Rosenbalm v. Department of Treasury

• Court: Court of Appeal of Michigan (US)
• Writing for the Court: Before DANHOF; PER CURIAM
• Citation: 164 Mich.App. 99,416 N.W.2d 343
• Parties: William E. ROSENBALM and Carole G. Rosenbalm, Petitioners-Appellants, v. DEPARTMENT OF TREASURY, Respondent-Appellee. David and Miriam MONDRY and David Mondry Trust dated
• Decision Date: 23 September 1983

Page 343

416 N.W.2d 343 164 Mich.App. 99 William E. ROSENBALM and Carole G. Rosenbalm,
Petitioners-Appellants,
v.
DEPARTMENT OF TREASURY, Respondent-Appellee.
David and Miriam MONDRY and David Mondry Trust dated
September 23, 1983, Eugene and Shelia Mondry and Eugene
Mondry Trust dated September 23, 1983, Ira and Gail Mondry,
Mitchell Mondry, Joshua Mondry and Andrew Mondry,
Plaintiffs- Appellants,
v.
DEPARTMENT OF TREASURY, Defendant-Appellee. Docket Nos. 94662, 95291. Court of Appeals of Michigan. Submitted July 22, 1987.
Decided Sept. 1, 1987.
Released for Publication Dec. 22, 1987.
Leave to Appeal Denied Feb. 22, 1988.

[164 MICHAPP 100] Honigman, Miller, Schwartz & Cohn by William G. Christopher, Roger Cook and Michael J. Hainer, Detroit, for plaintiffs-appellants.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Richard R. Roesch, [164 MICHAPP 101] Russell E. Prins and Thomas J. Kenny, Asst. Attys. Gen., for defendant-appellee.

Before DANHOF, C.J., and G.R. McDONALD and THOMAS, ^* JJ.

PER CURIAM.

These two cases have been consolidated for this appeal. Both cases involve the applicability of Michigan's intangibles tax act, M.C.L. Sec. 205.131 et seq.; M.S.A.

Page 344

Sec. 7.556(1) et seq., on distributions from subchapter S corporations to their shareholders.

Petitioners William E. Rosenbalm and Carole G. Rosenbalm appeal as of right from the Michigan Tax Tribunal's August 1, 1986, opinion and judgment granting respondent Michigan Department of Treasury's motion for summary disposition and denying petitioners' motion for summary disposition.

From 1978 through 1982, William E. Rosenbalm operated Rosenbalm Aviation, Inc. (RAI), which contracts with overnight carriers, such as Emery Worldwide, to deliver packages throughout the United States. Rosenbalm was involved in the operation of RAI on a full-time basis. His efforts were the principal reason that RAI was successful.

During the years in question, Rosenbalm was either the sole shareholder or a thirty-three percent shareholder of RAI. During these years, the corporation and its shareholders elected to have RAI taxed as a subchapter S corporation under the relevant provisions of the Internal Revenue Code of 1954, as amended, 26 U.S.C. Secs. 1371-1379 (Code).

Because RAI operated in virtually every state, much of the business income of RAI and Rosenbalm was attributable to states other than Michigan. [164 MICHAPP 102] RAI distributed its business income to its shareholders, including Rosenbalm, pursuant to the relevant provisions of the Code. Rosenbalm received a total of $7,573,105 in distributions during the relevant years. Rosenbalm paid federal income tax and Michigan income tax on these distributions, but did not pay intangibles tax on these distributions.

On October 30, 1985, the Department of Treasury issued Notice of Final Assessment No. C474512, in which it asserted that, as of October 1, 1985, the Rosenbalms owed the state $263,308 in intangibles taxes, plus interest and penalties. The Rosenbalms filed a timely petition with the Tax Tribunal challenging the assessment. Petitioners and the department filed motions for summary disposition.

Plaintiffs David and Miriam Mondry and the David Mondry Trust dated September 23, 1983, Eugene and Sheila Mondry and the Eugene Mondry Trust dated September 23, 1983, Ira and Gail Mondry, Mitchell Mondry, Joshua Mondry, and Andrew Mondry appeal as of right from Michigan Court of Claims Judge Michael G. Harrison's September 3, 1986, opinion and order granting defendant Department of Treasury's motion for summary disposition. From 1981 through 1984, plaintiffs were shareholders of nine corporations, seven of which owned and operated twenty-six Highland Appliance stores. Those stores, large volume retailers of consumer electronics and appliances, were primarily located in Michigan. Highland Appliance Dearborn, Highland Appliance Big Town, Highland Appliance Company, and Highland Appliance Lincoln Park owned and operated ten of these stores in Ohio, Indiana, Illinois and Texas. For a substantial number of years, the corporations[164 MICHAPP 103] and the Mondrys elected to have the corporations taxed as subchapter S corporations.

Plaintiffs characterized the corporations as a "single, family-run business." Several of the Mondrys were officers or directors of the corporations or were otherwise actively involved in the operations of the corporations.

During the relevant years plaintiffs received, in the aggregate, $14,053,536 in distributions. Plaintiffs paid federal income tax, Michigan income tax and, in the aggregate, $492,868 in Michigan intangibles tax.

On November 30, 1985, plaintiffs requested a refund of the intangibles taxes paid on these distributions. On December 26, 1985, defendant denied the claim for refund. On March 24, 1986, the Mondrys filed a complaint in the Court of Claims requesting a refund. Defendant and the Mondrys filed cross-motions for summary disposition.

There are three issues to be determined on appeal: (1) whether subchapter S corporation stock is intangible personal property under the intangibles tax act; (2) whether distributions from...