Daimlerchrysler v. Treasury Dept.
| Decision Date | 25 July 2006 |
| Docket Number | Docket No. 264323. |
| Parties | DAIMLERCHRYSLER SERVICES NORTH AMERICA LLC, Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee. |
| Court | Court of Appeal of Michigan — District of US |
Bodman, LLP (by Joseph J. Shannon and Alicia J. Blumenfeld), Detroit, and Akerman Senterfitt (by David E. Otero, Peter O. Larsen, and Cynthia DeBula Baines), Jacksonville, FL, for the plaintiff.
Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, Heidi L. Johnson-Mehney, Assistant Attorney General, for the defendant.
Before: WILDER, P.J., and ZAHRA and DAVIS, JJ.
This case raises the question whether plaintiff is entitled to relief under the bad-debt provision of Michigan's General Sales Tax Act (GSTA), MCL 205.51 et seq. Plaintiff overpaid tax revenue to defendant for motor vehicles sold to consumers by plaintiff's affiliated dealers. Plaintiff sought relief under the bad-debt provision, which allows taxpayers to recover overpayment when expected sales proceeds are not received. The Court of Claims granted summary disposition for defendant, finding that plaintiff was not a "taxpayer" for purposes of the bad-debt provision. The court also found no nexus between plaintiff's alleged bad debt and the retail sales of the automobiles by the dealers. We hold that plaintiff was a taxpayer under the bad-debt provision, that a nexus existed between the bad debt, plaintiff, and the retail sales; and that plaintiff may recover overpayment under the GSTA's bad-debt provision. Therefore, we reverse the Court of Claims and remand for entry of an order denying defendant's motion for summary disposition and granting plaintiff's motion for summary disposition. On remand, the court shall also conduct all proceedings necessary to determine the amount to be recouped, including interest, if applicable.
The facts in this case are not in dispute. Plaintiff financed consumers' purchases of motor vehicles from its affiliated dealers. If a consumer sought to purchase a motor vehicle, plaintiff determined whether it would finance the purchase. If financing was approved, the consumer purchasing the motor vehicle entered into a retail installment sales contract with the dealer, and a security interest in the vehicle was retained by the dealer. Concomitantly, plaintiff had financing agreements with each of the dealers governing their relationship. The financing agreements provided that plaintiff would purchase qualifying contracts from the dealers in exchange for assignment of all the dealers' rights in the contracts. At or near the time of the sales of the vehicles from the dealers to the consumers, the dealers assigned to plaintiff all rights, titles, and interests in qualifying contracts, including the dealers' rights as secured parties. At that same time, plaintiff paid the dealers all amounts due under the contracts, including the sales tax on the full purchase price of each motor vehicle. The dealers then remitted the sales tax revenue to defendant. Plaintiff also was assigned the right to repossess the vehicles when consumers defaulted on their contracts. These assignments provided in part: "In return for purchase of this contract, the Dealer sells to Assignee . . . the entire interest in this contract; and authorizes Assignee to collect and discharge obligations of the Contract and its assignment."
Subsequently, purchasers under several of the installment contracts defaulted. Despite plaintiff's efforts to repossess and resell the vehicles at issue, unpaid balances remained due to plaintiff on some of the contracts. Plaintiff determined that all the contracts that are the subject of this case became worthless and uncollectable. Plaintiff claimed such debts as bad-debt deductions for federal tax purposes. As plaintiff determined that certain contracts assigned to it were uncollectable, it also determined that, because of the bad debt, it had overstated its gross receipts and, therefore, had overpaid state sales taxes in the amounts of $1,263,528.00 and $2,554,729.13 on separate occasions. Consequently, plaintiff sought relief under the bad-debt provision by filing claims with defendant in January 1998 and March 2000, using the informal hearing process, and seeking a refund or deduction on its alleged overpayment. The hearing referee recommended denying plaintiff relief, reasoning in part:
The three issues challenged were whether [plaintiff] . . . was the "taxpayer," the bad debt deduction, and whether the claim was related to the sale at retail. [Plaintiff's counsel] . . . outlined the purchase of vehicles involving [plaintiff, saying that plaintiff] . . . was "there" throughout the retail transaction and took all rights to the contract when the consumer defaulted in payments. . . .
