Four Zero One Assocs. LLC v. Dep't of Treasury
| Decision Date | 15 June 2017 |
| Docket Number | No. 332639,332639 |
| Parties | FOUR ZERO ONE ASSOCIATES LLC, Petitioner–Appellant, v. DEPARTMENT OF TREASURY, Respondent–Appellee. |
| Court | Court of Appeal of Michigan — District of US |
Miller, Canfield, Paddock & Stone, PLC (by Gregory A. Nowak ), for Four Zero One Associates LLC.
Bill Schuette, Attorney General, and Emily C. Zillgitt, Assistant Attorney General, for the Michigan Department of Treasury.
Before: O'brien, P.J., and Hoekstra and Boonstra, JJ.
In this appeal from the Michigan Tax Tribunal, petitioner, Four Zero One Associates LLC (Four Zero One), seeks to claim, for the 2008 tax year, the small business alternative credit (SBAC) available under the Michigan Business Tax Act (MBTA), MCL 208.1101 et seq .1 Respondent, the Michigan Department of Treasury (the department), denied Four Zero One's claim for the SBAC, and the Tax Tribunal ruled in favor of the department, granting the department's motion for summary disposition under MCR 2.116(C)(10). Four Zero One now appeals as of right. Because Four Zero One exceeded the compensation limit imposed by MCL 208.1417(1)(b)(i ), Four Zero One could not claim the SBAC for the 2008 tax year. We therefore affirm the Tax Tribunal's grant of summary disposition to the department.
The MBTA provides for the SBAC in MCL 208.1417. Notably, under MCL 208.1417(1)(b)(i ), Four Zero One is disqualified from claiming the SBAC if compensation for a shareholder or officer exceeds $180,000 for the respective tax year. Central to the present case is the amount of compensation received by officer and shareholder Lawrence F. DuMouchelle for the 2008 tax year. The department contends that DuMouchelle's compensation in 2008 totaled $193,996, which included a $30,000 bonus paid to DuMouchelle in 2008. Factually, Four Zero One concedes that DuMouchelle received a $30,000 bonus in 2008. However, Four Zero One asserts that whether a bonus should be included in calculating compensation for purposes of determining eligibility for the SBAC should be based on the taxpayer's elected method of accounting. Given that Four Zero One follows an accrual method of accounting2 and that Four Zero One deducted the bonus in 2007, Four Zero One argues that the bonus received by DuMouchelle should be included as compensation for 2007, placing DuMouchelle's compensation for 2008 at $163,996.
Applying the definition of "compensation" set forth in MCL 208.1107(3),3 the Tax Tribunal concluded that a bonus constitutes compensation for the tax year in which the bonus payment is made, irrespective of the taxpayer's method of accounting. Consequently, the Tax Tribunal included the $30,000 as compensation for 2008, resulting in compensation for DuMouchelle in excess of $180,000 for the 2008 tax year. Based on the conclusion that DuMouchelle's compensation exceeded $180,000 for 2008, the Tax Tribunal found Four Zero One ineligible for the SBAC and granted the department's motion for summary disposition.
On appeal, Four Zero One argues that the Tax Tribunal erred in its interpretation of the term "compensation" as defined in the MBTA. Specifically, Four Zero One argues that, adhering to the last-antecedent rule, the definition of "compensation" found in MCL 208.1107(3) does not expressly mandate a particular method of accounting for purposes of determining when a bonus must be included as compensation. Absent definitive direction, Four Zero One contends that the statute is ambiguous and should be interpreted in favor of the taxpayer, which in this case means interpreting the statute to allow for Four Zero One's accrual method of accounting. Additionally, Four Zero One asserts that the department's interpretation leads to absurd results because the potential "mismatch" between a taxpayer's accounting method and the computation of compensation allows taxpayers to manipulate the time of payment to become eligible for the SBAC. We disagree.
"This Court's review of Tax Tribunal decisions in nonproperty tax cases is limited to determining whether the decision is authorized by law and whether any factual findings are supported by competent, material, and substantial evidence on the whole record." Toaz v. Dep't. of Treasury , 280 Mich.App. 457, 459, 760 N.W.2d 325 (2008) (quotation marks and citation omitted). We review de novo a decision on a motion for summary disposition. Ashley Capital, LLC v. Dep't. of Treasury , 314 Mich.App. 1, 6, 884 N.W.2d 848 (2016). "A motion for summary disposition pursuant to MCR 2.116(C)(10) should be granted when the moving party is entitled to judgment as a matter of law because there is no genuine issue of material fact." Sturrus v. Dep't. of Treasury , 292 Mich.App. 639, 646, 809 N.W.2d 208 (2011).
