interest income from 
the obligations authorized under the three bond statutes to be 
included for purposes of calculating the franchise tax.  
                                                                  
this subsection on insurance companies subject to 
taxation under this chapter. . . shall be based on 
Wisconsin net income computed under s. 71.45, and no 
other 
provision 
of 
this 
chapter 
relating 
to 
computation of taxable income for other corporations 
shall apply to such insurance companies. 
 
Wis. Stat. § 71.42 defines corporation to mean: 
insurance 
corporations, 
insurance 
joint 
stock 
companies, insurance associations and insurance common 
law trusts, unless the context requires otherwise. 
Nos. 97-1105 & 97-1106 
 
22
¶51 Thus, we conclude that the interest income from three 
state 
and 
local 
obligations 
identified 
by 
the 
insurance 
companies is not excluded from the calculation of the franchise 
tax under Wis. Stat. §§ 71.43(2) and 71.45(2)(a)3. (1987-88) 
during the tax years in question.  We further conclude that the 
interest income from the "Brewer bonds" falls outside the time 
period of our inquiry and does not affect the determination of 
whether the Wisconsin franchise tax was a nondiscriminatory 
franchise tax under 31 U.S.C. § 3124(a)(1) in the tax years in 
question.  Accordingly we conclude that the Wisconsin franchise 
tax is a "nondiscriminatory franchise tax" within 31 U.S.C. 
§ 3124(a)(1).  The decision of the court of appeals is reversed 
and 
the 
cause 
is 
remanded 
for 
further 
proceedings 
not 
inconsistent with this opinion.  
By the Court.—The decision of the court of appeals is 
reversed and the cause is remanded. 
 
 
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