Kostyu v. Department of Treasury

• Decision Date: 29 August 1988
• Docket Number: 96210,Docket Nos. 93453
• Citation: 170 Mich.App. 123,427 N.W.2d 566
• Parties: Donald R. KOSTYU, Plaintiff/Petitioner-Appellant, v. DEPARTMENT OF TREASURY, Defendant/Respondent-Appellee, and Michigan Tax Tribunal, Defendant-Appellee. 170 Mich.App. 123, 427 N.W.2d 566
• Court: Court of Appeal of Michigan — District of US

Page 566

427 N.W.2d 566

Donald R. KOSTYU, Plaintiff/Petitioner-Appellant, v. DEPARTMENT OF TREASURY, Defendant/Respondent-Appellee and Michigan Tax Tribunal, Defendant-Appellee.

Docket Nos. 93453, 96210.

170 Mich.App. 123, 427 N.W.2d 566

Court of Appeals of Michigan.

Submitted Jan. 27, 1988.

Decided May 6, 1988.

Released for Publication Aug. 29, 1988.

[170 MICHAPP 125] Donald R. Kostyu, Allen Park, in pro. per.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Richard R. Roesch and Ross H. Bishop, Asst. Attys. Gen., for the Dept. of Treasury and the Michigan Tax Tribunal.

Before DANHOF, C.J., and MacKENZIE and JOSLYN, ^* JJ.

PER CURIAM.

In these consolidated appeals, Donald Kostyu appeals as of right from an order of the Ingham Circuit Court granting summary disposition under MCR 2.116(C)(4) in favor of the Department of Treasury and the Michigan Tax Tribunal. Kostyu also appeals as of right from an order and judgment of the Tax Tribunal granting a motion to dismiss made by the Department. We affirm.

For tax years 1981 and 1982, Kostyu failed or [170 MICHAPP 126] refused to file his Michigan income tax returns. After requesting that Kostyu file his returns, and Kostyu's failure to do so, the Department computed his 1981 and 1982 income tax liability pursuant to Sec. 21 of the revenue act. M.C.L. Sec. 205.21; M.S.A. Sec. 7.657(21). The tax amount was based on employment-reported wages and withholdings, and an estimate of other income made pursuant to the Department's internal job outline JC-41090. Kostyu was sent an assessment notice reflecting the Department's intent to assess him for an income tax deficiency of $1,369.08, a penalty of $342.27, and cumulative interest.

On May 20, 1985, after an informal conference between the Department and Kostyu, the Department issued its decision and order of determination of final assessment. Kostyu appealed the final assessment to the Tax Tribunal. In his petition, Kostyu challenged the Department's procedure for estimating his adjusted gross income and the number of exemptions for purposes of withholding taxes from his wages. Kostyu also challenged the lack of a "primary standard dollar" by which to "certify assessments" and averred that by means of a tax upon so-called "income" the Department was, in fact, improperly taxing his "very time of life" as income.

Subsequent to filing the petition with the Tax Tribunal, Kostyu filed suit for a declaratory judgment against the Tax Tribunal and the Department in Ingham Circuit Court. Kostyu asked that the Department's job outline JC-41090 be declared invalid or unconstitutional because it: (1) was contrary to Sec. 21 of the revenue act, M.C.L. Sec. 205.21; M.S.A. Sec. 7.657(21); (2) was not promulgated in accordance with the Administrative Procedures Act, M.C.L. Sec. 24.201 et seq.; M.S.A. Sec. 3.560(101) et seq.; and (3) deprived him of due process of law. On June 4, [170 MICHAPP 127] 1986, the circuit court granted a motion for summary disposition by the Tax Tribunal and the Department based on a lack of subject matter jurisdiction and Kostyu's failure to exhaust his administrative remedies.

On June 25, 1986, a hearing was held before a hearing officer of the Tax Tribunal on Kostyu's petition challenging the Department's final assessment for his 1981 and 1982 income tax liability. At the hearing, Kostyu presented no evidence that the wage information used by the Department was in error or that he did not have income exceeding the amounts reported. Moreover, Kostyu chose not to testify on his own behalf or present any other proofs of his actual income. At the conclusion of Kostyu's case, the Department moved for dismissal based on Kostyu's failure to produce any evidence of his actual income, despite having the burden to do so. The motion was granted and, on October 7, 1986, the Tax Tribunal issued its opinion and judgment adopting the hearing officer's decision.

On appeal, Kostyu contests both the circuit court and Tax Tribunal decisions and seeks a declaration that job outline JC-41090 and the final assessment on which it was based are invalid.

