Detroit Edison Co. v. State

• Decision Date: 05 April 1948
• Docket Number: No. 33.,33.
• Parties: DETROIT EDISON CO. v. STATE et al.
• Court: Michigan Supreme Court

320 Mich. 506

31 N.W.2d 809

DETROIT EDISON CO.

v.STATE et al.^*

No. 33.

Supreme Court of Michigan.

April 5, 1948.

Appeal from Circuit Court, Wayne County; Lila M. Neuenfelt, Judge.

Action by the Detroit Edison Company, a New York corporation, against State of Michigan, Department of Revenue of the State of Michigan, and Louis M. Nims, State Commissioner of Revenue, to recover certain taxes paid by plaintiff for the calendar years 1940 to 1944, inclusive, on intangible personal property. From an adverse judgment, plaintiff appeals.

Judgment affirmed.

Before the Entire Bench, except BUTZEL, J.

Fischer, Brown, Sprague, Franklin & Ford, of Detroit, for plaintiff.

Edmund E. Shepherd, Sol. Gen., of Lansing, and Daniel J. O'Hara and T. Carl Holbrook, Assts. Atty. Gen., for appellees.

CARR, Justice.

Plaintiff herein claims the right to recover from the State certain taxes paid by it for the calendar years 1940 to 1944, inclusive, on intangible personal property. The payments in question were made under the provisions of Act No. 301, Pub. Acts 1939, Comp.Laws Supp.1940, § 3658-1 et seq., Stat.Ann.1940 Cum.Supp. § 7.556(1) et seq., the constitutionality of which was upheld by this court in Shivel v. Kent County Treasurer, 295 Mich. 10, 294 N.W. 78. The act specifies the classes of intangible personal property subject thereto, provides the rates of taxation and method of computation, allows deductions in certain instances, and directs the manner of making returns and tax payments. It further provides that any taxpayer considering himself aggrieved by being required to pay an excessive tax may bring action in the circuit court of the county deemed to be the situs of the property subject to taxation to recover any amount unlawfully levied. The present action has been brought under this provision.

The act of 1939, above cited, was amended by Act No. 233, Pub.Acts 1941, but without changing the provisions involved in the present controversy. It was also amended by Act No. 165 Pub.Acts 1945¹, and Act No. 175, Pub.Acts 1947². Such amendments, however being subsequent to the period for which the taxes involved in this suit were paid, are material only to the extent that they may tend to throw light on the interpretation of pertinent provisions of the statute as previously enacted.

The statute included accounts receivable as intangible personal property subject to taxation in accordance with the procedure outlined. Sec. 3, Comp.Laws Supp.1940, § 3658-3, Stat.Ann.1940 Cum.Supp. § 7.556(3), made provision for certain deductions and exemptions in determining the amount of tax liability. Insofar as material to the present controversy, it read as follows:

‘Sec. 3. Deductions and exemptions. (a) In computing the tax imposed under this act for any tax year the following deductions may be made: * * *

‘(2) From accounts receivable, including notes given in lieu thereof, subject to tax under this act, accounts payable by the taxpayer, including notes given in lieu thereof, if such accounts payable or notes are incurred or given in connection with the business from which the accounts receivable or notes in lieu thereof are derived.’

The provision quoted was re-enacted in the amendment of 1941, above cited, and was in force and effect, by virtue of the original statute and said amendatory act, during the five-year period for which plaintiff paid the taxes that it now seeks to recover. Whether it is entitled to do so depends on the interpretation of section 3(a), subsection (2).

The declaration alleged that during each of the years from 1940 to 1944, inclusive, plaintiff was indebted to various persons on outstanding mortgage bonds, and longterm construction notes and that the amount of such liabilities greatly exceeded, in each year, its accounts receivable. With reference to such liabilities it was specifically averred as follows:

‘All of said mortgage bonds and construction notes represented the funding of short term bank borrowings and accounts payable incurred for labor and material required in building and expanding plaintiff's transmission lines, plants and equipment in order to make electric energy available to its customers. The indebtedness represented by said bonds and notes was incurred to enable plaintiff to produce the electricity, steam, gas and water sold to its customers from whom its accounts receivable are derived.’

