Applegate-Bader Farm, LLC v. Wis. Dep't of Revenue

390 Wis.2d 708

940 N.W.2d 725

2020 WI App 7

APPLEGATE-BADER FARM, LLC, Plaintiff-Respondent-Cross-Appellant,

v.WISCONSIN DEPARTMENT OF REVENUE and Richard Chandler in his capacity as Secretary of the Department of Revenue, Defendants-Appellants-Cross-Respondents.

Appeal No. 2018AP1239

Court of Appeals of Wisconsin.

Oral Argument: June 26, 2019

Opinion Filed: January 30, 2020

On behalf of the defendants-appellants-cross-respondents, the cause was submitted on the briefs of Anthony D. Russomanno, assistant attorney general, and Brad D. Schimel, attorney general.

On behalf of the plaintiff-respondent-cross-appellant, the cause was submitted on the briefs of Ryan L. Woody of Matthiesen, Wickert & Lehrer, S.C., Hartford.

Before Fitzpatrick, P.J., Blanchard, and Kloppenburg, JJ.

BLANCHARD, J.

¶1 The appeal in this case involves the interpretation of statutes governing administrative rule making in Wisconsin. The cross-appeal involves the application of case law addressing the Wisconsin Environmental Protection Act or "WEPA," WIS. STAT. § 1.11 (2017-18).¹ Both issues arise in the context of the challenge of property owner Applegate-Bader Farms, LLC ("the LLC") to amendments to a rule promulgated by the Wisconsin Department of Revenue ("the Department"). The rule is WIS. ADMIN. CODE § Tax 18.05(1)(d) (through Dec. 2019), which defines some of the property uses that qualify as "agricultural use" for property tax classification purposes.²

¶2 The circuit court granted the LLC’s motion for summary judgment on the grounds that the manner in which the Department promulgated the amended version of § Tax 18.05(1)(d) —after the Department made changes to an initial draft of the rule—failed to comply with three rule-making procedures in WIS. STAT. ch. 227. The court ruled that the Department should have prepared a revised scope statement, held a second public hearing, and prepared a revised economic impact analysis.

¶3 In the appeal, the Department argues that the LLC does not rebut the statutory presumption that the Department’s promulgation of the rule amendments complied with the pertinent WIS. STAT. ch. 227 rule-making procedures. We agree with the Department’s argument and accordingly we reverse that portion of the circuit court’s order.

¶4 In the cross-appeal, the LLC challenges the separate ruling of the circuit court that rejected an additional reason to invalidate § Tax 18.05(1)(d) as amended, based on WEPA. The LLC argues that the Department violated WEPA by failing to sufficiently investigate the potential environmental effects of amending the rule before deciding not to prepare an environmental impact statement. We conclude that the LLC’s challenge to the amendments to § Tax 18.05(1)(d) based on WEPA fails because the LLC alleges only "indirect" environmental effects, which under Wisconsin case law are not alone sufficient to trigger the Department’s duty to justify a decision not to prepare an environmental impact statement. Accordingly, we affirm that portion of the court’s order.

BACKGROUND

¶5 We begin by introducing basics regarding pertinent state and federal easement programs and how they relate to WIS. ADMIN. CODE § Tax 18.05(1)(d)-(e) (through June 2015), the predecessor to the rule that the LLC now seeks to invalidate.

¶6 Under certain circumstances, Wisconsin property owners can "enroll" their lands in a variety of state and federal easement programs, which we will generally refer to as "enrolled lands." See, e.g. , WIS. STAT. § 23.094 (describing acquisition of easements for state stream bank protection program); 7 C.F.R. § 1468.33 (describing "Enrollment process" for creation of federal Wetland Reserve Easements). Program requirements vary. But generally speaking, owners commit to limit the use of enrolled lands in various ways, in some cases to restore the lands to more natural states. See, e.g. , WIS. STAT. § 23.094(3r) ("Restriction on land and easements."); 7 C.F.R. § 1468.30 ("Program requirements" for Wetland Reserve Easement program). And, so far as we can discern, all programs at least purport to encourage landowners to create and conserve certain types of habitats, such as wetlands, with the goal of achieving environmental or agricultural benefits, or both. See, e.g. , 7 C.F.R. § 1468.1(a)(2) (providing that one set of purposes of a federal easement program is "[r]estoring, protecting, and enhancing wetlands on eligible land").

