Ally Fin. Inc. v. State Treasurer

• Decision Date: 20 July 2018
• Docket Number: No. 154669,No. 154668, No. 154670,154668
• Citation: 918 N.W.2d 662,502 Mich. 484
• Parties: ALLY FINANCIAL INC., Plaintiff-Appellee, v. STATE TREASURER, State of Michigan, and Department of Treasury, Defendants-Appellants. Santander Consumer USA Inc., Plaintiff-Appellant, v. State Treasurer, State of Michigan, and Department of Treasury, Defendants-Appellees. Santander Consumer USA Inc., Plaintiff-Appellant, v. State Treasurer, State of Michigan, and Department of Treasury, Defendants-Appellees.
• Court: Michigan Supreme Court

502 Mich. 484

918 N.W.2d 662

ALLY FINANCIAL INC., Plaintiff-Appellee,

v.STATE TREASURER, State of Michigan, and Department of Treasury, Defendants-Appellants.

Santander Consumer USA Inc., Plaintiff-Appellant,

v.State Treasurer, State of Michigan, and Department of Treasury, Defendants-Appellees.

Santander Consumer USA Inc., Plaintiff-Appellant,

v.State Treasurer, State of Michigan, and Department of Treasury, Defendants-Appellees.

No. 154668

No. 154669

No. 154670

Supreme Court of Michigan.

FILED July 20, 2018

Bodman LLP, Detroit (by Joseph J. Shannon ) and Akerman LLP (by Michael Bowen ) for plaintiffs.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, Laura Moody, Chief Legal Counsel, and Jessica A. McGivney and Emily C. Zillgitt, Assistant Attorneys General, for defendants.

BEFORE THE ENTIRE BENCH

Viviano, J.Plaintiffs are financing companies that seek tax refunds under Michigan’s bad-debt statute, MCL 205.54i, for taxes paid on vehicles financed through installment contracts. Defendant Department of Treasury (the Department) denied the refund claims on three grounds: (1) MCL 205.54i excludes debts associated with repossessed property, (2) plaintiffs failed to provide RD-108 forms evidencing their refund claims, and (3) the election forms provided by plaintiff Ally Financial Inc. (Ally), by their terms, did not apply to the debts for which Ally sought tax refunds. The Court of Claims and the Court of Appeals affirmed the Department’s decision on each of these grounds. We hold that the Court of Appeals erred by upholding the Department’s decision on the first and third grounds but agree with the Court of Appeals’ decision on the second ground. Accordingly, we reverse the Court of Appeals as to the first and third grounds, affirm its decision as to the second ground, and remand to the Court of Claims for further proceedings not inconsistent with this opinion.

I. FACTS AND PROCEDURAL HISTORY

Plaintiffs, Ally and Santander Consumer USA Inc. (Santander), are financing companies seeking refunds for bad debts associated with vehicles that plaintiffs financed through installment contracts. Santander’s predecessor in interest and Ally entered into financing agreements with various auto dealerships. Under the financing agreements, purchasers would enter into installment contracts with the dealerships under which the dealerships would finance the entire purchase price and the sales tax and remit the tax to the state. The dealerships would then assign the installment contracts to plaintiffs in exchange for the full amount of the purchase price and sales tax. Plaintiffs would obtain the right to collect under the contracts and repossess the vehicles upon default.

Over time, some of the vehicle owners defaulted on their installment contracts. When collection efforts failed, plaintiffs deemed a number of these agreements to be worthless and uncollectable. Plaintiffs repossessed and resold many of the vehicles, but the sale price at times would not recoup the entire amount of the outstanding debt. Plaintiffs wrote the outstanding balances off their books as bad debts for federal income tax purposes under 26 USC 166. Plaintiffs also filed refund requests with the Department to recoup under MCL 205.54i the prorated share of the previously paid Michigan sales tax attributable to the bad debts remaining on these accounts.

The Department denied plaintiffs’ refund requests. First, the Department determined that plaintiffs were not entitled to any refunds for debts associated with repossessed vehicles because MCL 205.54i excludes "repossessed property" from its definition of bad debt.¹ Second, the Department advised plaintiffs that they were required to support their claims with RD-108 forms, which dealers submit to the Secretary of State along with the sales tax due in exchange for a vehicle title and a validated copy of the form. Plaintiffs argued that they generally do not have copies of this form and offered alternative documentation as to the amount of taxes paid. The Department rejected plaintiffs’ documentation and insisted that RD-108 forms were required to prove that taxes were actually paid. Finally, the Department concluded that Ally lacked appropriate election forms designating itself, rather than the dealership, as the party entitled to claim the tax refund.

