Guardian Photo, Inc. v. TREASURY DEP'T

• Decision Date: 10 January 2001
• Docket Number: Docket No. 218503.
• Citation: 621 N.W.2d 233,243 Mich. App. 270
• Parties: GUARDIAN PHOTO, INC., Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

621 N.W.2d 233

243 Mich. App. 270

GUARDIAN PHOTO, INC., Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee.

Docket No. 218503.

Court of Appeals of Michigan.

Submitted September 7, 2000, at Lansing.

Decided November 14, 2000, at 9:10 a.m.

Released for Publication January 10, 2001.

Steven Z. Ettinger, Auburn Hills, for the plaintiff.

Jennifer M. Granholm, Attorney General, Thomas L. Casey, Solicitor General, and Glenn R. White, Assistant Attorney General, for the defendant.

Before TALBOT, P.J., and HOOD and GAGE, JJ.

PER CURIAM.

Plaintiff appeals as of right from an order granting defendant summary disposition of plaintiff's tax refund claim pursuant to MCR 2.116(C)(8). We affirm.

I

Plaintiff sought a refund of taxes it paid under the Single Business Tax Act (SBTA), M.C.L. § 208.1 et seq.; MSA 7.558(1) et seq. Plaintiff incorporated in Pennsylvania, but maintained its headquarters in Northville, Michigan. During the 1991 tax year, plaintiff conducted a photograph processing business in eight states, including Michigan. According to plaintiff's complaint, "[p]ursuant to an Asset Purchase Agreement dated July 17, 1991, [plaintiff] agreed to sell all of its operating assets ... to Qualex, Inc .... a competitor in the photo processing business." The sale occurred on October 11, 1991, after which plaintiff abandoned the photograph processing business. The asset sale produced for plaintiff a $60,063,396 gain. Plaintiff utilized this gain to discharge its liabilities, then distributed to its parent corporation shareholder the remaining proceeds. The complaint denied that plaintiff spent any proceeds "to acquire any asset for use in future business operations or to generate income for use by [plaintiff] in future business operations."

On March 12, 1992, plaintiff filed its single business tax return covering the fiscal year ending November 25, 1991. The single business tax plaintiff paid included taxes reflecting the sale of its assets. On March 4, 1996, plaintiff filed an amended return, demanding a refund of $51,137 plus interest. Plaintiff's complaint explained that the claimed refund reflected its "subtract[ion of] this gain from its reported business income as a casual transaction."

In May 1996, defendant sent plaintiff a notice of adjustment, denying the requested refund because defendant did "not agree that the transaction [plaintiff] described should be qualified as a casual transaction for Single Business Tax purposes." On appeal, a hearing referee reasoned to the contrary that "[p]recedent allows the taxpayer as a corporation to claim a casual transaction" for "[s]ale of all assets, distribution of proceeds and effective termination of existence." In June 1998, a commissioner issued a decision and order of determination disagreeing with the referee's opinion:

The Referee stated in her recommendation that the sale of [plaintiff]'s operating assets, payment of debts, and distribution of proceeds to the parent corporation constituted, "within the most narrow definition," a casual transaction. The Referee, therefore, allowed a refund for receipt of proceeds from an isolated transaction.

The Single Business Tax Act currently allows a casual transaction exemption to noncorporate as opposed to corporate entities. MCL 208.3(2)(3) [sic, M.C.L. § 208.3(2) and (3); MSA 7.558(3)(2) and (3)(3) ] and M.C.L. § 208.4 [MSA 7.558(4) ]. The Department has no authority to overrule statutory law. Because the claimant is a corporate entity, the claim for refund must be denied.

In response to defendant's denial of its claimed refund, plaintiff filed the instant suit, alleging that the SBTA excluded the gain from its tax base because the SBTA viewed the asset sale as a casual transaction.

In January 1999, defendant moved for summary disposition. Defendant averred that the SBTA provided that a corporation's tax base constituted its federal taxable income, from which the SBTA clearly did not provide for any casual transaction exclusion. Defendant alternatively argued that plaintiff's asset sale did not qualify as a casual transaction because the sale was "incident to [plaintiff's] regular business activity of owning and operating th[e sold] assets." Defendant urged that it was entitled to summary disposition pursuant to MCR 2.116(C)(8) because no authority supported plaintiff's claim.

