Stratton-Cheeseman Management Co. v. Department of Treasury, STRATTON-CHEESEMAN

• Decision Date: 18 June 1987
• Docket Number: Docket No. 91914,STRATTON-CHEESEMAN
• Citation: 407 N.W.2d 398,159 Mich.App. 719
• Parties: MANAGEMENT COMPANY, Plaintiff-Appellant, v. DEPARTMENT OF TREASURY and State of Michigan, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

Page 398

407 N.W.2d 398

159 Mich.App. 719

STRATTON-CHEESEMAN MANAGEMENT COMPANY, Plaintiff-Appellant, v. DEPARTMENT OF TREASURY and State of Michigan, Defendants-Appellees.

Docket No. 91914.

Court of Appeals of Michigan.

Submitted Feb. 11, 1987.

Decided April 22, 1987.

Released for Publication June 18, 1987.

MacLean, Seaman, Laing & Guilford by Kenneth Laing, Lansing, for plaintiff-appellant.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Richard R. Roesch and Thomas J. Kenny, Asst. Attys. Gen., for defendants-appellees.

Before HOOD, P.J., and MacKENZIE and PAJTAS ^*, JJ.

MacKENZIE, Judge.

Plaintiff appeals as of right from a Court of Claims grant of summary disposition under MCR 2.116(C)(10) to defendants, upholding the Department of Treasury's decision not to pay a single business tax (SBT) refund of $60,013 to plaintiff for the taxable period July 1, 1979, through June 30, 1983, because plaintiff's claimed "gross receipts" subject to the tax were incorrect. We affirm.

The facts are not in dispute. Plaintiff, a Michigan corporation, has as its principal function the management of Michigan Physicians Mutual Liability Company, a medical malpractice insurance company. Plaintiff manages the insurance company under a written services agreement which authorizes it to perform certain duties, including:

(1) to receive and process applications for insurance;

(2) to issue insurance policies;

(3) to bill, collect, and deposit premiums and other fees into a banking facility designated by the insurance company;

(4) to maintain appropriate reserves for claims;

(5) to administer claims;

(6) to maintain records and regularly report to the insurance company; and

(7) "to strictly abide by an operating budget set for the management firm by the company's board of directors. Any management firm expenditures which will exceed the amounts set by said budget will have to be submitted to and approved by the company's board of directors."

Plaintiff receives compensation in two ways. Under Sec. 4(1)(ii) of the services agreement, plaintiff receives a monthly fee at a fixed rate per policyholder. Under Sec. 4(1)(i), plaintiff is reimbursed for reasonable costs incurred on the insurance company's behalf, including but not limited to plaintiff's salaries, wages, outside contractual services, and allocated overhead.

In filing its SBT return for the tax years ending June 30, 1980, through 1983, plaintiff included as "gross receipts" both its monthly fee and the sums received from the insurance company as reimbursements for expenditures. In May, 1984, plaintiff filed amended SBT returns, claiming that only the monthly fee, and not expenditures, constituted "gross receipts" subject to the tax. The department rejected plaintiff's resulting refund claims for each tax year.

Plaintiff filed a complaint with the Court of Claims to recover the refunds. Thereafter, plaintiff filed a motion for summary disposition under MCR 2.116(C)(10). Plaintiff claimed that, under the services agreement, the reimbursements for expenditures which it received from the insurance company were received in an agency or other capacity so that they were not "gross receipts" as defined in subsection 7(3) of the Single Business Tax Act (SBTA), M.C.L. Sec. 208.7(3); M.S.A. Sec. 7.558(7)(3). That subsection provides:

" 'Gross receipts' means the sum of sales, as defined in subsection (1), and rental or lease receipts. Gross receipts does not include the amounts received in an agency or other representative capacity, olely on behalf of another or others but not including amounts received by persons having the power or authority to expend or otherwise appropriate such amounts in payment for or in consideration of sales or services made or rendered by themselves or by others acting under their direction and control or by such fiduciaries as guardians, executors, administrators, receivers, conservators, or trustees other than trustees of taxes received or collected from others under direction of the laws of the federal government or of any state or local governments." (Emphasis added.)