Plaintiff based its cause of action on the theory that the bonds and notes in question were given by it in connection with the business from which the accounts receivable were derived, and that in consequence they were deductible. The answer filed by defendants to the declaration in effect conceded the material facts alleged, but denied the conclusions of law. Thereupon plaintiff filed a motion for summary judgment³, supported by affidavit of merits setting forth that during the period from 1915 to 1932 plaintiff paid out for additional operating plants and facilities the sum of $252,622,110.08, and that during such period general refunding bonds were issued, in the sum of $134,000,000 face value. The affidavit further alleged that the entire proceeds of the sale of the bonds were used to pay for the ‘acquisition and construction of additional facilities for the manufacture and distribution of electricity, steam, gas and water.’ It further appeared from the affidavit that during the period from 1932 to 1940, the said bonds were refunded, and that the new issues were outstanding during the years involved in this controversy. Plaintiff claimed that it was entitled to deduct them from its accounts receivable.

The affidavit of merits also set forth liabilities incurred during the period from July 1, 1937, to December 31, 1939, in connection with the purchase of additional plant and equipment, and the issuance of $10,500,000 of construction notes which, by their terms, were payable on or before July 1, 1945, with specified annual payments. The funds derived from the construction notes were used to discharge obligations incurred in plant expansion. The affidavit further stated that ‘no part of the proceeds of the bonds and construction notes mentioned in the preceding paragraphs hereof was used to augment working capital or for any purpose other than to satisfy the Company's obligations incurred in plant expansion.’ Plaintiff asserted that these construction notes were also deductible from its accounts receivable.

Defendants filed an affidavit in opposition to the motion for summary judgment, denying therein plaintiff's claim that it was entitled to deduct the mortgage bonds and construction notes in question from its accounts receivable under the pertinent provision of the statute. Defendants also filed a motion for judgment on the pleadings, which motion was granted on hearing. Plaintiff has appealed.

Under Act No. 301, Pub. Acts 1939, as originally enacted, the administration thereof was vested in the State tax commission, which was authorized to adopt rules and regulations necessary for the administration of the act. In accordance with such authority the commission, in November, 1940, adopted among other regulations Rule No. 9, which read as follows:

‘Notes payable which represent current financing in the regular course of business of the taxpayer will be considered accounts payable under the act. However, notes which in fact represent long-term liabilities or capital financing will not be considered accounts payable.’

By Act No. 122, Pub. Acts 1941, which was amended by Act No. 103, Pub. Acts 1945, Comp.Laws Supp.1945, § 3695-1 et seq., Stat.Ann.1947 Cump.Supp. § 7.657(1) et seq., the administration of the act was transferred to the department of revenue which by its Rule No. 11 declared that:

‘Only such obligations which in fact are accounts payable, or notes given in lieu thereof, under sections 3(a-2) of the act are deductible as accounts payable.’

In Rule No. 25, effective December 31, 1943, the department further indicated its interpretation of the statute in the following language:

‘An account payable is an obligation owing by a person on open account.

‘The taxpayer may deduct from accounts receivable or notes given in lieu thereof the sum of his accounts payable or notes given in lieu thereof, provided the accounts payable or notes given in lieu thereof are incurred in or given in connection with the business from which said receivables are derived. To deduct notes payable from such receivables, the taxpayer must show that the note or notes payable were given in lieu of an account or accounts payable.’

Presumably the defendants in refusing to permit plaintiff to deduct its mortgage bonds and construction notes from its accounts receivable for the purpose of computing its taxes relied on these rules. It is their claim in the instant case, in substance, that said rules indicated the proper interpretation of the pertinent provisions of the statute. Plaintiff insists that the rules quoted were inconsistent with the legislative intent and were, in consequence, unauthorized. The language of the statute is, of course, controlling, although this court recognizes that if such language is ambiguous the executive construction given to it by those charged with carrying out the will of the legislature is entitled to careful consideration. Boyer-Campbell Co. v. Fry, 271 Mich. 282, 260 N.W. 165,98 A.L.R. 824;Detroit Board of Education v. Superintendent of Public Instruction, 304 Mich. 206, 7 N.W.2d 276;Aller v. Detroit Police Department Trial Board, 309 Mich. 382, 15 N.W.2d 676.

It is the duty of the court in interpreting the language of the statute in issue here to ascertain and declare the intention of the legislature. Kales v. City of Oak Park, 315 Mich. 266, 23 N.W.2d 658. That intent when so ascertained must control. In Acme Messenger Service Co. v. Unemployment Comp. Comm., 306 Mich. 704, 11 N.W.2d 296, 298, it was said:

‘In approaching the question of law involved, we do not consider the...