Bechtel Power Corp. v. Department of Treasury, Revenue Div.

• Decision Date: 16 November 1983
• Docket Number: Docket No. 63770
• Citation: 128 Mich.App. 324,340 N.W.2d 297
• Parties: BECHTEL POWER CORPORATION, Petitioner-Appellant, v. DEPARTMENT OF TREASURY, REVENUE DIVISION, Respondent-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 297

340 N.W.2d 297

128 Mich.App. 324

BECHTEL POWER CORPORATION, Petitioner-Appellant, v. DEPARTMENT OF TREASURY, REVENUE DIVISION, Respondent-Appellee.

Docket No. 63770.

Court of Appeals of Michigan.

Submitted Jan. 4, 1983.

Decided June 29, 1983.

Released For Publication Nov. 16, 1983.

Dickinson, Wright, Moon, Van Dusen & Freeman by Ernest Getz and Daniel V. Iannotti, Detroit, for petitioner-appellant.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Richard R. Roesch and Curtis G. Beck, Asst. Attys. Gen., for respondent-appellee.

Before ALLEN, P.J., and BRONSON and WAHLS, JJ.

PER CURIAM.

Petitioner appeals as of right from the Michigan Tax Tribunal's April 1, 1982, order granting, sua sponte, summary judgment in favor of the Department of Treasury, affirming the department's denial of petitioner's claim for a single business tax refund.

This case involves interpretation of the Single Business Tax Act (SBTA), M.C.L. Sec. 208.1 et seq.; M.S.A. Sec. 7.558(1) et seq. The facts are not in dispute. Petitioner is a corporation doing business in Michigan with its principal office in San Francisco, California. The central issue focuses on petitioner's 1976 single business tax liability. In its 1976 return, petitioner calculated its tax liability to be $911,091. Because it had made quarterly estimated tax payments totaling $1,000,000, petitioner requested a refund of $88,909. The department denied petitioner's refund claim and, on May 15, 1978, issued a notice of intent to assess an additional $3,309.42.

Following an informal hearing on petitioner's disputed refund claim and the department's intended deficiency assessment, on August 7, 1979, the hearings referee issued his report denying the refund and recommending that the assessment be finalized. Petitioner applied to the Michigan Tax Tribunal for review of the department's assessment and moved for summary judgment; Tax Tribunal Judge Roy L. Spencer denied petitioner's motion and granted, sua sponte, summary judgment in favor of the department.

The SBTA provides for a specific tax of 2.35% on the "adjusted tax base" of every person with business activity within Michigan that is allocated or apportioned to this state. M.C.L. Sec. 208.31; M.S.A. Sec. 7.558(31). The provisions of the SBTA pertinent to this appeal read as follows for tax year 1976:

"Sec. 2. (1) For the purposes of this act, the words and phrases defined in sections 3 to 10 shall have the meanings respectively ascribed to them in those sections." M.C.L. Sec. 208.2 subd. (1); M.S.A. Sec. 7.558(2) subd. (1).

"Sec. 4. * * * (3) 'Compensation' means all wages, salaries, fees, bonuses, commissions, or other payments made in the taxable year on behalf of or for the benefit of employees, officers, or directors of the taxpayers and subject to or specifically exempt from withholding under section 3401 of the internal revenue code. * * *" M.C.L. Sec. 208.4 subd. (3); M.S.A. Sec. 7.558(4) subds. (3).

"Sec. 31. * * * (5) In lieu of the adjustment provided in subsection (2) or (3) a person may elect to reduce the adjusted tax base by the percentage that the compensation divided by the total tax base exceeds 65%. The deduction shall not exceed 35% of the adjusted tax base." M.C.L. Sec. 208.31 subd. (5); M.S.A. Sec. 7.558(31) subd. (5).

"Sec. 35. (1) There shall be exempt from the tax imposed by this act: * * * (f) Fifty percent of compensation directly related to the completion of construction contracts for the planning, design, construction, alteration, repair, or improvement of real property, for which a bid was submitted or a contract signed on or before September 1, 1975. * * * " M.C.L. Sec. 208.35 subd. (1)(f); M.S.A. Sec. 7.558(35) subd. (1)(f). (Emphasis added.)

