STC, INC. v. Dept. of Treasury

• Citation: 669 N.W.2d 594,257 Mich. App. 528
• Decision Date: 15 July 2003
• Docket Number: Docket No. 234818.
• Parties: S.T.C., INCORPORATED, Petitioner-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellee.
• Court: Court of Appeal of Michigan (US)

669 N.W.2d 594

257 Mich. App. 528

S.T.C., INCORPORATED, Petitioner-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellee.

Docket No. 234818.

Court of Appeals of Michigan.

Submitted February 12, 2003, at Detroit.

Decided July 15, 2003, at 9:05 a.m.

Released for Publication September 18, 2003.

Calligaro & Meyering, P.C. (by Clinton Meyering), Taylor, for the petitioner.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and Gerald A. Whalen, Assistant Attorney General, for the respondent.

Before: GAGE, P.J., and WILDER and FORT HOOD, JJ.

PER CURIAM.

Petitioner, S.T.C., Incorporated, appeals as of right from a decision upholding a successor liability tax assessment levied by respondent, Michigan Department of Treasury, after petitioner purchased a restaurant from Masteau, Inc. (Masteau). We affirm.

I. Basic Facts and Procedural History

In anticipation of the asset purchase from Masteau, specifically, a McDonald's restaurant located in Livonia, Michigan, petitioner's president and owner, Vasant Chapatwala, reviewed the company's accounting books. In addition to owning several McDonald's restaurants, Chapatwala has a bachelor's degree in accounting and, at one time, was a certified public accountant, although he did not practice. Chapatwala learned that, similar to petitioner's businesses, Masteau paid its taxes quarterly. On the basis of his examination of the records, Chapatwala concluded that Masteau was "current" in its payment of estimated taxes as of August 4, 1993, the date of purchase. It appeared that two quarterly payments for the current fiscal tax year had been paid, and he compared the payments to Masteau's 1992 tax liability. Chapatwala was familiar with the payment of quarterly taxes because he oversaw the tax payments made by petitioner. Although petitioner's financial returns were prepared by an outside accountant, Chapatwala did not ask the accountant to review the financial books and records of the corporations purchased by petitioner. On the basis of his conclusion that the payment of taxes was "current," Chapatwala thought that "it was not necessary to escrow any funds" for any future taxes or penalties that may be assessed against Masteau. Chapatwala did not perform any calculations to determine the accuracy of the estimated payments to avoid potential liability.

Approximately two years after the asset purchase, Masteau filed its 1993 Single Business Tax Return that reflected a balance due of $12,633, but Masteau did not submit payment along with the tax return. During a two-year period, respondent attempted to track Masteau to five different addresses before learning that the responsible party was in Mexico, making collection impossible. In 1997, respondent notified petitioner of responsibility for the tax deficiency, interest, and penalties as a successor business.

Chapatwala filed a petition with the Michigan Tax Tribunal, seeking a determination that petitioner was not responsible for the tax obligations of Masteau. The petition alleged that reasonable investigation led to the conclusion that there were no outstanding tax liabilities at the time of purchase and that a certificate of tax clearance would have issued had one been requested. Ultimately, petitioner's theory of the case¹ was that it was not required, pursuant to M.C.L. § 205.27a(1), to escrow sufficient funds to cover the tax liabilities of its predecessor business because Masteau did not have taxes "due and unpaid" at the time petitioner reviewed Masteau's books. Respondent's theory of the case was that petitioner was liable for Masteau's tax, interest, and penalties because petitioner failed to protect itself from liability by establishing an escrow account for the taxes or by obtaining a tax clearance certificate. Following a hearing before a hearing referee, the notice of assessment against petitioner based on successor liability was affirmed. The referee concluded that petitioner did not comply with the statutory requirements to insulate itself from potential liability. Petitioner filed objections to the proposed findings of fact and conclusions of law affirming the assessment, alleging that an amendment of the statute incorporating a change in tense of the terms utilized precluded successor liability. The tribunal rejected this newly raised argument and concluded that an evaluation of the current tax status was insufficient to satisfy the statute where a pending final return may require additional payment.

