351 N.W.2d 607 (Mich.App. 1984), 70084, Market Place v. City of Ann Arbor

CourtCourt of Appeal of Michigan (US)
Writing for the CourtBefore HOODand RB BURNS and SHUSTER , JJ
Citation351 N.W.2d 607,134 Mich.App. 567
PartiesThe MARKET PLACE a Co-Partnership, Plaintiff-Appellant/Cross-Appellee, v. CITY OF ANN ARBOR a Municipal Corporation, Defendant-Appellee/Cross-Appellant.
Date14 May 1984
Docket Number71129.,Docket Nos. 70084

Page 607

351 N.W.2d 607 (Mich.App. 1984)

134 Mich.App. 567

The MARKET PLACE a Co-Partnership, Plaintiff-Appellant/Cross-Appellee,

v.

CITY OF ANN ARBOR a Municipal Corporation,

Defendant-Appellee/Cross-Appellant.

Docket Nos. 70084, 71129.

Court of Appeals of Michigan.

May 14, 1984

Submitted Nov. 7, 1983.

Released for Publication July 12, 1984.

Page 608

[134 Mich.App. 570] Arthur E. Carpenter, Ann Arbor, for plaintiff-appellant/cross-appellee.

Mel Laracey, Asst. City Atty., Ann Arbor, for defendant-appellee/cross-appellant.

Before HOOD, P.J., and R.B. BURNS and SHUSTER [*] , JJ.

HOOD, Presiding Judge.

Plaintiff appeals as of right from an order granting defendant's motion for accelerated judgment and a subsequent denial of its motion for rehearing. Defendant appeals by leave granted from an order setting aside a grant of summary judgment to it.

The Market Place, a delicatessen, commenced business in Ann Arbor in September, 1980. In April, 1981, the city sent the Market Place a bill for $164 as a license fee imposed pursuant to Chapter 80 of Title VII of the City's Ordinance [134 Mich.App. 571] Code. The ordinance mandates that, in order to engage in business, all new businesses in the city must pay a fee equal to the tax rate that would be assessed on that business's personal property for ad valorem taxes, but pro rated for the months prior to December 31, or tax day. 1

Page 609

[134 Mich.App. 572] The Market Place paid the $164 fee and subsequently filed this action challenging the city's authority to impose the fee. The Market Place requested a refund and sought class certification for "all persons broadly defined, who have paid a levy under Chapter 80 of Title VII within six years prior to the filing of this action".

Both parties filed motions for summary judgment. The Market Place argued that the city had no authority under its generalized police or regulatory powers to impose the fee because the fee was actually a tax unrelated to any regulatory costs. Defendant admitted that the city imposed the fee as a revenue-raising device, but argued that the city had the authority to do so.

The trial court found that the license fee was indeed a tax but that the city had the authority to impose that tax for two reasons. First, the court found that the city had the authority to impose taxes on business property pursuant to Sec. 9.1 of the Ann Arbor City Charter. That section of the charter grants the city the authority to assess and impose ad valorem taxes on real and personal property.

Second, the trial court found that the city had the authority to impose the tax as a "holdover" power under authority existing prior to the city's adoption of its home rule charter in 1956. The court relied upon Sec. 2 of the home rule cities act, the "saving" clause: "Each city now existing shall continue with all its present rights and powers until otherwise provided by law." M.C.L. Sec. 117.2; M.S.A. Sec. 5.2072. The court found that prior to 1956 Ann Arbor was a fourth class city.

[134 Mich.App. 573] The fourth class cities act provides:

"Every city incorporated under the provisions of this act, shall, in addition to such other powers as are herein conferred, have the general powers and authority in this chapter mentioned; and the council may pass such ordinances in relation thereto, and for the exercise of the same, as they may deem proper, namely:

* * *

* * *

"Thirty-ninth, The council may also license transient traders which shall be held to include all persons who may engage in the business of selling goods or merchandise after the commencement of the fiscal year and the license fee in such cases may be apportioned with relation to the part of the fiscal year which has expired, but such traders, if they continue in the same business, shall not be required to take out a second license after the commencement of the next fiscal year: Provided, Such goods or merchandise have been assessed for taxes for said fiscal year * * *." M.C.L. Sec. 91.1; M.S.A. Sec. 5.1740.

The trial court agreed with defendant's argument that, pursuant to the fourth class cities enabling legislation above, Ann Arbor could and did adopt the authority to license transient traders and exact a fee from them in its pre-home rule city charter. 2 Because the trial court found that

Page 610

[134 Mich.App. 574] the city's exaction of a new business license fee was a valid exercise of its municipal power, the court granted summary judgment to defendant. GCR 1963, 117.2(1).

