Ardire v. Tracy
Decision Date | 12 February 1997 |
Docket Number | No. 95-1535,95-1535 |
Parties | ARDIRE et al., Appellants, v. TRACY, Tax Commr., Appellee. |
Court | Ohio Supreme Court |
During 1988, Philip and Donna Ardire, appellants, received income from Simplex Communications Corporation ("Simplex"), a Subchapter S corporation which engaged in business in Michigan and California. 1 For tax year 1988, Simplex had filed, on behalf of its shareholders, a California Corporation Franchise or Income Tax Return and a Michigan Single Business Tax Annual Return. Thus, when appellants filed their 1988 Ohio Individual Income Tax Return, they claimed a resident income tax credit of $19,076.41 for taxes that had been paid by Simplex to Michigan and California. Specifically, appellants claimed a resident income tax credit of $1,302.28 for that portion of their adjusted gross income from Simplex which had been subjected to the California Corporation Franchise or Income Tax, and a resident income tax credit in the amount of $17,774.13 for that portion of their adjusted gross income which had been subjected to the Michigan Single Business Tax. In their personal income tax return, appellants indicated that they were entitled to a tax refund in the amount of $19,749.22, which they eventually received. However, following an audit of appellants' 1988 tax return, appellee Roger Tracy, the Tax Commissioner, disallowed the entire amount of the resident income tax credit that had been claimed by appellants. Thus, on October 26, 1991, the commissioner issued a tax assessment against appellants in the amount of $19,076.41, plus interest of $5,306.38, for a total tax assessment of $24,382.79.
On November 25, 1991, appellants filed a petition for reassessment pursuant to R.C. 5747.13. After reviewing appellants' petition, the commissioner modified the tax assessment by allowing appellants to take the previously claimed resident income tax credit for that portion of their adjusted gross income which had been subjected to a tax on income or a tax measured by income in the state of California. The commissioner also reduced the amount of preassessment interest to $910.62. However, the commissioner denied appellants' petition with respect to that portion of the resident tax credit claimed by appellants for the taxes paid by Simplex to Michigan, finding that the Michigan Single Business Tax was not a tax on income or a tax measured by income. The commissioner modified the tax assessment to reflect a total balance due of $18,684.75.
On appeal, the Board of Tax Appeals ("BTA") affirmed the order of the commissioner. The cause is now before this court upon an appeal as of right.
Phillips & Co., L.P.A., and Gerald W. Phillips, Lakewood, for appellants.
Betty D. Montgomery, Attorney General, Robert C. Maier, Steven L. Zisser, Assistant Attorneys General, for appellee.
The sole issue that has been properly presented for our consideration is whether appellants were entitled to a resident income tax credit under R.C. 5747.05(B) on that portion of their adjusted gross income which was subjected to Michigan's Single Business Tax ("SBT"), Mich.Comp.Laws Ann. 208.1 et seq. Resolution of this issue hinges on the question whether the SBT is either a tax on income or a tax measured by income. For the reasons that follow, we find that the decision of the BTA upholding the Tax Commissioner's denial of the resident income tax credit for that portion of appellants' adjusted gross income which was subject to the SBT was neither unlawful nor unreasonable and, accordingly, we affirm the decision of the BTA.
R.C. 5747.02 levies an annual tax on every individual residing in or earning or receiving income in Ohio. The annual tax in the case of an individual is measured by adjusted gross income less certain exemptions. R.C. 5747.05 allows certain tax credits against adjusted gross income, including a resident income tax credit for those portions of the adjusted gross income of a resident taxpayer that in another state or in the District of Columbia are subjected to a tax on income or a tax measured by income. As it existed in 1988, R.C. 5747.05 provided, in part:
The parties agree that the SBT is not a tax on income. Indeed, the fact that the SBT is not a tax on income is a well-established principle of Michigan law. In Trinova Corp. v. Dept. of Treasury (1989), 433 Mich. 141, 149-150, 445 N.W.2d 428, 431-432, affirmed (1991), 498 U.S. 358, 111 S.Ct. 818, 112 L.Ed.2d 884, the Michigan Supreme Court described some of the components of the SBT and specifically determined that the SBT is a value-added tax and not a tax on income:
(Emphasis added in part; footnotes omitted in part.) See, also, Trinova Corp. v. Michigan Dept. of Treasury (1991), 498 U.S. 358, 362-368, 111 S.Ct. 818, 823-826, 112 L.Ed.2d 884, 896-901 ( ); Mobil Oil Corp. v. Dept. of Treasury (1985), 422 Mich. 473, 496-497, 373 N.W.2d 730, 741, and fn. 14 ( ); Caterpillar, Inc. v. Dept. of Treasury (1992), 440 Mich. 400, 408, 488 N.W.2d 182, 185 (same principle); Gillette Co. v. Dept. of Treasury (1993), 198 Mich.App. 303, 308-309, 497 N.W.2d 595, 597-598 ( ); Town & Country Dodge, Inc. v. Dept. of Treasury (1986), 152 Mich.App. 748, 753-754, 394 N.W.2d 472, 475 ( ); and Wismer & Becker Contracting Engineers v. Dept. of Treasury (1985), 146 Mich.App. 690, 696, 382 N.W.2d 505, 507 ().
In Trinova, 498 U.S. 358, 111 S.Ct. 818, 112 L.Ed.2d 884, the United States Supreme Court described some of the general differences between a value-added tax (a "VAT") and a corporate income tax:
Id. at 363-364, 111 S.Ct. at 824, 112 L.Ed.2d at 898.
Although the SBT is clearly not a tax on income, appellants contend that the SBT is a tax "measured by income." Specifically, appellants suggest that the tax base of the SBT is essentially federal taxable income and that the SBT is therefore based upon, computed, and measured by a taxpayer's net income. Conversely, the commissioner argues that ...
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