Stege v. Department of Treasury

• Decision Date: 24 September 2002
• Docket Number: Docket No. 231091.
• Citation: 252 Mich. App. 183,651 N.W.2d 164
• Parties: William C. STEGE and Cherrie Stege, Petitioners-Appellants, v. Tax Tribunal DEPARTMENT OF TREASURY, Division of Local Property-Homestead, Respondent-Appellee.
• Court: Court of Appeal of Michigan — District of US

651 N.W.2d 164

252 Mich. App. 183

William C. STEGE and Cherrie Stege, Petitioners-Appellants, v. Tax Tribunal DEPARTMENT OF TREASURY, Division of Local Property-Homestead, Respondent-Appellee.

Docket No. 231091.

Court of Appeals of Michigan.

Submitted June 4, 2002, at Lansing.

Decided July 9, 2002, at 9:05 a.m.

Released for Publication September 24, 2002.

Law Offices of Stuart J. Hollander, PLC (by Stuart J. Hollander), Suttons Bay, for the petitioners.

Jennifer M. Granholm, Attorney General, Thomas L. Casey, Solicitor General, and Kevin T. Smith, Assistant Attorney General, for the respondent.

Before: BANDSTRA, P.J., and HOEKSTRA and O'CONNELL, JJ.

O'CONNELL, J.

Petitioners, William C. Stege and Cherrie Stege, appeal as of right the Tax Tribunal's November 6, 2000, judgment denying petitioners a Michigan homestead exemption from their property taxes and reversing the hearing referee's decision granting the exemption. The tribunal held that Michigan law allows only one homestead exemption and that petitioners had already claimed one for their Illinois home, where they had filed income tax returns as residents. We reverse.

I. Facts and Proceedings

The parties stipulated the following facts. In 1983, petitioners married and bought the homestead at issue, a house in Suttons Bay. Petitioners have never legally separated, but William's occupied principal residence is in Villa Park, Illinois, near his workplace in Chicago. However, it is undisputed that the Suttons Bay home is Cherrie's continuous principal residence, and she operates a business from there. According to petitioners, Cherrie must reside in Suttons Bay to retain custody of her children from her previous marriage. In tax years 1994 and 1995, petitioners jointly filed Michigan income tax returns as nonresidents and used William's Illinois address as their return address. Moreover, on the Michigan returns, petitioners claimed a Michigan homestead exemption each year for Cherrie's Suttons Bay home.¹ In 1994 and 1995, petitioners reported on their joint federal tax return that 26.48 percent of Cherrie's Suttons Bay home was used for business purposes. Finally, petitioners claimed on their 1994 and 1995 resident Illinois state income tax returns a property tax credit toward their income tax liability for the Illinois home. See 35 Illinois Compiled Statutes, 5/208.

Respondent, Department of Treasury, Division of Local Property-Homestead, initially disallowed the Michigan homestead exemption for tax years 1994 and 1995 because petitioners had jointly filed income tax returns as nonresidents and because they had already claimed a homestead property tax credit on their income taxes in Illinois. Following petitioners' request for an informal conference, respondent upheld the denial of the exemption on May 12, 1999. Petitioners appealed to the Small Claims Division of the Tax Tribunal on June 1, and the hearing referee reversed. Respondent's request for rehearing was heard on August 16, 2000, and the tribunal ultimately denied the exemption on November 6, finding in favor of respondent. Petitioners now appeal as of right.

II. Standard of Review

The discrete issue in this case is whether a married couple jointly filing income taxes in Michigan as nonresidents may claim a Michigan homestead exemption from property taxes if only one spouse is in fact a Michigan resident and the couple has already claimed a property tax credit on their income tax return in another state for a home in that state where they had filed their income tax return as residents.

Generally, a statutory interpretation issue is considered de novo on appeal, as a question of law. Oakland Co. Bd. of Co. Rd. Comm'rs v. Michigan Property & Casualty Guaranty Ass'n, 456 Mich. 590, 610, 575 N.W.2d 751 (1998). However, specifically:

This Court's authority to review a decision of the Tax Tribunal is very limited. In the absence of an allegation of fraud, this Court's review ... is limited to determining whether the tribunal committed an error of law or adopted a wrong legal principle. The tribunal's factual findings will not be disturbed as long as they are supported by competent, material, and substantial evidence on the whole record. [Michigan Milk Producers Ass'n v. Dep't of Treasury, 242 Mich.App. 486, 490-491, 618 N.W.2d 917 (2000) (citations omitted).]