Subsection (1), referred to in the above definition, provides in pertinent part:

" 'Sale' or 'sales' means the gross receipts arising from a transaction or transactions in which gross receipts constitute consideration: ... (b) for the performance of services, which constitute business activities...." M.C.L. Sec. 208.7(1); M.S.A. Sec. 7.558(7)(1).

The department filed a cross-motion for summary disposition under MCR 2.116(C)(10), contending that the reimbursed costs were payments for services provided by plaintiff pursuant to a cost-plus contract, and thus constituted "gross receipts." This contention was based on the following departmental interpretation of "gross receipts" as defined in subsection 7(3) of the SBTA, M.C.L. Sec. 208.7(3); M.S.A. Sec. 7.558(7)(3), when payments are received by the taxpayer under a services contract:

"(c) Where the parties enter into a cost-plus contract for the performance of a service, all payments received by a person for the performance of the service, whether it is a reimbursed expense or a monthly fee is considered part of the servicer's gross receipts for purposes of calculating the single business tax. If the Single Business Tax Act were administered to exclude reimbursed expenses from the tax base, then the services would in substance be taxed only on gross profit."

The Court of Claims, giving deference to the department's interpretation of "gross receipts," granted summary disposition to the department.

The issue before us is whether the trial court erred in ruling that monies received by plaintiff as reimbursement for costs under the services agreement constituted "gross receipts" as defined in the SBTA. The resolution of this issue requires both statutory construction of the term "gross receipts," as defined in Sec. 7 of the SBTA, and an application of that definition to the "reimbursements" received by plaintiff.

In construing statutes the following principles apply. The primary objective of judicial construction is to ascertain and give effect to the Legislature's intent. The language of the statute is the best source for ascertaining intent. In re Condemnation of Lands, 133 Mich.App. 207, 210-211, 349 N.W.2d 261 (1984), lv. den. 421 Mich. 856 (1985). An act must be read in its entirety and the meaning given to one section arrived at after due consideration of the other sections so as to produce, if possible, a harmonious and consistent enactment as a whole. King v. Director of the Midland County Dep't of Social Services, 73 Mich.App. 253, 258, 251 N.W.2d 270 (1977). Long-standing administrative interpretations by those charged with administering a statute are entitled to considerable weight. See People v. Dunn, 104 Mich.App. 419, 425, 304 N.W.2d 856 (1981); Magreta v. Ambassador Steel Co, 380 Mich. 513, 519, 158 N.W.2d 473 (1968). However, an administrative interpretation is not conclusive and cannot be used to overcome a logical reading of the statute. People v. Dunn, supra, 104 Mich.App. at p. 425, 304 N.W.2d 856. If an act is clear and unambiguous, then judicial construction or interpretation is unwarranted. Lake Carriers' Ass'n v. Director of the Dep't of Natural Resources, 407 Mich. 424, 429, 286 N.W.2d 416 (1979). If a statute is ambiguous or susceptible to two or more constructions that could cause reasonable minds to disagree as to its meaning, the statute must be interpreted. Shelby Charter Twp. v. State Boundary Comm, 425 Mich. 50, 72, 387 N.W.2d 792 (1986).

We find no ambiguity in the meaning of "gross receipts" as defined by the SBTA. The definition clearly excludes from "gross receipts" the amount received by a taxpayer solely in an agency or representative capacity, while including amounts received as consideration for the performance of personal services. Since the language of the statute is clear, the Court of Claims erred in giving deference to the department, as a matter of statutory construction, in finding that the reimbursement payments received by plaintiff were includable in gross receipts.

We turn, then, to the question of whether plaintiff's reimbursement payments under the services agreement fit within the clear statutory definition of "gross receipts." It is the substance of a transaction rather than the terms applied by the parties which determines how to characterize the payment for tax purposes. See Central Discount Co. v. Dep't of Revenue, 355 Mich. 463, 467, 94 N.W.2d 805 (1959). In a multi-party transac...