"The interpretation and application of a statute constitutes a question of law that this Court reviews de novo." PIC Maintenance, Inc. v. Dep't. of Treasury , 293 Mich.App. 403, 407, 809 N.W.2d 669 (2011). "The primary goal of statutory interpretation is to give effect to the Legislature's intent, focusing first on the statute's plain language." Orthopaedic Assoc. of Grand Rapids, PC v. Dep't. of Treasury , 300 Mich.App. 447, 451, 833 N.W.2d 395 (2013) (quotation marks and citation omitted). When construing statutory language, we "read the statute as a whole and in its grammatical context, giving each and every word its plain and ordinary meaning unless otherwise defined." MidAmerican Energy Co. v. Dep't. of Treasury , 308 Mich.App. 362, 370, 863 N.W.2d 387 (2014) (quotation marks and citation omitted). "[A] provision of the law is ambiguous only if it irreconcilably conflict[s] with another provision, or when it is equally susceptible to more than a single meaning." Ashley Capital , 314 Mich.App. at 6, 884 N.W.2d 848 (quotation marks and citations omitted; alterations in original). "If the language of the statute is unambiguous, the Legislature must have intended the meaning clearly expressed, and the statute must be enforced as written." Id. (quotation marks and citation omitted).
The statutory question presented in this case is whether Four Zero One may claim the SBAC as provided for in MCL 208.1417. If a taxpayer qualifies for the SBAC, the credit "is the amount by which the tax imposed under this act exceeds 1.8% of adjusted business income." MCL 208.1417(4). However, there are several requirements that must be met to claim the SBAC. These requirements include ceilings on gross receipts, MCL 208.1417(1), and, relevant to this case, limitations on the amount of compensation and fees paid to corporate shareholders and officers, MCL 208.1417(1)(b)(i ). The parties agree that Four Zero One's entitlement to the SBAC is controlled by MCL 208.1417(1), which provides:
As defined by statute, in relevant part, the term "tax year" refers to "the calendar year, or the fiscal year ending during the calendar year, upon the basis of which the tax base of a taxpayer is computed under this act." MCL 208.1117(4). The term "compensation" is defined by statute, in relevant part, as follows:
"Compensation" means all wages, salaries, fees, bonuses, commissions, other payments made in the tax year on behalf of or for the benefit of employees, officers, or directors of the taxpayers, and any earnings that are net earnings from self-employment as defined under [ 26 USC 1402 ] of the internal revenue code of the taxpayer or a partner or limited liability company member of the taxpayer. Compensation includes, but is not limited to, payments that are subject to or specifically exempt or excepted from withholding under [ 26 USC 3401 to 26 USC 3406 ] of the internal revenue code. Compensation also includes, on a cash or accrual basis consistent with the taxpayer's method of accounting for federal income tax purposes, payments to a pension, retirement, or profit sharing plan other than those payments attributable to unfunded accrued actuarial liabilities, and payments for insurance for which employees are the beneficiaries, including payments under health and welfare and noninsured benefit plans and payment of fees for the administration of health and welfare and noninsured benefit plans. [ MCL 208.1107(3).]
Clearly, the term "compensation" has been expressly defined by MCL 208.1107(3) to include bonuses as a form of compensation. The only question is when the bonus constitutes compensation, i.e., whether the definition of "compensation" requires inclusion of a bonus as compensation in the year of payment or whether a taxpayer's election of an accrual method of accounting controls the calculation of compensation for a given year such that the bonus is included as compensation in the year in which the company deducts the bonus. Considering MCL 208.1107(3) as a whole and in context, we conclude that the definition of compensation is unambiguous, and it is clear that a bonus should be counted as compensation in the year in which the bonus was paid.
The term "bonuses" appears in the first sentence of MCL 208.1107(3), which begins by stating that compensation "means all wages, salaries, fees, bonuses, commissions, other payments made in the tax year on behalf of or for the benefit of employees, officers, or directors of the taxpayers, and any earnings that are net earnings from self-employment...."
MCL 208.1107(3). On its face and when read in isolation, this sentence does not expressly dictate that a specific method of accounting must be used to determine whether a bonus should be included as compensation for a given tax year. However, the definition of "compensation" is not limited to the bonuses, wages, commissions, fees, salaries and other payments mentioned in the first sentence of MCL 208.1107(3). Rather,...
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