Michigan Bell Telephone Co. v. Department of Treasury

• Decision Date: 21 June 1994
• Docket Number: No. 12,Docket Nos. 95347-95349,12
• Parties: MICHIGAN BELL TELEPHONE COMPANY, Petitioner-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellee. Calendar
• Court: Michigan Supreme Court

Page 808

518 N.W.2d 808

445 Mich. 470

MICHIGAN BELL TELEPHONE COMPANY, Petitioner-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellee.

Docket Nos. 95347-95349.

Calendar No. 12.

Supreme Court of Michigan.

Argued Dec. 3, 1993.

Decided June 21, 1994.

[445 Mich. 471] Honigman, Miller, Schwartz & Cohn by Michael B. Shapiro, James K. Robinson and Gerard Mantese, Detroit, for plaintiff.

Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., Russell E. Prins and Ross H. Bishop, Asst. Attys. Gen., Lansing, for defendant.

OPINION

ROBERT P. GRIFFIN, Justice.

This appeal requires us to determine whether intangible personal property of the petitioner, Michigan Bell Telephone Company (MBTC), was properly considered in the valuation and assessment of its property subject to taxation under 1905 P.A. 282, M.C.L. § 207.1 et seq.; M.S.A. § 7.251 et seq. Because we conclude that intangibles were appropriately taken into account for purposes of assessing and taxing petitioner's property under Act 282, we affirm the decisions of the Michigan Tax Tribunal and the Court of Appeals.

I

Act 282 requires an annual assessment by the State Board of Assessors of the property of certain public service businesses, including telephone companies, and the levy each year of taxes thereon. ¹ At issue in this case is the value determination of property in Michigan owned by petitioner as an operating telephone system and the extent to which it is taxable under Act 282 for the tax years 1984, 1985, and 1986. ²

Challenging the board's assessments for those years, petitioner appealed to the Tax Tribunal. ³ After hearing twenty days of testimony, including each party's expert appraisal witnesses, the tribunal issued an opinion and judgment that culminated in modifications of the assessments for the years in question. ⁴ In reaching its decision, the tribunal determined, in accord with what it described as the "generally accepted mode of valuation for utility property," that petitioner's property should be assessed as a "unit" to reflect its "going concern" value. (Docket No. 90553, March 13, 1990, p. 4.)

The tribunal explained:

The exemplification of the going concern concept is found in the telephone pole, which is of very little intrinsic worth without the franchise to operate it legally. The value of that franchise, in large part, brings value to that pole, not the pole itself; a so-called "synergy" occurs. It therefore follows that the franchise and other unquantifiable intangibles are essential and valuable components of certain real and personal tangible property (e.g., poles/wires) and, unless otherwise prohibited, must be included in the valuation of the tangible property. [Docket No. 90553, March 13, 1990, p. 7.]

The tribunal concluded that its consideration of "the intangible elements of the going concern under the unit valuation method [is] consistent with the Michigan constitutional and statutory framework." Id., p. 13.

Petitioner appealed in the Court of Appeals and argued, inter alia, that the tribunal had improperly included intangible property in its valuations for the three years at issue. Adopting the opinion of the tribunal as its own, the Court of Appeals affirmed in an unpublished memorandum opinion, issued November 6, 1992 (Docket Nos. 127402, 131780, and 133117).

We then granted leave to appeal, "limited to whether the tax provided for under 1905 P.A. 282, M.C.L. § 207.1 et seq.; M.S.A. § 7.251 et seq., permits the valuation of intangible personal property for assessment and taxation purposes." 443 Mich. 881, 506 N.W.2d 877 (1993).

II

A brief history of Michigan's taxation of telephone companies was provided by the United States Supreme Court in Citizens' Telephone Co. of Grand Rapids v. Fuller, 229 U.S. 322, 325, 33 S.Ct. 833, 833, 57 L.Ed. 1206 (1913):

Prior to 1909 telephone companies were taxed under Act No. 179 of the Public Acts of Michigan ... at the rate of 3% on their gross receipts for the year in which the tax was laid.... The taxes paid were in lieu of all other taxes.

Act No. 282 of the Public Acts of 1905 ... provided for the assessment of the property of railroads and certain other companies and for the levying of taxes thereon by a State Board of Assessors. The act did not include either telephone or telegraph companies.

In 1909 the legislature passed Act No. 49 ..., which amended the title and certain sections of the Act No. 282 and provided for the assessment by the State Board of Assessors of the property of telephone companies on an ad valorem basis instead of a tax on their gross earnings, as provided by the act of 1899.