Plaintiff responded with its own motion for summary disposition pursuant to MCR 2.116(C)(9) on the basis that defendant failed to assert a valid defense. Plaintiff conceded that it "would be hard pressed to dispute that the literal language of [the relevant SBTA] sections [MCL 208.2-208.4; MSA 7.558(2)-7.558(4) ] excludes casual transactions only from the business activity of noncorporate taxpayers. Nevertheless, such an interpretation would render the statute constitutionally infirm, a result that this Court must take steps to prevent." Plaintiff cited a 1994 Court of Claims decision that opined the failure to afford corporations the casual transaction exception might violate constitutional due process and equal protection guarantees. Plaintiff further suggested that defendant did not always adhere to the literal requirements of the SBTA, and suspected that an agency rule might exist that reflected defendant's extension of the casual transaction exception to corporations. Lastly, plaintiff averred that the irregular and unique nature of the sale of its assets and the fact that plaintiff did not invest any of the proceeds of the sale for business purposes rendered the sale a casual transaction.

At the February 17, 1999, hearing on the parties' motions, defendant responded to plaintiff's suggestion that the SBTA might violate equal protection principles. Defendant explained that a rational basis existed to permit individuals' tax base exclusions of nonbusiness income but deny a corporation such exclusions because all corporate transactions affect the corporation's business.

On March 4, 1999, the trial court issued an opinion and order granting defendant summary disposition pursuant to MCR 2.116(C)(8). The court found plaintiff liable for the taxes because the casual transaction exclusion was not available to corporations. After examining the relevant SBTA provisions, the court opined that while plaintiff's asset sale likely represented a casual transaction under the statutes, the statutory language did not permit corporations to exempt from their single business tax base income derived from casual transactions. With respect to plaintiff's suggested equal protection violation, the court found this issue not properly before it because of plaintiff's failure to state any constitutional claim in its complaint, noting that "the proper avenue for Plaintiff to add this claim ... is through a Motion to Amend its Complaint." Plaintiff moved for reconsideration on the basis that the trial court neglected to consider the 1994 Court of Claims opinion on which plaintiff relied in support of its equal protection contention, but the court denied plaintiff's motion.

II

Plaintiff contends that the trial court erred in interpreting the applicability of the casual transaction exception from business income because the court's conclusion that corporations did not qualify for the exception would render the statutory scheme violative of constitutional equal protection guarantees. This case requires our consideration and construction of several SBTA provisions. The meaning of a statutory provision is a question of law that we review de novo. Cardinal Mooney High School v. Michigan High School Athletic Ass'n, 437 Mich. 75, 80, 467 N.W.2d 21 (1991). We also review de novo a grant or denial of summary disposition based on a failure to state a claim under MCR 2.116(C)(8) to determine whether the claim is so clearly unenforceable as a matter of law that no factual development could establish the claim and justify recovery. Smith v. Stolberg, 231 Mich.App. 256, 258, 586 N.W.2d 103 (1998). A motion under MCR 2.116(C)(8) tests the legal sufficiency of a claim by the pleadings alone. Simko v. Blake, 448 Mich. 648, 654, 532 N.W.2d 842 (1995); Smith, supra.

All factual allegations in support of the claim are accepted as true, as well as any reasonable inferences or conclusions that can be drawn from the facts.

The primary goal of judicial interpretation of statutes is to ascertain and give effect to the Legislature's intent. Frankenmuth Mut. Ins. Co. v. Marlette Homes, Inc., 456 Mich. 511, 515, 573 N.W.2d 611 (1998). The first criterion in determining intent is the specific language of the statute. People v. Borchard-Ruhland, 460 Mich. 278, 284, 597 N.W.2d 1 (1999). The Legislature is presumed to have intended the meaning it plainly expressed. People v. Venticinque, 459 Mich. 90, 99, 586 N.W.2d 732 (1998). If the plain and ordinary meaning of the language is clear, judicial construction is normally neither necessary nor permitted. Heinz v. Chicago Rd. Investment Co., 216 Mich. App. 289, 295, 549 N.W.2d 47 (1996).

The single business tax is imposed on the privilege of doing business in Michigan and does not constitute an income tax. MCL 208.31(3); MSA 7.558(31)(3); Consumers Power Co. v. Dep't of Treasury, 235 Mich.App. 380, 381, 597 N.W.2d 274 (1999). The single business tax represents a value added tax that measures the increase in value of goods and services brought about by whatever a business does to them between the time of purchase and time of sale. It taxes what a business has added to the economy, as distinguished from the income tax's taxation of what the business has derived from the economy. Consumers Power, supra.

The single business tax is levied and imposed on "the adjusted tax base of every person with business activity in this state that is allocated or apportioned to this state." MCL 208.31(1); MSA 7.558(31)(1). Subsection 9(1) of the SBTA defines one's "tax base" as follows:

"Tax base" means business income, before

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