Total Armored Car Serv., Inc. v. Dep't of Treasury

• Citation: 926 N.W.2d 276,325 Mich.App. 403
• Decision Date: 24 July 2018
• Docket Number: No. 340495,340495
• Parties: TOTAL ARMORED CAR SERVICE, INC., Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee.
• Court: Court of Appeal of Michigan (US)

325 Mich.App. 403

926 N.W.2d 276

TOTAL ARMORED CAR SERVICE, INC., Plaintiff-Appellant,

v.DEPARTMENT OF TREASURY, Defendant-Appellee.

No. 340495

Court of Appeals of Michigan.

Submitted July 10, 2018, at Lansing.

Decided July 24, 2018, 9:10 a.m.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, B. Eric Restuccia, Chief Legal Counsel, and Scott L. Damich, Assistant Attorney General, for the Department of Treasury.

Fraser Trebilcock Davis & Dunlap, PC (by Paul V. McCord, Dimondale) for Total Armored Car Service, Inc.

Before: Ronayne Krause, P.J., and Gleicher and Letica, JJ.

Per Curiam.

Following an audit, the Department of Treasury determined that Total Armored Car Services, Inc. (TACS) had underpaid its taxes in three tax years. TACS filed a petition in the Michigan Tax Tribunal (MTT), challenging the department's disallowance of certain deductions and credits and later adding a claim that it should be treated as a lone tax unit rather than as a collective taxpayer. The MTT summarily dismissed the petition. We discern no error in the MTT's judgment and affirm.

I. BACKGROUND

In November 2012, the department conducted an audit of TACS's business tax returns for 2008 through 2011 and determined that TACS had underpaid by $144,924 for tax years 2009, 2010, and 2011. Part of this underpayment arose from the misclassification of items as materials and supplies for deduction under MCL 208.1113(6)(c), and part was due to miscalculation of the employee compensation credit provided in MCL 208.1403(2). TACS challenged the auditor's conclusions to no avail. It then filed a petition with the MTT. In addition to the objections raised directly to the audit, TACS noted before the MTT hearing that it had filed its taxes as part of a unitary business group (UBG) with seven sister corporations but that it actually counted as a single tax entity pursuant to LaBelle Mgt., Inc. v. Dep't of Treasury , 315 Mich. App. 23, 888 N.W.2d 260 (2016). Accordingly, TACS generally asserted that its tax liability was no longer accurately calculated.

The MTT ultimately granted summary disposition in the department's favor and ordered TACS to pay its tax liability with interest. TACS now appeals.

II. STANDARD OF REVIEW

We review de novo the MTT's decision on a motion for summary disposition. Moshier v. Whitewater Twp. , 277 Mich. App. 403, 407, 745 N.W.2d 523 (2007). We also review de novo the MTT's interpretation of statutory provisions. Id . However, generally, our review is "limited to determining whether the tribunal erred in applying the law or adopted a wrong principle...." Id . The MTT's "factual findings are conclusive if supported by competent, material, and substantial evidence on the whole record." Klooster v. City of Charlevoix , 488 Mich. 289, 295, 795 N.W.2d 578 (2011) (quotation marks and citation omitted).

III. MATERIALS AND SUPPLIES DEDUCTION

In tax year 2010, TACS deducted from its gross receipts $12,712,186 in materials and supplies, and it deducted $24,567,291 for tax year 2011.¹ According to the audit report, these deductions included the cost of "repairs and maintenance, gas and oil, parts, rental equipment, lease contract, outside courier services, contract labor and purchased transportation." The department determined that costs "related to operating leases, contract labor, purchased transportation, and outside courier services" were improperly included in this category and adjusted the deductions for 2010 and 2011 accordingly.

TACS contends that the disallowed items are "materials and supplies" deductible from gross receipts under MCL 208.1113(6). The Michigan Business Tax Act (BTA), MCL 208.1101 et seq., imposes a business income tax, MCL 208.1201, and a modified-gross-receipts tax, MCL 208.1203, against taxpayers with business activity in Michigan. A business's modified-gross-receipts tax base may be reduced by certain credits and deductions. One deduction is for "purchases from other firms," MCL 208.1113(6), which includes:

(a) Inventory acquired during the tax year, including freight, shipping, delivery, or engineering charges included in the original contract price for that inventory.

(b) Assets, including the costs of fabrication and installation, acquired during the tax year of a type that are, or under the internal revenue code will become, eligible for depreciation, amortization, or accelerated capital cost recovery for federal income tax purposes.

(c) To the extent not included in inventory or depreciable property, materials and supplies, including repair parts and fuel.

The auditor determined that "Materials and Supplies means tangible personal property," not services such as those reported by TACS. This is consistent with the plain language of MCL 208.1113(6).

