National Bank of Detroit v. Department of Revenue

• Decision Date: 27 June 1952
• Docket Number: No. 19,19
• Citation: 334 Mich. 132,54 N.W.2d 278
• Parties: NATIONAL BANK OF DETROIT v. DEPARTMENT OF REVENUE.
• Court: Michigan Supreme Court

Page 278

54 N.W.2d 278

334 Mich. 132

NATIONAL BANK OF DETROIT v. DEPARTMENT OF REVENUE.

No. 19.

Supreme Court of Michigan.

June 27, 1952.

Dickinson, Wright, Davis, McKean & Cudlip, Detroit, for plaintiff and appellant.

Frank G. Millard, Atty. Gen., Edmund E. Shepherd, Solicitor Gen., Lansing, T. Carl Holbrook, William D. Dexter, Assts. Atty. Gen., for defendant appellee.

Before the Entire Bench, except NORTH, C. J.

BUTZEL, Justice.

Plaintiff National Bank of Detroit, on behalf of itself and also of all national banking associations in Michigan, filed a petition under the declaratory judgment act, P. A. 1929, No. 36, C.L.1948, § 691.501, et seq., Stat.Ann. § 27.501, et seq. for a declaration of rights as to their liability for payment of Michigan sales tax, alleging that the provisions of the Michigan sales tax act, P.A.1933, No. 167, as amended, C.L.1948, § 205.51, et seq., Stat.Ann. § 7.521, et seq., conflict with section 5219 of the Revised Statutes of the United States, 12 U.S.C.A. § 548, as to retail purchases made by plaintiff from Michigan vendors, and to retail sales made by plaintiff to Michigan vendees. Defendant, Michigan department of revenue, is charged with the administration of the sales tax system. Prior to July 1, 1949, it was recognized that sales of personal property at retail both to and by national banking associations were exempt from the imposition of the sales tax. Howevr, since the sales tax act was amended by P.A.1949, No. 272, it has been interpreted to mean that both types of sales are subject to the tax. It is alleged, and not denied, that without paying such sales taxes, plaintiff would be unable to purchase in Michigan personal property necessary for its business; and that it is also required to collect such tax from its vendees whether in the conduct of running a resturant for its employees or reselling personal property it acquires by foreclosure of liens or otherwise in the conduct of its business.

Plaintiff contends that it is a Federal instrumentality and that the imposition of such sales tax is in conflict with its Federal statutory and constitutional immunity. That question is not presented on this appeal so we shall not discuss it.

Defendant in a motion alleged, and the trial court found, that as plaintiff is not the taxpayer under the sales tax act, and is not the real party ion interest, it is not entitled to institute an action to the extent of determining whether or not taxes could be levied on sales to it. Accordingly, an order was entered dismissing that portion of plaintiff's petition concerned with the imposition of the sales tax on sales to plaintiff by Michigan vendors. Plaintiff appeals from that order.

Provisions of the sales tax act material to the present issue are, as amended by P.A.1949, No. 272:

'Sec. 1. That when used in this act:

'(a) The term 'person' includes any individual, firm, copartnership, joint venture, association, social club, fraternal organization, municipal or prevate corporation whether organized for profit or not, company, estate, trust, receiver, trustee, syndicate, the United States, state of Michigan, county, or any other group or combination acting as a unit, and the plural as well as the singular number, unless the intention to give a more limited meaning is disclosed by the context. * * *

'(1) The word 'taxpayer' means any person subject to any tax hereunder.'

'Sec. 2. There is hereby levied upon and there shall be collected from all persons engaged in the business of making sales at retail, as hereinbefore defined, an annual tax for the privilege of engaging in such business equal to 3 per cent of the gross proceeds thereof, plus the penalty and interest when applicable as hereinafter provided, less deductions allowed in sections 4 and 4a. * * * The taxes levied hereunder shall be a personal obligation of the taxpayer.'

'Sec. 4. In computing the amount of tax levied under the provisions of this act for any month * * *

'No person subject to a tax under this act need include in the amount of his gross proceeds used for the computation of the tax any proceeds of his business derived from sales to the United States, its unincorporated agencies and instrumentalities, any incorporated agency or instrumentality of the United States wholly owned by the United States or by a corporation wholly owned by the United States, the American Red Cross and its chapters and branches, and the state of Michigan or its departments and institutions or any of its political subdivisions.