II. Analysis

This case involves interpretation of M.C.L. § 205.27a(1) of the Michigan Revenue Code regarding single business successor tax liability assessments. Petitioner alleges that the tribunal misinterpreted the language of M.C.L. § 205.27a(1) and erroneously concluded that petitioner failed to comply with the escrow requirement of the statute. In the absence of allegations of fraud, appellate review of a decision by the tribunal is limited to determining whether the tribunal committed an error of law or adopted a wrong legal principle. Michigan Milk Producers Ass'n v. Dep't of Treasury, 242 Mich.App. 486, 490, 618 N.W.2d 917 (2000). Factual findings by the tribunal will not be disturbed if they are supported by competent, material, and substantial evidence on the whole record. Id. at 490-491, 618 N.W.2d 917.

Issues of statutory construction present questions of law we review de novo. Cruz v. State Farm Mut. Automobile Ins. Co., 466 Mich. 588, 594, 648 N.W.2d 591 (2002). The primary goal of statutory interpretation is to give effect to the intent of the Legislature. In re MCI Telecom Complaint, 460 Mich. 396, 411, 596 N.W.2d 164 (1999). This determination is accomplished by examining the plain language of the statute itself. Id. If the statutory language is unambiguous, appellate courts presume that the Legislature intended the meaning plainly expressed, and further judicial construction is neither permitted nor required. DiBenedetto v. West Shore Hosp., 461 Mich. 394, 402, 605 N.W.2d 300 (2000). When a term is not defined in the statute, it is appropriate to consult dictionary definitions to determine the meaning of the term. Peters v. Gunnell, Inc., 253 Mich.App. 211, 220, 655 N.W.2d 582 (2002). Deference is generally given to the tribunal's interpretation of a statute that it is charged with administering and enforcing. Michigan Milk Producers, supra.

MCL 205.27a(1), as amended, provides:

If a person liable for a tax administered under this act sells out his or her business or its stock of goods or quits the business, the person shall make a final return within 15 days after the date of selling or quitting the business. The purchaser or succeeding purchasers, if any, who purchase a going or closed business or its stock of goods shall escrow sufficient money to cover the amount of taxes, interest, and penalties as may be due and unpaid until the former owner produces a receipt from the state treasurer or the state treasurer's designated representative showing that the taxes due are paid, or a certificate stating that taxes are not due. Upon the owner's written waiver of confidentiality, the department may release to a purchaser a business's known tax liability for the purposes of establishing an escrow account for the payment of taxes. If the purchaser or succeeding purchasers of a business or its stock of goods fail to comply with the escrow requirements of this subsection, the purchaser is personally liable for the payment of the taxes, interest, and penalties accrued and unpaid by the business of the former owner. The purchaser's or succeeding purchaser's personal liability is limited to the fair market value of the business less the amount of any proceeds that are applied to balances due on secured interests that are superior to the lien provided for in section 29(1). [Emphasis added.]

Petitioner argues that the phrase "as may be due and unpaid" refers only to the present tense and creates an obligation on the part of a purchaser to pay those outstanding tax assessments that are "due and unpaid" only at the time of the purchase, and not at a time subsequent to the purchase. As an initial matter, we note that petitioner ignores the nature of the tax payments made by Masteau. As noted by Chapatwala during the administrative hearing and by the tribunal in rendering its decision, the quarterly tax payments were merely estimates of the tax due and owing. Therefore, while a seller may estimate and make payments in accordance with the estimates, additional payment may be due pending the completion of a final return. Indeed, M.C.L. § 205.23(2) provides, in relevant part, "[a] deficiency in an estimated payment as may be required by a tax statute administered under this act shall be treated in the same manner as a tax due and shall be subject to the same current monthly interest rate of 1 percentage point above the adjusted prime rate per annum from the time the payment was due, until paid." (Emphasis added.) Based on the plain language of the revenue code, In re MCI, supra,

a deficiency in an estimated tax payment is characterized as a "tax due" or present obligation, and a taxpayer is held accountable for any tax deficiency, interest, and penalties even though the deficiency is not realized until completion of the final return.

Despite the statutory provision confirming that a tax deficiency based on estimated payments constitutes a tax due, we will nonetheless address petitioner's interpretation of M.C.L. § 205.27a. Here, the words contested by petitioner are not defined by statute, requiring examination of dictionary definitions. Peters, supra.

The term "may be" is equivalent to "possibly, perhaps, by chance." Mull v. Equitable Life Assurance Society of the United States, 444 Mich. 508, 519, 510 N.W.2d 184 (1994). According to Random House Webster's Unabridged Dictionary (2d ed 1998), p 1509, the word "possibly" means "perhaps; maybe," "in a possible manner," or "by...