¶7 Wisconsin property tax law contains a set of incentives concerning the easement programs. One incentive is that the owner who enrolls farmland in an easement program may continue to classify that land as having an "agricultural use" for purposes of property taxes, even though the farming activities on the land are limited by the easement program. As explained in more detail below, such an agricultural use classification typically results in a lower tax rate than is applied to land that is not classified as being put to an agricultural use.

¶8 With that basic background, we turn to the contents of WIS. ADMIN CODE § Tax 18.05(1)(d)-(e) (through June 2015) as it existed before the challenged rule-making process to amend the rule, and then to § 18.05(1)(d) as it existed after the process.

¶9 Before amendment, the rule listed specific state and federal easement programs under which enrolled lands in Wisconsin met the definition of "agricultural use" for property tax purposes.³

¶10 After amendment, the rule no longer lists specific state and federal easement programs. Instead, it uses criteria that are not tied to any identified program and that are applied to all easement land to determine if the land meets the definition of agricultural use. Under the amended rule, for example, land enrolled in any easement program can meet the agricultural use definition if it meets criteria that include the following two standards. The land was used for farming at the time that it was enrolled into a temporary easement program. And, the terms of the easement do not restrict the owner from returning the land to farmland following the expiration of the easement. WIS. ADMIN. CODE § Tax 18.05(1)(d)1., 3.a.

¶11 We now briefly describe aspects of the challenged rule-making process that occurred here. Consistent with WIS. STAT. § 227.135, the Department prepared a "statement of scope" regarding its proposal to amend WIS. ADMIN. CODE § Tax 18.05(1) as it then existed.⁴ The governor approved this scope statement in July 2013. See 691B Wis. Admin. Reg. (July 31, 2013). The Department then published an initial draft of the rule, accompanied by a notice of hearing for public comment. See 696B Wis. Admin. Reg. 49-50 (Dec. 31, 2013). Also included in this publication was a "fiscal estimate and economic impact analysis" of the rule.

¶12 The Department held a hearing to receive public comments on the initial draft of the proposed amendment in January 2014. It accepted written comments before and after the hearing.

¶13 After the hearing, the Department made substantive changes to the initial draft. We will distinguish between the two versions by referring to the "initial draft rule" and "the changed draft rule."

¶14 The Department submitted the changed draft rule to the legislature and the governor for final approval. See WIS. STAT. §§ 227.185, 227.19 (describing review by governor and legislature of final draft rule); 710A2 Wis. Admin. Reg. (Feb. 2, 2015). The submission to the legislature included a report that summarized the public comments that the Department had received and described the changes made from the initial draft rule. See § 227.19(3)(b) (describing report agency must make to legislature, which is to include a "summary of public comments" and the agency’s modifications to the rule "as a result of" comments).

¶15 The Department submitted the changed draft rule to the legislature and the governor without taking any of the following steps, which the LLC contends were necessary in light of the changes: preparing a revised scope statement; holding a second hearing for public comment on the changed draft rule; or preparing a revised economic impact analysis addressing the changed draft rule.

¶16 The governor approved the changed draft rule in January 2015. The legislature took no action to prevent its promulgation. See WIS. STAT. § 227.19(4) - (5). The Department filed the changed draft rule with the legislative reference bureau. See WIS. STAT. § 227.20(1) ; 714B Wis. Admin. Reg. (June 31, 2015) (stating effective date of June 1, 2015, for § Tax 18.05(1)(d) ).

¶17 The Department did not prepare an environmental impact statement for either version of the draft rule, as is called for under WEPA under certain circumstances. See WIS. STAT. § 1.11(2)(c)1. ("All agencies of the state shall ... [i]nclude in every recommendation or report on proposals for ... major actions significantly affecting the quality of the human environment, a detailed statement" on "[t]he environmental impact of the proposed action.").

¶18 The LLC commenced this action in April 2016. It sought to have § Tax 18.05(1)(d) as amended declared invalid based on nine grounds, two of which are pertinent to this appeal. First, the Department did not properly follow WIS. STAT. ch. 227 procedures because it did not undertake the additional rulemaking steps of revising the scope statement, holding another public comment hearing, or revising the economic impact analysis after making changes to the initial draft rule. Second, the Department violated WEPA because it did not sufficiently investigate potential environmental effects of the rule before deciding not to prepare an environmental impact statement.

¶19 Following cross motions for summary judgment, the circuit court determined that the Department failed to comply with proper rule-making procedures under WIS. STAT. ch. 227. This determination alone justified summary judgment in the LLC’s favor, and would result in invalidation of the rule. However, the court took the additional step of...