Borden, Inc. v. State Dept. of Treasury, Corp. Franchise Fee Division

• Decision Date: 21 May 1974
• Docket Number: No. 2,S,2
• Citation: 391 Mich. 495,218 N.W.2d 667
• Parties: BORDEN, INC., formerly the Borden Co., Plaintiff-Appellee, v. STATE of Michigan, Michigan DEPARTMENT OF TREASURY, CORPORATION FRANCHISE FEE DIVISION, Defendant-Appellant. ept. Term.
• Court: Michigan Supreme Court

Page 667

218 N.W.2d 667

391 Mich. 495

BORDEN, INC., formerly the Borden Co., Plaintiff-Appellee, v. STATE of Michigan, Michigan DEPARTMENT OF TREASURY CORPORATION FRANCHISE FEE DIVISION, Defendant-Appellant.

No. 2, Sept. Term.

Supreme Court of Michigan.

May 21, 1974.

Dickinson, Wright, McKean & Cudlip, Lansing, for plaintiff-appellee by T. Donald Wade, Detroit, Benjamin O. Schwendener, Jr., Lansing.

Frank J. Kelley, Atty. Gen., Robert A. Derengoski, Sol. Gen., Richard R. Roesch, Charles E. Liken, Asst. Attys. Gen., Lansing, for defendant-appellant.

BEFORE THE ENTIRE BENCH.

LEVIN, Justice.

When, following receipt of the annual report of a corporation, the Franchise Fee Division 'computes' the franchise fee of the corporation, it exhausts its authority under the statute. The Division is not authorized to recompute the fee if it subsequently obtains what it regards as more accurate information.

The Division (or its predecessor, the Michigan Corporation and Securities Commission) stamped on Borden's reports for each of the years 1964--1968 the date 'filed' and the date 'accepted.' On each report there appears the 'Tentative computation of fee by Corporation' and separately, in the handwriting of a state employee, the 'Fee as computed by Franchise Fee Division' (or, for the first two years, 'Fee as computed by the Michigan Corporation and Securities Commission'). ¹

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

(Emphasis supplied.) Before the reports were accepted, an overpayment was computed by the Franchise Fee Division for 1966, a deficiency by the Corporation and Securities Commission for 1964. The deficiency was paid and is not in dispute. ²

Borden was later notified, based on information obtained in subsequent field audits of claimed deficiencies for the five years. From an adverse redetermination by the appeal board, it appealed to the circuit court. The circuit judge and, on further review, the Court of Appeals agreed with Borden that the Division and its predecessor, having computed the tax and accepted and filed Borden's annual reports for the years in dispute, was without authority to compute the tax a second time and, hence, was without authority to levy a deficiency. We would affirm those judgments.

I

The statutory provisions establishing the procedures for the computation and collection of the corporate franchise fee took their present form in 1921. ³

These provisions were structured on the premise that promptly after the filing of the annual report of a corporation, the franchise fee for the year would be computed by the Secretary of State (later the Michigan Corporation and Securities Commission, now the Corporate Franchise Fee Division of the Department of Treasury) after the receipt of such additional information as he (or his successors) requires. ⁴

The statutes contain no language expressly or impliedly authorizing field audits. The practice was not to conduct field audits.

Subsequently, with the enactment of the sales, use and other state taxes, field audits pertaining to Those taxes were legislatively authorized.

In 1941 the Department of Revenue was created to coordinate the collection of state taxes and to avoid duplications in facilities for tax collections and audits. The administration of the sales, use and other taxes was transferred to this new department. ^{5 5} The Department also succeeded to the functions and responsibilities of the Michigan Corporation and Securities Commission 'over the enforcement, investigation and collection of Past due and delinquent corporate privilege and franchise fees and license fees of any nature.' ⁶ The Commission retained the duty to 'compute' the franchise fee and collect franchise fees not 'past-due and delinquent.'

In 1952, in connection with a revision of the computation formula, it was provided that the Commission would continue to 'compute' the franchise fee 'working in conjunction with the State Department of Revenue.' No other change was made in structure or procedure.

II

It is too late for the Franchise Fee Division to 'work in conjunction' with the Department of Revenue in the 'computation' of a franchise fee after it has been computed. Whatever 'work' is done 'in conjunction' with the Department of Revenue manifestly is to be done before the Franchise Fee Division 'computes' the fee. Any information obtained after computation can be utilized only to assist the Division in the computation of fees for subsequent years.