Plaintiffs first appealed the Department’s decision by requesting an informal conference. The referee at the conference recommended that the refund requests be denied, and the Department followed the recommendation. Plaintiffs appealed this decision in the Court of Claims. The Court of Claims granted summary disposition to defendants, agreeing that "bad debts" do not include repossessed property and that plaintiff Ally did not have valid election forms. It also upheld the Department’s decision to require the RD-108 forms, explaining that the Legislature gave the Department discretion to determine what evidence was required to support a refund claim.

The Court of Appeals consolidated plaintiffs’ cases on appeal and affirmed. Regarding the proper interpretation of "repossessed property," the Court of Appeals agreed with the Department that MCL 205.54i does not permit refunds on any debts associated with repossessed property. In reaching this conclusion, the Court looked to a prior unpublished opinion of the Court of Appeals, Daimler Chrysler Servs. of North America, LLC v. Dep’t of Treasury .² Neither opinion, however, offered a substantive analysis of MCL 205.54i. Instead, the Court of Appeals here concluded summarily that "[t]he Department’s interpretation is consistent with the plain and unambiguous language of the bad debt statute."³ Regarding the Department’s decision to require RD-108 forms, the Court of Appeals agreed with the Court of Claims that MCL 205.54i conferred discretion upon the Department to require these forms as evidence of plaintiffs’ claims.⁴ Finally, the Court upheld the Department’s determination that the election forms provided by Ally did not satisfy the statute.⁵

Following plaintiffs’ appeal in our Court, we ordered arguments on the application, directing the parties to address:

(1) whether MCL 205.54i prohibits partial or full tax refunds on bad debt accounts that include repossessed property; (2) whether the Court of Appeals erred in giving the Department of Treasury’s interpretation of MCL 205.54i respectful consideration in light of MCL 24.232(5) ; (3) how this Court should review the Department’s decision to require RD-108 forms pursuant to MCL 205.54i(4) and, under that standard, whether the decision was appropriate; and (4) whether the Court of Appeals erred in holding that Ally Financial’s election forms did not apply to accounts written off prior to the retailers’ execution of the forms.^{[6 ]}

II. STANDARD OF REVIEW

We review de novo questions of statutory interpretation.⁷ While we have historically held that tax exemptions and deductions must be construed narrowly in favor of the government,⁸ we have also explained "that this requirement does not permit a ‘strained construction’ that is contrary to the Legislature’s intent."⁹

III. ANALYSIS

MCL 205.54i permits retailers and lenders to seek a refund for sales taxes paid on a "bad debt," as defined by the statute.¹⁰ If lenders such as plaintiffs seek the tax refund, they must provide a written election form, specifying that they, rather than the taxpayer, may claim the refund.¹¹ The statute further provides that any claim "shall be supported by that evidence required by the department."¹² For the reasons expressed below, we hold that two of the three bases provided by the Department for rejecting plaintiffs’ refund claims in this case were erroneous.¹³

A. MEANING OF "REPOSSESSED PROPERTY" WITHIN MCL 205.54i

Determining the meaning of "repossessed property" under MCL 205.54i requires careful application of our rules of statutory interpretation. When interpreting unambiguous statutory language, "the statute must be enforced as written. No further judicial construction is required or permitted."¹⁴ "[O]ur goal is to give effect to the Legislature’s intent, focusing first on the statute’s plain language."¹⁵ We must "examine the statute as a whole, reading individual words and phrases in the context of the entire legislative scheme."¹⁶ In doing so, we "consider the entire text, in view of its structure and of the physical and logical relation of its many parts."¹⁷

The term "repossessed property" in MCL 205.54i is nestled within an intricate tax scheme. Consequently, its context within the GSTA is critical to uncovering its meaning. The starting point is the GSTA, which requires retailers to pay a 6% tax on all sale proceeds. The relevant statute, MCL 205.52(1), provides:

Except as provided in section 2a, there is levied upon and there shall be collected from all persons engaged in the business of making sales at retail,^{[18 ]} by which ownership of tangible personal property is transferred for consideration, an annual tax for the privilege of engaging in that business equal to 6% of the gross proceeds of the business, plus the penalty and interest if applicable as provided by law, less deductions allowed by this act.

The tax is exacted based on the "gross proceeds" of businesses making retail sales. "Gross proceeds" is defined by statute to mean "sales price,"¹⁹ which in turn "means the total amount of consideration, including cash, credit, property, and services, for which tangible personal property or services are sold, leased, or rented, valued in money, whether received in money or otherwise ...."²⁰ Thus, the tax is levied on the monetary value of the consideration a retail seller receives, whether that consideration comes in the form of money or not.

By its plain terms, "gross proceeds" encompasses purchases on credit.²¹

When the buyer charges on credit, the tax becomes due at the completion of the contract for purchase and not when each installment payment is made.²² Because the...