Petitioner computed its 1976 annual return on the alternate tax computation basis provided by SBTA Sec. 31(5), using all of its "compensation", inclusive of that exempt compensation specified in Sec. 35(1)(f), as the numerator of the compensation/total tax base fraction set forth in Sec. 31(5). Petitioner argues on appeal, as it did before the Tax Tribunal, that, by virtue of the mandate in Sec. 2(1), the term "compensation" used in Sec. 31(5) is as defined in Sec. 4(3). Had the Legislature intended that the numerator of the Sec. 31(5) fraction be "nonexempt compensation", petitioner argues, it could have expressly so provided.

The department has taken the position that, in computing the Sec. 31(5) deduction, the numerator in the compensation/total tax base fraction means compensation less exempt compensation. Accordingly, in recomputing petitioner's tax liability, the department subtracted from the compensation numerator in the Sec. 31(5) fraction that amount of the exemption allowable to petitioner under Sec. 35(1)(f). The department contends on appeal that, having excluded a specific amount of compensation from the scope of taxation pursuant to Sec. 35(1)(f), the Legislature could not possibly have intended to permit inclusion of that excluded compensation for purposes of obtaining further tax relief under Sec. 31(5).

Consistent with the department's position is the opinion of the Tax Tribunal, in which it stated:

"It appears that Respondent did not err in its recomputation of Petitioner's tax liability. To the extent that specified compensation is exempt from tax, per subsection 35(1)(f), it is only reasonable to conclude that such exempt compensation should be excluded, for all purposes, in arriving at the adjusted tax base subject to tax. Thus, Petitioner and Respondent having apparently agreed that the exempt compensation should be excluded in arriving at total tax base * * *, said exempt compensation must also be excluded from the total (taxable) compensation which is the numerator of the subsection 31(5) fraction. To hold as Petitioner would urge would be to allow Petitioner a double dip, that is, an exemption and a deduction for the same item of 'exempt compensation'. In giving a reasonable application to the subject provisions, the 'compensation' specified in subsections 4(3) and 31(5) must be deemed to include those items of compensation which are not within the subsection 35(1)(f) exemption."

In construing a statute, a court must first consider the specific language of the statute itself in order to ascertain and declare the intention of the Legislature. Kalamazoo City Education Ass'n v. Kalamazoo Public Schools, 406 Mich. 579, 603, 281 N.W.2d 454 (1979). As petitioner points out, in doubtful cases, revenue statutes must be construed against the taxing authority. Ecorse Screw Machine Products Co. v. Corp. & Securities Comm., 378 Mich. 415, 418, 145 N.W.2d 46 (1966).

Also well established, however, is the rule that exemption statutes are to be strictly construed in favor of the taxing unit. Dick & Don's Greenhouse, Inc. v. Comstock Twp., 112 Mich.App. 294, 299, 315 N.W.2d 573 (1982). Moreover, where the Legislature has properly delegated authority to an administrative agency to carry out the mandates of a statute, the courts should give deference to the agency's interpretation of the provision, although they are not bound thereby. Judges of the 74th Judicial Dist. v. Bay County, 385 Mich. 710, 727-729, 190 N.W.2d 219 (1971), The Mutual Life Ins. Co. of New York v. Ins. Bureau, 121 Mich.App. 386, 328 N.W.2d 638 (1982).

Applying these rules, we find the reasoning of the Tax Tribunal persuasive and agree with its conclusion that the Legislature could not have intended the taxpayer a " 'double dip,' that is an exemption and a deduction for the same item of 'exempt compensation' ". Accordingly, the tribunal did not err in entering summary judgment in favor of respondent. ¹

We decline to address the second issue raised by the department on appeal; the correct method of computing the denominator in SBTA Sec. 31(5) was neither raised by the parties below nor addressed by the Tax Tribunal and is not properly before this Court.

Petitioner also contends the Tax Tribunal erred by refusing to enter a consent order, stipulated to by both parties, which would have prevented disclosure by the Tax Tribunal of petitioner's 1976 single business tax return and various documents discussing Petitioner's tax and financial information,...