Jaffe v. Department of Treasury
| Decision Date | 23 November 1988 |
| Docket Number | No. 100975,100975 |
| Citation | 431 N.W.2d 416,172 Mich.App. 116 |
| Parties | Morton H. JAFFE, Petitioner-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellee. |
| Court | Court of Appeal of Michigan — District of US |
Maurice S. Reisman, Southfield, for petitioner-appellant.
Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Richard R. Roesch and Russell E. Prins, Asst. Attys. Gen., for respondent-appellee.
Before GRIBBS, P.J., and BEASLEY and DRAIN, * JJ.
Petitioner Morton H. Jaffe, doing business as Morton Jaffe Associates, appeals as of right from a May 18, 1987, judgment of the Michigan Tax Tribunal, which sustained respondent Department of Treasury's decision and order assessing additional individual income tax and interest penalties totaling $38,556.93 for tax years 1981, 1982 and 1983. This disputed assessment arises from the Department's determination that Jaffe's cattle operation and advertising activities were not a unitary business, and that therefore Jaffe could not offset beef-production losses against his advertising revenues for the years in question.
Petitioner argues on appeal that the hearing officer misapplied the five-factor unitary business test since the findings of fact were not supported by substantial evidence. Plaintiff also asserts that the tribunal committed error requiring reversal in failing to apply the standards set forth by the United States Supreme Court to determine a unitary business.
Appellate review of a Tax Tribunal decision is limited to determining whether the decision was supported by law and whether the findings of fact were supported by competent, material and substantial evidence on the whole record. Master Craft Engineering, Inc. v. Dep't of Treasury, 141 Mich.App. 56, 68, 366 N.W.2d 235 (1985). "Substantial evidence" must be more than a scintilla of evidence, although it may be substantially less than the preponderance of the evidence required for most civil cases. Russo v. Dep't of Licensing & Regulation, 119 Mich.App. 624, 631, 326 N.W.2d 583 (1982). The burden of proof in an appeal from an assessment, decision, or order of the Tax Tribunal is on the appellant. Holloway Sand & Gravel Co., Inc. v. Dep't of Treasury, 152 Mich.App. 823, 831, n. 1, 393 N.W.2d 921 (1986).
In order to qualify as a unitary business and justify apportioning his multistate business income, Jaffe carried the burden of establishing a nexus between his Michigan advertising activities and the cattle operation in Texas because where the attributes of an interstate unitary business are lacking, apportionment provisions do not apply. Holloway, at p.p. 829-830, 393 N.W.2d 921, citing Mobil Oil Corp. v. Comm'r of Taxes of Vermont, 445 U.S. 425, 440, 100 S.Ct. 1223, 1233, 63 L.Ed.2d 510 (1980), and F.W. Woolworth Co. v. Taxation & Revenue Dep't of New Mexico, 458 U.S. 354, 372, 102 S.Ct. 3128, 3139, 73 L.Ed.2d 819 (1982).
The hearing officer in the instant case determined that the minimum contact or nexus required to support apportioned taxation was lacking, and identified the following five factors in reaching his conclusion: (1) economic realities; (2) functional integration; (3) centralized management; (4) economies of scale; (5) substantial mutual interdependence. The Holloway Court credited these five factors with being guideposts in determining whether a multistate business is unitary or discrete.
Since the hearing officer was legally correct in following Holloway, which in turn relied on the United States Supreme Court's guideposts in distinguishing unitary businesses, the proper law was applied to Jaffe's business activities. The real issue is whether the hearing officer's findings of fact with regard to the guideposts were supported by competent, material and substantial evidence on the whole record. Master Craft, supra.
Jaffe testified that the only two ways in which the two business activities were related were (1) the use of advertisement-generated credit to obtain financing for the cattle operation, and (2) that Jaffe alone managed both activities from his Michigan office.
The hearing officer properly found that there was no functional integration of the activities. Also, he properly found no economies of scale, e.g., no resulting increase in profits or improved allocation of resources when considering the...
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Malpass v. Dep't of Treasury
...status does not matter because they nonetheless form a unitary business. Plaintiffs rely on Holloway and on Jaffe v. Dep't of Treasury, 172 Mich.App. 116, 431 N.W.2d 416 (1988), to support their position. These cases, however, are distinguishable because they did not deal with multiple-enti......
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Wheeler Estate v. Dep't of Treasury
...including Holloway Sand & Gravel Co., Inc. v. Dep't of Treasury, 152 Mich.App. 823, 393 N.W.2d 921 (1986), Jaffe v. Dep't of Treasury, 172 Mich.App. 116, 431 N.W.2d 416 (1988), and the cases discussed next. This Court has recently issued two published opinions addressing the application of ......