TRJ & E Props., LLC v. City of Lansing

• Citation: 919 N.W.2d 795,323 Mich.App. 664
• Decision Date: 17 April 2018
• Docket Number: No. 338992,338992
• Parties: TRJ & E PROPERTIES, LLC, Petitioner-Appellee, v. CITY OF LANSING, Respondent-Appellant.
• Court: Court of Appeal of Michigan — District of US

323 Mich.App. 664

919 N.W.2d 795

TRJ & E PROPERTIES, LLC, Petitioner-Appellee,

v.CITY OF LANSING, Respondent-Appellant.

No. 338992

Court of Appeals of Michigan.

Submitted April 10, 2018, at Lansing.

Decided April 17, 2018, at 9:20 a.m.

Peter Ellenson for TRJ & E Properties, LLC.

F. Joseph Abood and Gregory S. Venker for the city of Lansing.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, B. Eric Restuccia, Chief Legal Counsel, and Matthew B. Hodges, Assistant Attorney General, for amicus curiae, the Department of Treasury.

Before: O’Brien, P.J., and Cavanagh and Stephens, JJ.

Per Curiam.

Respondent, city of Lansing, appeals by right an order of the Michigan Tax Tribunal granting summary disposition in favor of petitioner, TRJ & E Properties, LLC, and concluding that respondent had erroneously uncapped the taxable value of property that had been transferred to petitioner by a commonly controlled entity, TRJ Properties, Inc. (TRJ Properties). We affirm.

In 2015, TRJ Properties owned an apartment building and transferred its interest in that property to petitioner. The ownership interests in petitioner are as follows: 25% by Tony Farida, 25% by Ricky Farida, 25% by Jeffrey Farida, and 25% by Eric Farida. TRJ Properties was owned as follows: 40% by Hamid Farida, 20% by Tony Farida, 20% by Ricky Farida, and 20% by Jeffrey Farida. Hamid is the father of Tony, Ricky, Jeffrey, and Eric. Petitioner’s operating agreement provides that, subject to specific exceptions, "the affirmative vote of a majority of the Shares of all Members entitled to vote on such a matter is required."

Respondent determined that the property transfer was an uncapping event under MCL 211.27a(3) and increased the property’s taxable value from $468,746 to $535,200. Petitioner petitioned the Tax Tribunal to reverse respondent’s decision uncapping the property’s taxable value, asserting that the transfer was between commonly controlled entities and thus exempt from uncapping under MCL 211.27a(7)(m).

Respondent moved for summary disposition, asserting that the facts were not in dispute and that respondent was entitled to judgment as a matter of law. Respondent argued that the State Tax Commission (STC) had issued Revenue Administrative Bulletin (RAB) 1989-48, which provides that common control only exists when ownership is identical or when the same five or fewer people have an 80% interest in both properties. Respondent argued that an uncapping event occurred in this case because the same five or fewer people only had a 60% shared interest in the properties.

Petitioner also moved for summary disposition. Petitioner argued that TRJ Properties and petitioner were commonly controlled because the same siblings owned a controlling interest in each entity, where a controlling interest was 50% or more of the combined voting power in each entity. Petitioner alternatively argued that common control existed under RAB 2010-1 because a parent indirectly controlled, through his or her children, both entities. Because Hamid was the father of all the siblings who had an ownership interest in each entity, petitioner argued that Hamid constructively controlled 100% of both entities and that, accordingly, no uncapping event occurred.

The Tax Tribunal determined that the parties had effectively moved for summary disposition under MCR 2.116(C)(10). The Tax Tribunal noted that respondent was arguing that the common control rules of RAB 1989-48 applied, but not the constructive ownership rules in RAB 2010-1. It rejected respondent’s argument that RAB 1989-48 applied and declined to adopt the requirements in RAB 1989-48 because "[t]o apply such a rule would be to add requirements not present in the statute, and thus exercising legislative power without authority, by creating law or changing the laws enacted by the Legislature." Instead, the Tax Tribunal applied the plain language of MCL 211.27a, which provides that a transfer of ownership uncaps a property’s taxable value for the following tax year, MCL 211.27a(3), but that a transfer of ownership does not include "[a] transfer of real property ... among ... other legal entities if the entities involved are commonly controlled," MCL 211.27a(7)(m).

In this case, the Tax Tribunal noted that Tony, Ricky, and Jeffrey’s 60% interest in TRJ Properties controlled that entity and that Tony, Ricky, and Jeffrey’s 75% interest in petitioner also controlled that entity. Petitioner’s articles of organization showed that "a mere majority of shares of all members is required to act." Accordingly, the Tax Tribunal concluded that both entities were controlled by three of the four Farida brothers and thus were commonly controlled. Therefore, the Tax Tribunal held that MCL 211.27a(7)(m) applied and that "the property’s taxable value remains capped." This appeal followed.

