Bailey v. Muskegon County Bd. of Com'rs
| Decision Date | 06 May 1983 |
| Docket Number | Docket No. 59038 |
| Citation | 122 Mich.App. 808,333 N.W.2d 144 |
| Parties | Elmer BAILEY d/b/a the Pines Motel, et al., Plaintiffs-Appellants, v. MUSKEGON COUNTY BOARD OF COMMISSIONERS and Ralph Precious, Muskegon County Controller, Defendants-Appellees. 122 Mich.App. 808, 333 N.W.2d 144 |
| Court | Court of Appeal of Michigan — District of US |
[122 MICHAPP 813] Scholten & Fant by Gregory J. Rappleye, Grand Haven, for plaintiffs-appellants.
Knudsen, Wasiura & Associates, Inc. by Harry J. Knudsen, Muskegon, for defendants-appellees.
Varnum, Riddering, Wierengo & Christenson by Jon F. DeWitt, Kent County Civil Counsel, and Joseph J. Vogan and Richard W. Butler, Jr., Grand Rapids, amicus curiae, for Kent County.
Duane T. Triemstra, Kalamazoo County Civil Counsel, Kalamazoo, amicus curiae, for Kalamazoo County.
Before MacKENZIE, P.J., and HOLBROOK and DeWITT, * JJ.
Plaintiffs appeal as of right from a July 16, 1981, judgment and order of the lower court denying their motion for a preliminary injunction. We affirm.
[122 MICHAPP 814] On February 20, 1981, the defendant Muskegon County Board of Commissioners adopted an accommodations tax ordinance pursuant to authority granted under M.C.L. Sec. 141.861 et seq.; M.S.A. Sec. 5.3194(371) et seq. Under this ordinance, a four percent excise tax was to be levied on the revenue derived from the rental of motel and hotel accommodations to transient guests in Muskegon County after June 1, 1981. Soon after the ordinance was enacted, the defendants county controller and the Board of Commissioners promulgated rules and regulations governing the enforcement of the accommodations tax ordinance.
Plaintiffs are various motel and hotel operators and owners who do business in Muskegon County. On May 29, 1981, they filed the present action challenging the accommodations tax ordinance, its enabling act and its attendant rules and regulations. Plaintiffs sought a preliminary injunction restraining the county from levying the tax prior to a final judicial determination of its validity.
On July 1, 1981, after considering oral and written arguments, the trial judge rendered a well-reasoned opinion which found no merit in plaintiffs' contentions that the accommodation ordinance: (1) violates the provisions of Const.1963, art. 9, Sec. 31, the so-called Headlee Amendment; (2) improperly permits the county to contract with a nonprofit agency; (3) improperly subjects certain hospitals and nursing homes to the tax; (4) improperly levies a tax on the occupiers of rooms; (5) violates Const.1963, art. 9, Sec. 8, which imposes a limit of four percent on sales taxes; and (6) violates equal protection of the law. The trial judge found in favor of plaintiffs on two arguments: (1) that the accommodations ordinance and its regulations authorize tax liens beyond the powers provided in its [122 MICHAPP 815] enabling statute, M.C.L. Sec. 141.861et seq.; M.S.A. Sec. 5.3194(371) et seq., and (2) that the ordinance improperly permits the county to retain all interest and penalties for administrative and enforcement costs. The trial judge concluded that the portions of the ordinance which he found to be null and void could be severed from the remainder of the ordinance so as to preserve it. Since neither party disputes the judge's holdings as to these severed portions we do not here discuss them. The trial judge denied plaintiffs' request for a preliminary injunction based on the ordinance as interpreted. Plaintiffs now appeal, raising four issues for our consideration.
Plaintiffs first argue that the Muskegon County accommodations tax ordinance and its enabling statute violate the four percent limitation on sales taxes set forth in Const.1963, art. 9, Sec. 8.
The power to tax is exclusively vested in the Legislature pursuant to the provisions of Const.1963, art. 9, Sec. 1. However, the state is not limited to imposing only those taxes enumerated in the constitution. Stockler v. Dep't of Treasury, 75 Mich.App. 640, 647, 255 N.W.2d 718 (1977). Prior to the adoption of the Muskegon County accommodations tax ordinance, Muskegon County motel and hotel owners and operators were subject to a four percent use tax imposed upon them by the Michigan Use Tax Act, M.C.L. Sec. 205.91 et seq.; M.S.A. Sec. 7.555(1) et seq. Because of the levy imposed by the challenged ordinance, Muskegon County motel and hotel owners and operators must now pay a total of eight percent tax on their annual gross receipts.
