holding in the case of a husband and wife interior decorating business that "mere community of interest in property, such as exists between . . . joint tenants of real or personal property, does not make such owners partners or raise a presumption that a partnership exists, and this is so even though they cooperate in making improvements on their property and in realizing and sharing the profits or the losses and expenses arising therefrom"Summary of this case from Connors v. Ryan's Coal Co., Inc.
Submitted under sec. (Rule) 251.54 April 3, 1974. —
Decided May 7, 1974.
APPEAL from a judgment of the circuit court for Oneida county: RONALD D. KEBERLE, Circuit Judge. Reversed.
The cause was submitted for the appellant on the briefs of Robert W. Warren, attorney general, and E. Weston Wood and Allan P. Hubbard, assistant attorneys general, and for the respondent on the brief of O'Melia, Kaye Melby, S.C., attorneys, and Clarence J. Simon of counsel, all of Rhinelander.
This is an action to review an order of the Wisconsin tax appeals commission which affirmed the Wisconsin Department of Revenue's denial of the plaintiff-respondent's application for abatement of an assessment for additional income taxes for the years 1966, 1967 and 1968.
The tax assessment was made upon the determination of the department that the business enterprise owned by the plaintiff and his wife was not a partnership with portions of the income taxable to each reported on their return but a sole proprietorship with the entire net income taxable to the plaintiff.
The plaintiff-respondent, Bernard Stern, and his wife, Marie Stern, were married in 1944. For the next several years he was engaged as a painter and decorator. Marie Stern stayed at home, kept house and took care of their five children.
In 1958, Stern and his wife started a business known then and now as the Rhinelander Decorating Company. Each of them made an original investment of about $3,500. Marie's share came from her separate earnings during the war years and a small inheritance. They built a building and dealt in draperies, carpeting and interior decorating. Marie spent full time at the store, handled the sales and did all the consulting and advising as to interior decorating. Bernard spent little time at the store but did all of the wallpaper hanging and carpet laying. The title to the real estate was in joint tenancy in the names of Bernard and Marie. The bank account was in the company name with both authorized to sign the checks, which they both did. The statutory selling permit was issued in the company name showing both Bernard and Marie as owners. An employer registration certificate issued in the name of the company showed the names of both Bernard and Marie as employers. Both Bernard and Marie signed notes for business loans.
There was neither a written nor oral partnership agreement, nor any agreement as to compensation for services or division of profits. The books of the company were not kept upon a partnership basis. Social security payments were made on behalf of Bernard but none for Marie.
Neither Bernard nor Marie was well-versed in accounting. The bookkeeping and preparation of income tax returns were done by a hired accountant. At no time were partnership income tax returns filed with state or federal authorities — this upon the decision of the accountant. From 1958 to 1971 the business was conducted in the manner described above. Until 1963, Bernard reported all of the net income of the company as his own. In 1963-1964, he reported two thirds of the income as his and Marie reported one third of the income as hers on the state returns. In 1965 and thereafter, the state returns described the business as sole proprietorship but reported one half of the income as belonging to each of them and no partnership returns, this again upon the advice of the accountant. The department made an additional assessment for the years 1966, 1967 and 1968 based upon its determination that all of the income for those years should be taxed to him and refused Bernard Stern's application to abate the assessment. Bernard then petitioned the tax appeals commission for a review. After a hearing the commission found the facts substantially as set forth above and additionally inferred that the Rhinelander Decorating Company was not a business partnership.
The trial court concluded that the finding of no partnership was unsupported by substantial evidence in view of the entire record and reversed the order of the commission. The department appeals.
The facts and legal issues of this case are strikingly similar to those in our recent decision in Skaar v. Department of Revenue (1973), 61 Wis.2d 93, 211 N.W.2d 642, certiorari denied, 94 Sup. Ct. 1611, 40 L.Ed.2d 111. Although the writer of this opinion and Mr. Justice ROBERT W. HANSEN dissented, the majority opinion is the law of the case, controls here, and compels a reversal of the judgment of the trial court.
The only significant differences between the two cases are that the present action involves an interior decorating business and Skaar involved a farming operation, and that here respondent claims reliance on his accountant and in Skaar reliance was on the attorney. In both cases:
"The sole issue is whether the Wisconsin tax appeals commission erred in affirming the Department of Revenue's denial of the taxpayer's application for abatement of the additional income tax assessment by concluding that, as a matter of law, no bona fide partnership existed." Skaar, supra, page 97.
In Skaar, this court stated at pages 98, 99:
"Since Wisconsin has adopted the Uniform Partnership Act, we must initially look there for guidance. Sec. 178.03(1), Stats., defines a partnership as an `association of 2 or more persons to carry on as co-owners a business for profit.' More specifically, it is recognized that four elements need be met so as to qualify as a partnership. Initially, the contracting parties must intend to form a bona fide partnership and accept the legal requirements and duties emanating therefrom. Secondly, there must exist a community of interest in the capital employed. Thirdly, there must be an equal voice in the management of the partnership. Finally, there must be a sharing and distribution of profits and losses. Applying these elements to the case at bar, we hold that a bona fide partnership was not created. While the taxpayers may have desired to create a marital financial relationship similar to a partnership, it is clear they did not intend to create a bona fide partnership."
Similarly, applying the facts in the present case, we are forced to reach the same conclusion.
The record shows that respondent and his wife had a very close relationship and that they carried over this relationship into the business operation. This relationship, however, stems from their marriage and their desire to hold all property jointly and not from any business motive. This is not sufficient to satisfy the law, as this court held in Skaar, supra.
"The burden of proving the existence of a partnership rests with respondent. Morris v. Resnick (1955), 268 Wis. 410, 415, 67 N.W.2d 848. Sec. 178.03(1), Stats., defines the term partnership as `an association of 2 or more persons to carry on as co-owners a business for profit.' The receipt of a share of those profits is deemed prima facie evidence that a person is a partner in the business. Sec. 178.04(4). However, under sec. 178.04 (2), a partnership will not be implied merely because of common ownership of property, whether or not profits are shared by the co-owners. Schleicker v. Krier (1935), 218 Wis. 376, 379, 261 N.W. 413. As stated in 68 C. J. S., Partnership, p. 435, sec. 20 c (2):
"`A mere community of interest in property, such as exists between tenants in common or joint tenants of real or personal property, does not make such owners partners or raise a presumption that a partnership exists, and this is so even though they cooperate in making improvements on their property and in realizing and sharing the profits or the losses and expenses arising therefrom.
"`The adoption of an assumed name, as a convenient mode of designating all the joint owners, in transactions relating to the common property, does not change the legal relationship of the several owners, with respect to the common property, from a tenancy in common to one of partnership. . . .'"
By the Court. — Judgment reversed.