Preston v. Department of Treasury, Docket No. 114283

• Decision Date: 05 August 1991
• Docket Number: Docket No. 114283
• Parties: Arthur F. PRESTON, Plaintiff-Appellee, v. DEPARTMENT OF TREASURY and Revenue Commissioner of the Department of the Treasury, Defendants-Appellants. 190 Mich.App. 491, 476 N.W.2d 455
• Court: Court of Appeal of Michigan — District of US

Page 455

476 N.W.2d 455

Arthur F. PRESTON, Plaintiff-Appellee, v. DEPARTMENT OF TREASURY and Revenue Commissioner of the

Department of the Treasury,

Defendants-Appellants.

Docket No. 114283.

190 Mich.App. 491, 476 N.W.2d 455

Court of Appeals of Michigan.

Submitted July 18, 1990, at Lansing.

Decided Aug. 5, 1991, 9:15 a.m.

Released for Publication Nov. 18, 1991.

[190 MICHAPP 492] Miller, Canfield, Paddock & Stone by Robert F. Rhoades and Gregory A. Nowak, Bloomfield Hills, for plaintiff-appellee.

Frank J. Kelley, Atty. Gen., Gay Secor Hardy, Sol. Gen., and Richard A. Roesch and Russell E. Prins, Asst. Attys. Gen., for defendants-appellants.

Before MARILYN J. KELLY, P.J., and HOOD and DOCTOROFF, JJ.

DOCTOROFF, Judge.

Defendants appeal as of right a December 15, 1988, order of the Court of Claims granting plaintiff's motion for summary disposition pursuant to MCR 2.116(C)(10). Defendants claim that the court erred in ruling that plaintiff was [190 MICHAPP 493] entitled to a net operating loss (NOL) deduction for losses from his business operations in Michigan. We disagree and affirm.

The parties stipulated below to the facts. Plaintiff is a resident of Texas and is involved in the production of and exploration for oil and gas in Michigan. Plaintiff incurred in 1980 substantial losses that were attributable to business operations in Michigan, which were reported on plaintiff's 1980 Michigan income tax return. Plaintiff's 1980 federal income tax return did not reflect an NOL, because capital gains income allocable entirely to the State of Texas offset the Michigan losses. For the tax years 1982 and 1983, plaintiff carried forward losses from 1980, which were attributable to business operations in Michigan and which he characterized as "1980 Michigan net operating losses" in calculating his 1982 and 1983 tax liability. Plaintiff did not have a corresponding loss carried forward on his 1982 and 1983 federal income tax returns, because there was no 1980 federal loss. Plaintiff filed Michigan individual income tax returns for 1982, 1983, and 1984, in which he sought refunds. These refunds were denied by defendants on the basis of defendants' disallowance of the deduction of the NOL carry-forward. Plaintiff filed an appeal of the department's decision in the Court of Claims. The court granted plaintiff's motion for summary disposition, ruling that plaintiff was entitled to a Michigan deduction for losses from 1980 attributable to Michigan.

Defendants argue that during the applicable tax years the Michigan Income Tax Act, M.C.L. Sec. 206.1 et seq.; M.S.A. Sec. 7.557(101) et seq., did not define or expressly recognize a Michigan NOL deduction and that the act does not permit the taking of a Michigan NOL deduction by a taxpayer in a year in [190 MICHAPP 494] which the federal income tax return does not reflect an NOL.

Where the language of a statute is clear and unambiguous, judicial interpretation is precluded, and this Court should not look beyond the ordinary meaning of the unambiguous language in giving effect to a statute. Wills v. Iron County Bd. of Canvassers, 183 Mich.App. 797, 801, 455 N.W.2d 405 (1990). If construction is required, this Court is obliged to determine and give effect to the intention of the Legislature. Id. Statutory language should be given a reasonable construction, considering its purpose and the object sought to be accomplished. An act must be read in its entirety, giving due consideration to all sections to produce an harmonious and consistent enactment of the whole. Id. Statutes are to be construed to avoid absurd or unreasonable consequences. Id.

The Court of Claims held that, although the Michigan Income Tax Act did not expressly provide for an NOL deduction during the applicable years, such a provision was incorporated into the act by virtue of Sec. 2(3), M.C.L. Sec. 206.2(3); M.S.A. 7.557(102)(3). We find no error in the court's ruling.

In the applicable tax years, Sec. 2(3) stated:

It is the intention of this act that the income subject to tax be the same as taxable income as defined and applicable to the subject taxpayer in the internal revenue code, except as otherwise provided in this act.

"Taxable income" is also defined in Sec. 30(1), M.C.L. Sec. 206.30(1); M.S.A. 7.557(130)(1), by reference to the Internal Revenue Code. In the applicable years, Sec. 30(1) stated, in relevant part:

"Taxable income" in the case of a person other [190 MICHAPP 495] than a corporation, an estate, or trust means adjusted gross income as defined in the internal revenue code subject to the following adjustments:

* * * * * *

(k) Adjustments resulting from the allocation and apportionment provisions of chapter 3.

Taxable income is defined in the Internal Revenue Code as gross income minus allowable deductions. 26 U.S.C. Sec. 63. Adjusted gross income is also defined in the Internal Revenue Code as gross income minus allowable deductions. 26 U.S.C. Sec. 62. One of the allowable business deductions which may be used in arriving at adjusted gross income is the NOL deduction. 26 U.S.C. Sec. 172. Under Sec. 172, an NOL may be carried back three years or carried forward to offset income for as many as fifteen years.

Sections 2(3) and 30 of the Michigan Income Tax Act clearly incorporate the definitions of taxable income and adjusted gross income in the Internal Revenue Code. Because the Internal Revenue Code defines adjusted gross income to include a deduction for an NOL, it, therefore, follows that the Michigan Income Tax Act allows an NOL deduction and that the NOL can be carried forward as provided in 26 U.S.C. Sec. 172.

In addition, the court noted in its opinion that Sec. 30 was amended in 1987 to provide for a Michigan NOL deduction of the kind asserted by plaintiff. This was done by adding subsections 1(p) and 1(q), redesignated by amendment in 1988 as 1(o ) and 1(p). Defendants argue on appeal that the 1987 amendments do not apply retroactively. We disagree.

Generally, statutes are applied prospectively unless the Legislature has expressly or impliedly indicated its intent to give retroactive effect or [190 MICHAPP 496] unless the statutes are remedial or procedural in nature. Selk v. Detroit Plastic Products, 419 Mich. 1, 9, 345 N.W.2d 184 (1984); Macomb Co. Professional Deputies Ass'n v. Macomb Co., 182 Mich.App. 724, 730, 452 N.W.2d 902 (1990). Statutes that operate in furtherance of an already existing remedy and that neither create new rights nor destroy existing rights are applied retroactively unless a contrary legislative intent is manifested. Selk, supra, 419 Mich. p. 10, 345 N.W.2d 184. A statute or amendment is remedial or procedural if it is designed to correct an existing oversight within the law or redress an existing grievance. Macomb Deputies, supra.

As amended, Sec. 30(1) provides in pertinent part as follows:

"Taxable income", for a person other than a corporation, estate, or trust, means adjusted gross income as defined in the internal revenue code subject to the following adjustments:

* * * * * *

(o) Add to the extent deducted in determining federal adjusted gross income the net operating loss deduction under section 172 of the internal revenue code.

(p) Deduct a net operating loss deduction for the taxable year as defined in section 172 of the internal revenue code subject to the modifications under section 172(b)(2) of the internal revenue code and subject to...