'Sec. 4a. No person subject to tax under this act need include in the amount of his gross proceeds used for the computation of the tax any sales of tangible personal property (enumerating numerous exemptions not material here)'.

'Sec. 23. No person engaged in the business of selling tangible personal property at retail shall advertise or hold out to the public in any manner, directly or indirectly, that the tax herein imposed is not considered as an element in the price to the consumer. Nothing contained in this act shall be deemed to prohibit any taxpayer from reimbursing himself by adding to his sale price any tax levied hereunder: Provided, however, That no person other than the state may enrich himself or gain any benefit from the collection or payment of such tax.' Other sections of the act, not material here, concerning the administration and collection of the tax, consistently refer in the context to the 'taxpayer' as the retailer. It is alleged and not denied, however, that the economic burden of the tax is always passed on to the consumer, and that such was the intent of the legislature when formulating the sales tax act, as evidenced by section 23 thereof, supra, C.L.1948, § 205.73, as amended by P.A.1949, No. 272, Stat.Ann. 1950 Rev. § 7.544.

It is significant that the Michigan department of revenue has stated its understanding of the true incidence of the tax in regulation 22 of its rules and regulations, as follows:

'A taxpayer must include the sales tax as part of the selling price of tangible personal property sold by him. He is not required to state the tax as a separate item to the consumer, but he may not advertise or hold out to the public in any manner, directly or indirectly, that the tax is not considered as an element in the price to the consumer.'

Although exemptions from the operation of the sales tax are now stated in sections 4 and 4a, C.L.1948, §§ 205.54, 205.54a, as amended by P.A.1949, No. 272, Stat.Ann. 1950 Rev. §§ 7.524, 7.525, concerning permissible deductions from gross proceeds, prior to 1949 there was a provision in section 4, subd. (b), which read in part:

'* * * as a consumer, the United States * * * shall not be liable for the payment of the tax.' ¹

It is obvious from a reading of regulation 22 that the change in the wording of section 4 was made merely for the purpose of clarity in the operation of the act and did not change its substantive effect.

The parties discuss at some length whether or not an actual case and controversy exists here; who is the real party in interest in the action, retailer or consumer; whether the retailer should not have been the party plaintiff; and whether or not plaintiff is entitled to seek a declaration of rights under the declaratory judgment act. The main question presented in this appeal is whether a justiciable question is presented, when the court is asked to consider the economic realities of the situation, and treat the plaintif as the real 'taxpayer' under the Michigan sales tax act, for the purposes of an action in which it claims immunity as a Federal instrumentality.

We assume that the direct legal incidence of the Michigan sales tax act falls upon the retailer. Indeed, no other conclusion can be reached after examining carefully the method in which the sales tax operates. It is expressly termed a tax on gross proceeds and is paid to defendant in bulk, not per transaction, by the retailer who is entitled to a discount on the amount collected and paid to defendant. The retailer is personally obligated for the payment of the tax due. However, he is authorized to collect an amount equal to the tax levied by adding it to the purchase price of his goods, and he is forbidden to hold out to the consumer that such is not being done. It is, therefore, clear that it was the intention of the legislature that the general sales tax is a tax whose economic burden falls chiefly on the consumer. That the collection of such tax from the consumer is in some degrees an economic burden upon the retailer cannot be denied and it is in this sense, economically speaking, that the general sales tax is a tax on the privilege of doing a retail business in the State. It may seem paradoxical to say that the retailer only is an interested party when there is properly and legally added to the sales price to the consumer the 3 per cent sales tax on almost every purchase and this amount is remitted to the State by the retailer after the deduction of a discount.

We made this economic distinction in C. F. Smith Co. v. Fitzgerald, 270 Mich. 659, 259 N.W. 352. Therein we said, in answer to a challenge to the validity of the chain store tax, 270 Mich. at pages 676-677, 685-686, 259 N.W. at page 358:

'The tax is not void because it constitutes double taxation. The tax in question is a license tax; a tax upon the privilege of operating chain stores or mercantile establishments. It is contended it constitutes double taxation because there is already imposed under the law of Michigan a sales tax based upon the amount of business done. Act No. 167, Pub.Acts 1933. The tax imposed by Act No. 265, Pub.Acts 1933, is upon the privilege to operate chain stores. The sales tax is a tax imposed upon consumption, a tax upon commodities sold, a tax which is usually and ordinarily paid not by the person who operates the business, but by the customer who purchases and pays for merchandise. Section 23, Act ...