Respondent argues that the Tax Tribunal erred when it determined that these two entities were commonly controlled for purposes of MCL 211.27a(7)(m) because RAB 1989-48 provides that common control requires 80% of the combined voting power be shared between two entities and, in this case, the combined voting power of the people who controlled the two entities was 60% and 75%, respectively. We disagree.

This Court reviews de novo a lower tribunal’s decision on a motion for summary disposition. Maiden v. Rozwood , 461 Mich. 109, 118, 597 N.W.2d 817 (1999). A party is entitled to summary disposition under MCR 2.116(C)(10)¹ if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Id . at 120, 597 N.W.2d 817.

This Court’s review of a decision by the Tax Tribunal is limited. Mich. Properties, LLC v. Meridian Twp. , 491 Mich. 518, 527, 817 N.W.2d 548 (2012). When a party does not dispute the facts or allege fraud, this Court reviews whether the tribunal "made an error of law or adopted a wrong principle." Id . at 527-528, 817 N.W.2d 548. This Court reviews de novo the interpretation and application of tax statutes. Id . at 528, 817 N.W.2d 548. If the plain and ordinary meaning of a statute’s language is clear, this Court will not engage in judicial construction. Paris Meadows, LLC v. City of Kentwood , 287 Mich.App. 136, 141, 783 N.W.2d 133 (2010). When interpreting a statute, this Court’s goal is to give effect to the intent of the Legislature. Sun Valley Foods Co. v. Ward , 460 Mich. 230, 236, 596 N.W.2d 119 (1999). The language of the statute itself is the primary indicator of the Legislature’s intent. Id .

The General Property Tax Act (GPTA), MCL 211.1 et seq., provides for the taxation of real and personal property. Generally, a property’s taxable value is determined by the lesser of (1) the property’s current state equalized value or (2) the property’s taxable value in the previous year, minus losses, multiplied by 1.05 or the inflation rate, plus all additions. MCL 211.27a(2).

This limitation, which is based on Const 1963, art. 9, § 3, effectively caps increases on a property’s taxable value so that "any yearly increase in taxable value is limited to either the rate of inflation or 5 percent, whichever is less." Mich. Properties , 491 Mich. at 528-529, 817 N.W.2d 548. "[T]he property’s taxable value is uncapped when the property is transferred." Id . at 529-530, 817 N.W.2d 548 ; see also MCL 211.27a(3).

However, there are several exceptions under which a transfer of ownership will not uncap the property’s taxable value. Detroit Lions, Inc. v. City of Dearborn , 302 Mich.App. 676, 694, 840 N.W.2d 168 (2013). One of these exceptions is "[a] transfer of real property ... among corporations ... or other legal entities if the entities involved are commonly controlled." MCL 211.27a(7)(m). This is the exception that the parties dispute in this case—specifically, the meaning of the phrase "commonly controlled" and what percentage of common ownership renders two entities commonly controlled.

This Court has only addressed common control in two published decisions, and neither decision determined that a specific percentage of ownership constitutes common control. In Sebastian J. Mancuso Family Trust v. City of Charlevoix , 300 Mich.App. 1, 7-8, 831 N.W.2d 907 (2013), this Court held that two trusts were not commonly controlled when they had the same trustees. This Court reasoned that the common-control exception² did not apply because trustees only manage the property, but the statute applies when there is a change in the ownership of the property. Id . at 7, 831 N.W.2d 907.

Accordingly, the common-control exception does not apply to a transfer of property from one owner to a new owner even if the trustees of both owners are the same. Id . at 8, 831 N.W.2d 907. And in Detroit Lions , 302 Mich.App. at 694, 840 N.W.2d 168, this Court concluded that two entities—Ford Land and WCF Land—were not commonly controlled because, while William Clay Ford, Sr., owned WCF Land, "it is undisputed that Ford Land ... is not under the control of Mr. Ford." Neither case addressed what amount of control constitutes common control.

We turn to principles of statutory interpretation to determine the meaning of "commonly controlled." This Court generally interprets statutes with consideration of "[t]he fair and natural import of the terms employed, in view of the subject matter of the law...." Hughes v. Region VII Area Agency on Aging , 277 Mich.App. 268, 274, 744 N.W.2d 10 (2007) (quotation marks and citation omitted). This Court should read phrases "in the context of the entire legislative scheme." Madugula v. Taub , 496 Mich. 685, 696, 853 N.W.2d 75 (2014). While the GPTA does not define "commonly controlled" in MCL 211.27a or elsewhere, it does define "under common control with" as it relates to personal property taxation exemptions. MCL 211.9o(7) provides, in pertinent part:

As used in this section:

* * *

(b) "Control", "controlled by", and "under common control with" mean the possession of the power to direct or cause the direction of

...