Const.1963, art. 9, Sec. 8 provides, in pertinent part, that:
"The Legislature shall not impose a sales tax on [122 MICHAPP 816] retailers at a rate of more than 4% of their gross taxable sales of tangible personal property."
The question before us is whether the state use and the local accommodations taxes are cumulatively subject to this four percent limitation. Because the four percent limitation clearly applies to a state sales tax, it is necessary for us to determine whether both the Michigan use tax and the Muskegon County accommodations tax are sales taxes within the meaning of this provision of the Constitution.
The Michigan General Sales Tax Act, M.C.L. Sec. 205.51 et seq.; M.S.A. Sec. 7.521 et seq., permits the levy of a tax on the privilege of engaging in the business of making retail sales. The tax presently is levied at a rate of four percent of the retailer's gross receipts. M.C.L. Sec. 205.52; M.S.A. Sec. 7.522. A "sale at retail" is defined as "a transaction by which is transferred for consideration the ownership of tangible personal property, when the transfer is made in the ordinary course of the transferor's business". M.C.L. Sec. 205.51(1)(b); M.S.A. Sec. 7.521(1)(b). Although the tax is passed on to the purchaser at retail, the burden of collecting the tax is imposed upon the retailer. Sims v. Firestone Tire & Rubber Co., 397 Mich. 469, 245 N.W.2d 13 (1976).
The Michigan Use Tax Act of 1937 was intended to complement the General Sales Tax Act by imposing a tax on tangible personal property purchased out of state for use, storage or consumption in Michigan. National Bank of Detroit v. Dep't of Revenue, 334 Mich. 132, 54 N.W.2d 278 (1952). Its purpose was to counteract the trend of consumers purchasing tangible personal property outside this state to avoid the three percent sales tax in effect at that time. Imposition of the use tax equalized [122 MICHAPP 817] the competitive status of Michigan and non-Michigan merchants.
Under Sec. 3a of the Use Tax Act, M.C.L. Sec. 205.93a(b); M.S.A. Sec. 7.555(3a)(b), the use of rooms or lodging furnished by hotelkeepers or motel operators amounts to the use or consumption of a service subject to taxation under the act.
The four percent Muskegon County accommodations tax is authorized under the provisions of M.C.L. Sec. 141.861 et seq.; M.S.A. Sec. 5.3194(371) et seq. Section 2 of this act, in pertinent part, provides that a local unit of government:
Pursuant to the authority granted under this enabling statute, the defendant Muskegon County Board of Commissioners adopted ordinance # 10, the accommodations ordinance. It provides, in pertinent part:
"There is hereby levied upon and shall be collected from all persons engaged in the business of providing rooms for dwelling, lodging or sleeping purposes to transient guests, whether or not membership is required for the use of the accommodations, an excise tax equal to 4% of the total charge for accommodations."
Plaintiffs argue that the case of Lockwood v. Comm'r of Revenue, 357 Mich. 517, 98 N.W.2d 753 (1959), holds that the state use tax is equivalent to [122 MICHAPP 818] the sales tax and, hence, subject to the four percent constitutional sales tax limitation. Plaintiffs contend that, under Lockwood, the local accommodations tax is equivalent to the state sales and general use taxes and, thus, is also subject to the four percent limitation.
Prior to 1959, the Michigan Constitution limited the imposition of a sales tax to the rate of three percent. Const.1908, art. 10, Sec. 23. At that time, both the General Sales Tax and the Use Tax Acts imposed a three percent rate of taxation. In 1959, the Legislature raised the rate of the use tax to four percent. It also amended the Use Tax Act to provide for an additional one percent tax on the use, storage or consumption of tangible personal property on which the three percent tax had already been imposed. Thus, tangible personal property purchased outside of Michigan was taxed at the rate of four percent and tangible personal property purchased within the state was subject both to a three percent sales and a one percent use tax. The plaintiffs in Lockwood challenged the 1959 amendment to the Use Tax Act as unconstitutional on the ground that it exceeded the three percent constitutional limitation imposed on sales taxes.
The defendant in Lockwood contended that the additional one percent tax was a use tax and not a sales tax. For this reason, it was allegedly not subject to the sales tax limitation provision.
The Supreme Court found in favor of plaintiffs, holding that, despite the different label, the additional one percent tax on tangible personal property was a sales tax, not a use tax, and was subject to the three percent limitation. To reach this conclusion, the Court looked at the precise nature of the tax and how it functioned. It found that this [122 MICHAPP 819] tax was, in substance, a sales tax and declined to be persuaded by a label. It did not hold that all use...
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