The Market Place moved for reconsideration. The trial court did reconsider the motion for summary judgment and subsequently issued an order setting aside the summary judgment granted to defendant. The trial court agreed with plaintiff's argument that Ann Arbor had never been a fourth class city. Thus, the city never had the authority to tax transient traders under the fourth class cities act. Without such authority prior to the city's adoption of its home rule charter, the city could not retain any such authority under M.C.L. Sec. 117.2; M.S.A. Sec. 5.2072.

The trial court continued:

"This point, however, is not as significant as it might appear since Ann Arbor is clearly a Home Rule City, and, as such, may levy taxes on property. MCL 117.3(g); MSA 5.2073(g). What is significant is that plaintiff has brought to the Court's attention the possibility that this license fee has not been administered in accordance with Chapter 9 (the taxation provision) of the City Charter. This point is crucial because though Home Rule Cities as a class may have all the powers granted to them by the state (but in any case, no more than those granted by the state), as individual cities their powers are limited by their respective charters. If this license fee is to stand on the Ann Arbor's taxing power, it must be exercised in accordance with the taxation provisions of the City Charter.

"The city's assertion that authority to tax may be found under Chapter 3 of the City Charter is untenable. [134 Mich.App. 575] That provision refers to powers exercised for the benefit of the "public welfare", "health", "morals", etc. These words are classic elements of the police power. To find a general authority to levy taxes in Chapter 3 would be to expand the city's taxing authority to the fullest extent permitted by state law. The structure of the charter indicates that this was not the community's intention.

"If plaintiff can establish that the administration of the ordinance in question cannot be squared with the city's taxing authority under the charter, the ordinance cannot be sustained as a tax. If the amount exacted by the ordinance does not approximate the cost of regulating new businesses, it cannot be sustained as an exercise of the police power. Plaintiff must refute both potential sources of authority at trial to be successful." (emphasis in original).

Ann Arbor moved for reconsideration of the order setting aside the summary judgment. The trial court denied the motion. The city then filed a motion for accelerated judgment, GCR 1963, 116.1(2), arguing that the trial court implicitly found the license fee to be a property tax and that because plaintiff's complaint sought a refund of this property tax the Tax Tribunal, not the circuit court, had exclusive jurisdiction over the action, M.C.L. Sec. 205.731(b); M.S.A. Sec. 7.650(31)(b).

The Market Place argued in reply that the license fee was not a property tax but an excise tax and, therefore, an ultra vires exercise of defendant's authority inasmuch as the Ann Arbor Charter Commission did not include the authority to impose excise taxes in the 1956 Charter. Accordingly, argued plaintiff, the circuit court should hold the tax void.

Page 611

The circuit court granted the city's motion for accelerated judgment and denied plaintiff's motion for rehearing.

The issues we must address in this appeal are: [134 Mich.App. 576] (1) what is the nature of the transient trader or new business license fee, a property or excise tax? and (2) does the city have the authority to impose the tax?

I

In Dooley v. Detroit, 370 Mich. 194, 121 N.W.2d 724 (1963), the Court was asked to determine whether Detroit's city income tax was a property or excise tax. The Court stated, pp. 205-206, 121 N.W.2d 724:

"Excises have been variously defined, sometimes in very general language and sometimes in language more specific. In 51 Am.Jur., Taxation, Sec. 24, it is said that:

" 'Taxes fall naturally into 3 classes, namely, capitation or poll taxes, taxes on property, and excises. In general, it may be said that all taxes fall into one or the other of the foregoing classes, any exaction which is clearly not a poll tax or a property tax being an excise.'

"And at section 33, it is said:

" 'In its modern sense an excise tax is any tax which does not fall within the classification of a poll tax or a property tax, and embraces every form of burden not laid directly upon persons or property. The affirmative definitions of excise or excise tax found in the later decisions exhibit some variety in phraseology.'

"See, also, 16 McQuillin, Municipal Corporations (3d ed), Sec. 44.190.

"Our own decisions offer some assistance. For instance, in a line of decisions determining the nature of our corporate franchise tax, beginning with Union Steam Pump Sales Co v Secretary of State, 216 Mich. 261; 185 N.W. 353 (1921), and including In re Truscon Steel Co, 246 Mich. 174; 224 N.W. 653 (1929); In re Detroit Properties Corp, 254 Mich. 523; 236 N.W. 850 (1931); Udylite Corp v Corporation & Securities Comm, 319 Mich. 1; 29 N.W.2d 132 (1947), and Chicago, Duluth & Georgian Bay Transit Co v. Corporation & Securities Comm, 319 Mich. 14; 29 N.W.2d 303 (1947), we held that the corporate franchise tax was an excise tax on the [134 Mich.App. 577] franchise to do business as a corporation within the State. In support, we relied, first in Union...

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