III. Analysis

We review a final agency determination on the basis of the entire record, not just portions that support the agency's findings. Great Lakes Sales, Inc. v. State Tax Comm., 194 Mich.App. 271, 280, 486 N.W.2d 367 (1992). Deference is given to the administrative agency's findings of fact. THM, Ltd. v. Comm'r of Ins., 176 Mich.App. 772, 776, 440 N.W.2d 85 (1989). Moreover, we consider the stipulated facts in this case conclusive. Farrimond v. Bd. of Ed. of East Jordan Public Schools, 138 Mich.App. 51, 56, 359 N.W.2d 245 (1984). Where there is sufficient evidence, a reviewing court must not substitute its discretion for that of the tribunal's even if the court might have reached a different result. Black v. Dep't of Social Services, 195 Mich.App. 27, 30, 489 N.W.2d 493 (1992).

The primary goal of judicial construction of statutes is to ascertain and give effect to the intent of the Legislature. Importantly, however, there are special rules with respect to the interpretation of statutes that levy taxes. Generally, where a statute that levies a tax is ambiguous, we construe that statute against the taxing unit. In other words, we will not extend the scope of tax laws by implication or forced construction. [Wyckoff v. Detroit, 233 Mich.App. 220, 224-225, 591 N.W.2d 71 (1998) (citations omitted).]

Nonetheless, with regard to interpreting statutory exemptions:

"`An intention on the part of the legislature to grant an exemption from the taxing power of the State will never be implied from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and unmistakable terms, or must appear by necessary implication from the language used, for it is a well-settled principle that, when a specific privilege or exemption is claimed under a statute,... it is to be construed strictly against the property owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation. Exemptions are never presumed, the burden is on a claimant to establish clearly his right to exemption[.]... In other words, ... taxation is the rule, and exemption the exception.... Moreover, if an exemption is found to exist, it must not be enlarged by construction, since the reasonable presumption is that the State has granted in express terms all it intended to grant at all....'" [Guardian Industries Corp. v. Dep't of Treasury, 243 Mich.App. 244, 249-250, 621 N.W.2d 450 (2000), quoting Detroit v. Detroit Commercial College, 322 Mich. 142, 148-149, 33 N.W.2d 737 (1948), quoting 2 Cooley, Taxation (4th ed.), § 672, p. 1403.] The Michigan homestead exemption is set out in the General Property Tax Act (GPTA), M.C.L. § 211.7cc, and provides:

(1) A homestead is exempt from the tax levied by a local school district for school operating purposes ... if an owner of that homestead claims an exemption as provided in this section....

* * *

(3) A husband and wife who are required to file or who do file a joint Michigan income tax return are entitled to not more than 1 homestead exemption. [Emphasis added.]

See also subsections 11(1) and 11(8)(d) of the Revised School Code, M.C.L. § 380.1211(1), (8)(d). MCL 211.7dd provides relevant definitions for this provision as follows:

(a) "Homestead" means that portion of a dwelling ... that is subject to ad valorem taxes and is owned and occupied as a principal residence by an owner of the dwelling or unit....

* * *

(d) "Principal residence" means the 1 place where a person has his or her true, fixed, and permanent home to which, whenever absent, he or she intends to return and that shall continue as a principal residence until another principal residence is established.

See also M.C.L. § 380.1211d(1)(a), (1)(d).

This is an issue of first impression in Michigan because no published authority has interpreted the homestead exemption with respect to these unique facts. See, e.g., Stolper v. Dep't of Treasury, 164 Mich.App. 407, 413-414, 417 N.W.2d 520 (1987) (joint filers were not entitled to Income Tax Act homestead credit because nonresident spouse's income had to be considered). Petitioners maintain that simply because Cherrie is a Michigan resident, as the parties stipulated, she deserves a Michigan homestead exemption. Respondent counters that this focus is misplaced and emphasizes instead that Cherrie filed jointly with her nonresident husband from an Illinois address and claimed an Illinois income tax homestead credit. However, we conclude the following is more dispositive: (1) Michigan's property tax act homestead exemption applies only to real property in Michigan; (2) the homestead tax credit under Illinois' Income Tax Act is distinct from Michigan's property tax homestead exemption; and (3) the Michigan Tax Tribunal does not have authority to interpret another state's tax laws against Michigan taxpayers absent a reciprocal tax agreement with that state.

IV. Petitioners' Joint Nonresident Michigan Income Tax Returns

First, as a threshold matter, we note that petitioners are not bound to the representations on their Michigan income tax returns stating that they are residents of Illinois. That is, the fact that petitioners filed income tax returns in Michigan as nonresidents does not automatically bar a Michigan homestead exemption claim. See, e.g., Boyd v. Dep't of Treasury, 3 MTTR 603, 605, 1985 WL 17391 (Docket No. 91007, issued January 3, 1985) ("[a]mounts reported by a taxpayer in his federal tax return are not binding on the State of Michigan"); Lawrence v. Dep't of Treasury, 140 Mich.App. 490, 497, 364 N.W.2d 733 (1985) (c...