The 'final determination' language goes back to the original enactment in 1921; it is part of a sentence authorizing the Michigan Corporation and Securities Commission to require the corporation Itself to furnish information in addition to that required in the annual report:

'to furnish detailed and exact information touching such several matters before making a final determination.' ⁷

Clearly that language did not contemplate computations based on field audits but, rather, computations based on information obtained without audits. Nor could this language--enacted two decades before the Department of Revenue was created--set the stage for recomputations based on Revenue Department audits.

The foregoing construction of this 1921 enactment finds support in the fact that 14 years later field audits were still thought to be impractical:

'The statute does not provide, in express language or by authorization of expense, for the impractical procedure of audit and appraisal of each corporation each year by the state. It contemplates that the tax shall be found from the annual report of the corporation to the secretary of state supplemented by the further facts demanded * * *.' In re Appeal of Hoskins Manufacturing Co., 270 Mich. 592, 596--597; 259 N.W. 334, 336 (1935). ⁸ This Court has said: 'Tax exactions, property or excise, must rest upon legislative enactment, and collecting officers can only act within express authority conferred by law. Tax collectors must be able to point to such express authority so that it may be read when it is questioned in court. The scope of tax laws may not be extended by implication or forced construction. Such laws may be made plain, and the language thereof, if dubious, is not resolved against the taxpayer.' In re Dodge Brothers, 241 Mich. 665, 669, 217 N.W. 777, 779 (1928), an appeal from a computation of a corporate franchise fee pursuant to 1921 P.A. 85.

III

The Franchise Fee Division stresses the need for prompt filing and acceptance of the annual report, the impracticability of auditing a corporation's books every year and the utility of combining an audit for other tax purposes with an audit for corporate franchise fee purposes. These are entirely valid considerations but they overlook the history of the franchise fee.

The franchise fee was initially a license fee--sometimes called a privilege fee--to be paid in advance for the privilege of exercising the franchise during the ensuing year. The procedures for computation of the fee contemplate that it will be determined promptly after the annual report is filed and before the franchise is exercised. The annual report division has consistently administered its responsibilities in this manner. Only in subsequent years did the fee become a revenue raising measure, ⁹ but the authority of the tax collector--the Franchise Fee Division and its predecessors--was not enlarged, the statutory procedures have not been changed. Only recently, many years after the 1952 amendment (see text following[391 Mich. 509] fn 6) has the Franchise Fee Division sought, based on field audits for other tax purposes, to recompute a franchise fee it had previously computed.

While it may make sense to utilize field audits in determining the correct fee, the Legislature has failed to provide any means by which a different fee can properly be computed after the fee has once been computed and the annual report accepted.

The attorney general would have us revise the procedures so that this seemingly desirable safeguard of the revenues can be implemented. When confronted with the need for finality and the absence of a statute of limitations other than the limitation implicit in the obligation to compute the fee promptly before acceptance of the annual report, he suggests the 6-year statute applicable to personal actions.

Only by a strained construction can that limitation period--applicable to actions commenced in a court ¹⁰--be applied to the determination of a tax deficiency which a department of government claims it is authorized to make without commencing an action and, if it is correct in its thesis, once made is final unless the taxpayer appeals. A determination so made may never reach a court, and then only upon Appeal from an adverse administrative determination, not as an Action commenced in court. ¹¹

IV

Courts are, indeed, sometimes constrained to supply a gap in legislation, particularly legislation which builds on common-law doctrine. The law of taxation is statutory, and historically the prerogative of the legislative branch.

The attorney general and the Franchise Fee Division ask us not just to improvise to provide for utilization of an audit capability which did not exist when the corporate franchise fee procedures took their present form in 1921, but to Change a long established feature of the administration of the franchise fee. They ask us to eliminate the finality, absent fraud or administrative appeal, of the computation made early in the year the franchise is exercised, and to substitute a relatively long 6-year statute of limitations.

If the present system does not adequately safeguard the revenue, the Division may present the evidence to the Legislature. ¹² The Legislature will be as concerned about protecting the revenue as the Department of the Treasury and the attorney general. It has not been demonstrated that there is need for judicial improvisation pending a legislative solution. A legislative...