Our goal when interpreting statutes is to ascertain the Legislature's intent. Cook v. Dep't of Treasury , 229 Mich. App. 653, 658-659, 583 N.W.2d 696 (1998). The best indicator of that intent is the plain language of the statute. Ferguson v. Lincoln Park , 264 Mich. App. 93, 95; 694 N.W.2d 61 (2004). If the language is clear and unambiguous, we must apply the statute as written. Id . at 95-96. In reading and applying the plain language of a statute, we must give effect "to every phrase, clause, and word in the statute. The statutory language must be read and understood in its grammatical context, unless it is clear that something different was intended." Sun Valley Foods Co v. Ward , 460 Mich. 230, 237, 596 N.W.2d 119 (1999) (citation omitted). And when defining words in a statute, "we must consider both the plain meaning of the critical word or phrase as well as its placement and purpose in the statutory scheme." Herman v. Berrien Co , 481 Mich. 352, 366, 750 N.W.2d 570 (2008) (quotations marks and citation omitted).

When read as a whole, MCL 208.1113(6) defines the purchases-from-other-firms deduction as inventory acquired in the tax year; assets acquired during the tax year that are eligible for depreciation for federal tax purposes; or any other materials and supplies, such as repair parts or fuel, not included in either inventory or depreciable property. While Subdivisions (a) and (b) include services related to the acquisition of inventory or assets (costs for installation, shipping and engineering); Subdivision (c) includes only tangible items of property not included in inventory or depreciable property. The BTA does not define "materials and supplies." When the Legislature does not provide a definition for the words used in a statute, we may look to dictionary definitions. Griffith v. State Farm Mut. Auto. Ins. Co. , 472 Mich. 521, 526, 697 N.W.2d 895 (2005). The terms "materials and supplies," when used in their noun form as in the statute, are defined as physical items. "Material" means "relating to, derived from, or consisting of matter" and "being of a physical or worldly nature[.]" Merriam-Webster’s Collegiate Dictionary (11th ed.), p. 765. "Supplies," in its noun form, means "PROVISIONS" or "STORES." Id . at p. 1256.²

Moreover, the qualifying clause immediately following "materials and supplies"—"including repair parts and fuel"—indicates an intent to limit materials and supplies to tangible property. This phrase, when read in context, provides examples of the type of tangible property that may be included within the meaning of "materials and supplies." While the term "including" suggests a nonexhaustive list of items within the category of "materials or supplies," the examples are both tangible and physical. "Under the statutory construction doctrine known as ejusdem generis , where a general term follows a series of specific terms, the general term is interpreted to include only things of the same kind, class, character, or nature as those specifically enumerated." Neal v. Wilkes , 470 Mich. 661, 669, 685 N.W.2d 648 (2004) (quotation marks and citation omitted). Accordingly, the type of property included in the definition of "materials and supplies" is limited to tangible items.

Given the plain language of MCL 208.1113(6), we discern no error in the MTT's dismissal of TACS's challenge to the department's audit.

IV. COMPENSATION CREDIT

The department also determined that TACS overstated the compensation earned by employees of E.L. Hollingsworth (another member of the UBG) in 2009 and 2010. In 2009, TACS reported a compensation credit of $12,575,339, and in 2010, TACS reported a $10,897,553 compensation credit.³ These figures were based solely on the residencies of the employees, not "on actual work (miles driven) performed within the state of Michigan." The auditor reasoned that TACS was only entitled to 100% of the compensation credit if 100% of a particular employee's miles were driven in Michigan. By implication, TACS was entitled to a reduced credit when an employee earned a portion of his or her compensation while driving within Michigan but also earned compensation while driving out of state.

The BTA provides a tax credit to reduce a taxpayer's liability for compensation in this state. Specifically, "[f]or the 2009 tax year and each tax year after 2009, ... a taxpayer may claim a credit against the tax imposed by this act equal to 0.370% of the taxpayer's compensation in this state." MCL 208.1403(2). The phrase "compensation in this state" is not defined by statute.

Contrary to the MTT's ruling, the phrase "compensation in this state" is not ambiguous. MCL 208.1107(2) defines "compensation" as "all wages, salaries, fees, bonuses, commissions, other payments made in the tax year on behalf of or for the benefit of employees, officers, or directors of the taxpayers, and any earnings that are net earnings from self-employment...." "Wages," "salaries," and "commissions," by their plain meanings, are payments for work or services performed. See, e.g., Black's Law Dictionary (10th ed.) (defining "wages" as "[p]ayment for labor or services" and "salary" as "compensation for services"). By defining "compensation" as wages, salaries,...