Comerica, Inc. v. Dep't of Treasury
| Decision Date | 16 April 2020 |
| Docket Number | No. 344754,344754 |
| Parties | COMERICA, INC., Petitioner-Appellee/Cross-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellant/Cross-Appellee. |
| Court | Court of Appeal of Michigan — District of US |
Dana Nessel, Attorney General, Fadwa A. Hammoud, Solicitor General, and David W. Thompson and Scott L. Damich, Assistant Attorneys General, for the Department of Treasury.
Ottenwess, Taweel & Schenk, PLC (by Thomas P. Bruetsch and Christopher Kwiecien, Detroit) for Comerica, Inc.
Before: Boonstra, P.J., and Riordan and Redford, JJ.
Respondent appeals, and petitioner cross-appeals, the order of the Michigan Tax Tribunal (the tribunal) granting partial summary disposition in favor of petitioner and partial summary disposition in favor of respondent under MCR 2.116(C)(10) ().
This matter involves the calculation of the franchise tax of a unitary business group (UBG)1 under the Michigan Business Tax Act (MBTA), MCL 208.1101 et seq. , and the carryforward of tax credits under the Single Business Tax Act (SBTA), MCL 208.1 et seq. ,2 when two UBG entities merge and become a single entity. For the reasons stated herein, we vacate in part, reverse in part, and remand to the tribunal for further proceedings consistent with this opinion.
Petitioner is a bank holding corporation which owns about 40 subsidiary financial corporations. One such subsidiary was a state-chartered bank regulated by Michigan law, Comerica-Michigan. For strategic business reasons, petitioner decided to convert Comerica-Michigan into a Texas banking association. In order to accomplish this, petitioner created another subsidiary on October 8, 2007, a Texas banking association, Comerica-Texas, and on October 31, 2007, Comerica-Michigan merged into Comerica-Texas. At that point, Comerica-Michigan ceased to exist. All of Comerica-Michigan's rights, privileges, powers, franchises, and property (real, personal, and mixed), as well as all of its debts, liabilities, and duties, vested in Comerica-Texas.
Petitioner filed Michigan Business Tax (MBT) returns for tax years 2008- 2011, and included Comerica-Texas as a UBG member, but not Comerica- Michigan. For the 2008 tax year, the year in which the merger occurred, petitioner included Comerica-Texas's net capital, which is the taxpayer's tax base for purposes of the franchise tax, and reported Comerica-Michigan's historical net capital as effectively belonging to Comerica-Texas. Additionally, petitioner claimed certain tax credits that Comerica-Michigan had earned under the SBTA. Overall, petitioner claimed a refund for each tax year.
In September 2013, respondent audited petitioner's 2008-2011 MBT returns and subsequently reduced petitioner's refund. The adjustment was due to respondent's calculation of petitioner's net capital and its disallowance of the claimed tax credits. Respondent treated Comerica-Texas and Comerica- Michigan as separate entities with their own net capital because the MBTA's averaging provision, MCL 208.1265, required an accounting for the years prior to the merger when Comerica-Michigan still had its own net capital. Respondent disallowed Comerica-Texas from claiming the Comerica-Michigan tax credits on the basis that the SBTA permitted the assignment of those credits only once. Because the credits previously had been assigned by a limited-liability company to Comerica-Michigan in 2005, respondent concluded that they could not be reassigned to Comerica-Texas.
Petitioner disputed the refund reduction and requested an informal conference with respondent which took place before a departmental hearing referee. Following the informal conference, the hearing referee issued a recommendation upholding respondent's decision, which respondent adopted. Petitioner applied to the tribunal for a review of respondent's assessment and alleged that respondent had double counted petitioner's net capital when calculating the tax base. Petitioner further alleged that respondent wrongly disallowed the tax credits which, petitioner argued, transferred by operation of law via the merger, not by assignment. The parties filed cross-motions for summary disposition under MCR 2.116(C)(10), and each party argued that their calculation of net capital was correct under the MBTA and that their position on the tax credit issue was correct under the SBTA.
After oral argument, the tribunal granted partial summary disposition for petitioner and partial summary disposition for respondent. The tribunal found that respondent improperly calculated petitioner's net capital and ordered that respondent recalculate the amount considering "only ... the net capital of Comerica-[Texas] for the current year, and previous years it was in existence, and averag[ing] the net capital for those years." The tribunal affirmed respondent's disallowance of the tax credits because the merger was not unintentional or involuntary and, therefore, it was not clear that a transfer by operation of law had occurred. The tribunal reasoned that the credits could only be transferred to a successor entity by assignment because the credits were privileges, not property rights, and therefore, because the credits had been assigned once, "when Comerica-[Michigan] was extinguished, so were the tax credits."
Respondent moved for reconsideration, and the tribunal denied the motion. This appeal and cross-appeal followed.
Our review of the tribunal's decision is limited. If fraud is not claimed, we review the tribunal's decision for misapplication of the law or adoption of a wrong principle. Briggs Tax Serv., L.L.C. v. Detroit Pub. Sch. , 485 Mich. 69, 75, 780 N.W.2d 753 (2010). We deem the tribunal's "factual findings conclusive if they are supported by ‘competent, material, and substantial evidence on the whole record.’ " Id. (citation omitted). We review de novo questions of statutory interpretation. Id. A trial court's decision to grant or deny a motion for summary disposition also is reviewed de novo. Id. Summary disposition under MCR 2.116(C)(10) is proper if, after viewing all admissible evidence in a light most favorable to the nonmoving party, no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. West v. GMC , 469 Mich. 177, 183, 665 N.W.2d 468 (2003). "A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ." Id. (citation omitted).
Respondent erred in its calculation of petitioner's tax base. The MBTA imposes a franchise tax on the tax base of financial institutions with a nexus in Michigan, including UBGs. MCL 208.1263(1) ; MCL 208.1261(f)(iii) ; MCL 208.1265 ; TCF Nat'l Bank v. Dep't of Treasury , 330 Mich. App. 596, 607-608, 950 N.W.2d 469 (2019). "For a financial institution, tax base means the financial institution's net capital." MCL 208.1265(1). The MBTA's averaging provision, MCL 208.1265, specifies how net capital is calculated, TCF Nat'l , 330 Mich. App. at 608, 950 N.W.2d 469, and states:
Recently, we interpreted these statutory provisions in TCF National Bank , and held that the MCL 208.1265 averaging formula must be applied to a UBG...
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