As petitioner has correctly explained, most of the property in Michigan that is subject to ad valorem (i.e., value based) taxation is valued and taxed by local units of government pursuant to the General Property Tax Act, 1893 P.A. 206, M.C.L. § 211.1 et seq.; M.S.A. 7.1 et seq. However, certain public service businesses, including railroad and telephone companies, which typically have property interests that extend through several taxing districts or states, are taxed separately under Act 282 "in lieu of all taxes for state and local purposes...." ⁵

Under this statutory arrangement, all of the property of a telephone company "used in carrying on [its] business" ⁶ is assessed each year--not by a local township supervisor or assessor, but rather--by a central authority, i.e., the State Board of Assessors. ⁷ Act 282 requires that such property be assessed at fifty percent of its true cash value, and taxed "at the average rate of taxes for state, county, township, school, municipal and other purposes levied through this state during the preceding year...." ⁸

Although petitioner challenges the amount of the assessment for each of the years in question, it does not dispute the tribunal's use in this case of the "capitalization of income" method of valuing its property. ⁹ Moreover, petitioner states that the valuation of its real and personal property as a "unit," reflecting its use as a "going concern," is "not at issue here." According to petitioner, the "sole issue" is the "incorporation of intangibles" in the determination of the value of its property for Act 282 purposes.

In support of its position that the tribunal improperly included intangible property, rather than valuing and taxing only the real and tangible personal property of the company, petitioner advances three arguments. It contends, first, that Act 282 does not authorize taxation of intangible personal property; second, that the intangibles tax act ¹⁰ exempts its intangibles from Act 282 taxation; and, finally, that taxation of its intangible property is unconstitutional in light of Const.1963, art. 9, § 5.

Before addressing each of these arguments, we take note of the applicable standard of appellate review. In the absence of fraud, review of a decision by the Tax Tribunal is limited to determining whether the tribunal erred in applying the law or adopted a wrong principle; its factual findings are conclusive if supported by competent, material, and substantial evidence on the whole record. Const.1963, art. 6, § 28. Continental Cablevision v. Roseville, 430 Mich. 727, 735, 425 N.W.2d 53 (1988).

III

According to the petitioner, its "basic argument" is "that Act 282 does not authorize the taxation of intangible property...."

Section 4 of Act 282 provides in pertinent part that the State Board of Assessors shall "make an annual assessment ... of the property ... [of] telephone companies...." Thereafter, § 5 of the act provides in pertinent part:

The term property, as used in this act, shall be deemed to include all property, real or personal, belonging to ... companies ... subject to taxation under this act, including ... telephone poles, wires, conduits, switchboards, and all other property used in carrying on their business and owned by them respectively, and all other real and personal property, and all franchises, said franchises not to be directly assessed, but to be taken into consideration in determining the value of the other property.... [Emphasis added.]

Petitioner argues for its interpretation of the act by pointing to a tenet of statutory construction recently restated by this Court in Molter v. Dep't of Treasury, 443 Mich. 537, 543, 505 N.W.2d 244 (1993), i.e., the authority to impose a tax must be expressly authorized by law; it will not be inferred. Moreover, ambiguities in the language of a tax statute are to be resolved in favor of the taxpayer. In re Dodge Bros., 241 Mich. 665, 669, 217 N.W. 777 (1928).

When the case of In re Brackett Estate, 342 Mich. 195, 204, 69 N.W.2d 164 (1955), came before this Court, we were required to consider the meaning of the word "property" within the context of the inheritance tax act. ¹¹ There, we determined that an employee's interest in a profit-sharing plan established by his employer fell within the ambit of "property" as defined by the Legislature. Noting that the language used in the statute was "broad" and sweeping, ¹² we said, "It is clearly within the competence of the legislature to sweep within its taxable orbit all kinds of property and any and all kinds of interests therein." Id., at p. 205, 69 N.W.2d 164. We also observed:

Nor will it be forgotten, in any question of statutory tax interpretation, that taxing is a practical matter and that the taxing statutes must receive a practical construction. While they will not be extended by implication, ... neither will the words thereof be so narrowly interpreted as to defeat the purposes of the act. [Id.]

In construing the meaning of language of Act 282, we are cognizant of the principle that, in the absence of contrary direction by the Legislature, words used in a statute are to be given their ordinary meaning. Sanchick v. State Bd of Optometry, 342 Mich. 555, 559, 70 N.W.2d 757 (1955). ("Words will be given their usual and customary meanings, save as otherwise defined...." [...