I The Circuit Court Proceedings

Before addressing Kostyu's claim that the circuit court erred in dismissing his complaint for lack of subject matter jurisdiction, a discussion on the distinction between the circuit court's and Tax Tribunal's jurisdiction and powers in income tax matters is in order.

Although the circuit court's jurisdiction and powers are broad, it is clear that the circuit court [170 MICHAPP 128] lacks jurisdiction where prohibited by the laws of this state. Wikman v. Novi, 413 Mich. 617, 644-645, 322 N.W.2d 103 (1982). In matters of taxation, the circuit court continues to have jurisdiction to entertain constitutional issues concerning the validity of tax laws and may even be called upon to provide equitable relief to enforce decisions of the Tax Tribunal. Sessa v. State Tax Comm., 134 Mich.App. 767, 771, 351 N.W.2d 863 (1984), lv. den. 422 Mich. 919 (1985). However, the circuit court has no jurisdiction to review income tax determinations issued by the Department. Under Sec. 22 of the revenue act, M.C.L. Sec. 205.22; M.S.A. Sec. 7.657(22), such jurisdiction lies in either the Tax Tribunal or the Court of Claims, with the latter forum's jurisdiction contingent on the taxpayer's first paying the tax. Since an appeal from either forum is made directly to this Court, the circuit court never acquires jurisdiction over such determinations. M.C.L. Sec. 205.22; M.S.A. Sec. 7.657(22).

By contrast, the Tax Tribunal's jurisdiction and powers are defined by the Tax Tribunal Act, M.C.L. Sec. 205.701 et seq.; M.S.A. Sec. 7.650(1) et seq. The Tax Tribunal's jurisdiction is invoked by filing a proper petition. M.C.L. Sec. 205.735(2); M.S.A. Sec. 7.650(35)(2). Although the Tax Tribunal lacks equitable powers, it has broad statutory powers and is empowered to issue such "writs, orders, or directives which it deems necessary or appropriate in the process of disposition of a matter of which it may acquire jurisdiction." M.C.L. Sec. 205.732(c); M.S.A. Sec. 7.650(32)(c), and see Federal-Mogul Corp. v. Dep't of Treasury, 161 Mich.App. 346, 359, 411 N.W.2d 169 (1987). The Tax Tribunal is a "quasi-judicial agency" whose primary function is to find facts and review agency decisions within its jurisdiction, and which is designed to provide expertise in such matters efficiently. Wikman, supra, 413 Mich. p. 629, 322 N.W.2d 103. Moreover, the Tax [170 MICHAPP 129] Tribunal may decide claims couched in constitutional terms that a tax assessment was arbitrary and without foundation. Wikman, supra, p. 647, 322 N.W.2d 103; Sessa, supra, 134 Mich.App. p. 771, 351 N.W.2d 863.

While Kostyu, in the instant case, couched his complaint in the circuit court as one for declaratory judgment of purely legal issues, a review of the relief sought by Kostyu reveals that he sought much more than a declaration of his legal rights. In addition to seeking an order compelling the Department to "expunge" job outline JC-41090, Kostyu sought a declaration (1) that the effect of JC-41090 was to deprive him of procedural due process by shifting the burden of proof to him in the Tax Tribunal to prove that he did not have the estimated income computed by the Department, (2) that the final assessment issued by the Department was invalid, and (3) that the Tax Tribunal should be ordered to dismiss the final assessment.

At the core of Kostyu's complaint was an assertion that the Department employed a methodology in computing his tax liability under M.C.L. Sec. 205.21; M.S.A. Sec. 7.657(21) which was not authorized by law. Also at the core of his complaint was a claim that he was deprived of procedural due process as a result of the procedures employed by both the Department and the Tax Tribunal, a claim which lacks merit in view of his opportunity to receive a de novo review of his income tax liability in the Tax Tribunal. See M.C.L. Sec. 205.735(1); M.S.A. Sec. 7.650(35)(1), and Kostyu v. Dep't of Treasury, 147 Mich.App. 89, 92, 382 N.W.2d 739 (1985). Kostyu's claim that he should not have the burden to disprove the estimated income computed by the Department is similarly without merit since Kostyu had a statutory duty to maintain accurate records so as to make it possible to determine the income tax due under Sec. 408 of the Income Tax Act, [170 MICHAPP 130] M.C.L. Sec. 206.408; M.S.A. Sec. 7.557(1408), and the Tax Tribunal has authority to allocate the burden of proof in a manner consistent with the legislative scheme. Zenith Industrial Corp. v. Dep't of Treasury, 130 Mich.App. 464, 343 N.W.2d 495 (1983). Although the revenue statute at issue here, M.C.L. Sec....