* * *
[Plaintiff] . . . was not the seller of the motor vehicle, and the taxable moment attached when ownership of the vehicle was transferred from the dealership to the purchaser.
The statutory language requires the seller at retail to pay the tax (for the "privilege" of selling tangible personal property (vehicles) at retail within Michigan) and the seller at retail "may" pass it on to the purchaser. The conclusion is that, since only the seller at retail is obligated to pay the tax (not the Petitioner here), only the seller at retail is entitled to the bad debt deduction. The bad debt must be related to a sale at retail when ownership is transferred from the vehicle dealership to the purchaser.
[Plaintiff] . . . did not own the vehicles (at the time of purchase). . . .
* * *
[Plaintiff] . . . raised an argument as to whether "taxpayer" as the term is used in MCL 205.54i, was limited, and thus excluded . . . [plaintiff]. [Plaintiff] . . . can be a "taxpayer" in Michigan and not be the "taxpayer" for the bad debt deduction . . . . The terms a "sale at retail". . . and transfer of "ownership" limits [sic] the meaning of "taxpayer in [MCL 205.54i] . . . to the seller at retail. MCL 205.51(1)(m) defines "taxpayer" as the person subject to tax under the act. The seller at retail is the person subject to tax under the GSTA.
Plaintiff thereafter pursued the instant case in the Court of Claims, in which both plaintiff and defendant filed motions for summary disposition. In granting defendant's motion, the Court of Claims reasoned:
[Plaintiff] . . . claims that it's a taxpayer under [MCL 205.54i] because it is a registered seller in Michigan and pays substantial tax. . . . [T]he words of the statute must be read together. To be eligible for an exemption, a taxpayer must have a bad debt that is, in the words of the statute, quote, "related to a sale at retail," end quote.
In [the court's] view, this clearly requires a nexus between the bad debt and the sale. The sales at issue here are the sales made by the dealers under which they assigned their rights to [plaintiff]. . . .
* * *
The statute also requires that the sales must be . . . "taxable under this act" . . . . The [GSTA] . . . does not apply to sales of services. The only potential sale that [plaintiff] . . . made would have been financing, which is not a transaction that qualifies as a sale at retail or that is taxable under the [GSTA]. . . .
[Plaintiff] further argues that it achieves a right of exemption by virtue of being assigned the dealers' rights and that it steps into the shoes of the dealers by virtue of the assignment. . . .
Both cases [cited by plaintiff in support of this argument] . . . involved assignment of a cause of action where a statute was either silent . . . or unclear. Neither case involved a tax statute.
Here, an assignee does not achieve the status of a person subject to the act and is not allowed a sales tax deduction under the act for a bad debt.
This appeal followed.
Plaintiff argues, among other things, that (1) it is a taxpayer under the statute and (2) it incurred the bad debt related to sales at retail. We agree.
Plaintiff appealed to the Court of Claims the department's denial of a bad-debt refund. MCL 205.22(1).1 This Court accords great deference to an agency's determinations; our review is limited to clear error. Bureau of Worker's & Unemployment Compensation v. Detroit Medical Ctr., 267 Mich.App. 500, 504, 705 N.W.2d 524 (2005). Therefore, we will overturn a lower court's decision of an administrative appeal "only if we are left with the definite and firm conviction that a mistake has been made." Id. However, the substance of a determination by an administrative referee or trial court, if it involves a question of law such as statutory interpretation, is subject to review de novo. By Lo Oil Co. v. Dep't of Treasury, 267 Mich.App. 19, 25, 703 N.W.2d 822 (2005), citing Eggleston v. Bio-Medical Applications of Detroit, Inc., 468 Mich. 29, 32, 658 N.W.2d 139 (2003). Because the Court of Claims and the Department of Treasury premised their respective determinations on the interpretation and application of law to undisputed facts, our review is de novo.
The GSTA was substantially amended by 2004 PA 173. The amendments changed the language at issue in this case. As noted above, plaintiff filed its claims with defendant in 1998 and 2000, several years before the amended act took effect. From the record below, it is apparent that the trial court reached its conclusion by applying the amended statute (e.g., the trial court refers to the language "taxable under this act," which appears in the amended version of the bad-debt provision of the GSTA but not the version of the GSTA in place at the time the claim accrued).2 This was an error. The court should have analyzed the facts under the statute in place at the time the cause of action accrued. See Connelly v. Paul...
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