One Court of Justice

The Michigan Supreme Court granted the application for leave to appeal in NACG Leasing v. Dep’t of Treasury.  The parties shall address the applicability of the use tax to a purchase of tangible personal property by one party and leased to another party, where the purchaser/lessor does not obtain actual possession of the property.

In Orthopaedic Associates of Grand Rapids, PC v. Department of Treasury, the Court of Appeals considered the treatment of continuing medical education expenses and malpractice insurance premiums under the Single Business Tax Act.  The petitioner argued that these were ordinary business expenses, not compensation to its doctors.  The Michigan Tax Tribunal agreed.  However, the Court of Appeals reversed, holding that these two items were compensation to the doctors because they were payments made “on behalf of or for the benefit of” the doctors.

On a busy Friday before the holiday weekend, in addition to other granted applications discussed further in separate posts, the Michigan Supreme Court granted an application and asked for further briefing in a township taxation issue. 

In Cherryland Electric Cooperative v East Bay Township and Garfield Township, the parties were asked to brief: (1) whether a township assessor has an independent obligation to determine the true cash value of all property within the jurisdiction of a township, or whether, in determining true cash value, a township assessor is obligated to follow the personal tax reporting form approved by the State Tax Commission; and (2) whether these cases involve a mutual mistake of fact within the meaning of MCL 211.53a.

In addition, our high court held one criminal appeal in abeyance pending determination of a similar case.

In Sebastian J. Mancuso Family Trust v. City of Charlevoix, the Court of Appeals held that a transfer of real estate from one trust to another constituted a “transfer of ownership,” justifying the “uncapping” of the transferred real estate’s taxable value, even though both trusts shared the same trustees.  Read more »

The C corporation plaintiff in Lear Corporation v. Department of Treasury sought to treat certain deductible expenses differently for the purposes of his federal and state tax returns.  The Court of Appeals held that, under the plain terms of Michigan’s Single Business Tax Act, a C corporation’s tax base must be identical to its federal taxable income.  Therefore, any expenses deducted for federal tax return purposes must be deducted for state tax return purposes in the same manner.  The Court reversed the Court of Claims decision to the contrary and remanded the case.

The plaintiff’s now-deceased husband had contributed to a state tax-exempt 403(b) retirement account during his employment at Michigan State University.  After his retirement, he transferred the money from the 403(b) account to a private Individual Retirement Account.  All of the money in the IRA originated from the 403(b) account.   When the plaintiffs received distributions from the IRA, they deducted the amount from their adjusted gross income on their state income tax return.  The Treasury Department objected, claiming the amount was subject to state income tax.  The Michigan Court of Appeals explained in Magen v. Department of Treasury that the determination of whether the distributions from the IRA were subject to state taxation required analysis and harmonization of two provisions of the tax code.  Under the first provision, distributions from a 403(b) account are tax-free; the second provision requires taxation of distributions from private IRAs.  The parties did not dispute that if the plaintiffs had placed the money from the 403(b) account in a bank account or ordinary investment account, the interest would be taxable, but the principal would remain tax-free.  Accordingly, the Court of Appeals concluded that the principal balance, when placed in an IRA, remained tax-free.  The court affirmed the trial court’s grant of summary disposition to the plaintiff.  Judge Wilder dissented, claiming that the plain language of the statute required taxation of distributions from a private IRA.

The petitioners in Drew v. Cass County owned three homes, and they sought a principal residence exemption for one of those homes, located on an island in Dowagiac, Michigan.  The petitioners claimed to live at the Dowagiac home with their six children for six months out of the year, and they submitted driver’s licenses, voter registration cards and tax returns listing the home as their residence.  The Michigan Tax Tribunal (MTT) denied the exemption, relying on utility bills that indicated very little usage and testimony from an area resident that nobody lived on the island.  In addition, the petitioners owned two other homes, and the children’s school was located less than one minute from one of the other homes.  The Michigan Court of Appeals affirmed in a per curiam opinion, noting the limited nature of its review of MTT decisions.  The court found persuasive the fact that the petitioners did not offer any evidence to counter the MTT’s evidence regarding utility usage.  In addition, the petitioners’ driver’s licenses, voter registration cards and tax returns were not conclusive proof of principal residence, but merely factors for the MTT to consider, and the weight to accord such evidence is within the MTT’s discretion.  Accordingly, the Court of Appeals affirmed the MTT’s decision.

In Pontiac Country Club v. Township of Waterford, the Court of Appeals concluded that the Tax Tribunal did not abandon its obligation to independently value the true value of the properties at issue by adopting the pre-trial assessment of the properties by the Township.  The dispute arose after the Pontiac Country Club disputed the Township’s assessment of the properties’ value.  At the hearing before the Tax Tribunal, both parties submitted expert testimony regarding the value.  The Tax Tribunal rejected both experts’ testimony.  It found that Pontiac Country Club’s expert was not credible and that the Township’s revised valuation improperly considered hypothetical zoning changes.  The Tax Tribunal concluded that the original assessment, which fell between each party’s assessment in the litigation, was correct.  The Michigan Court of Appeals affirmed, holding that the Tax Tribunal did not shirk its duty to independently assess true value by adopting an initial property assessment when that assessment was supported by testimony and fell within the extremes proposed by the parties.

Detail your time entries Headlee lawyers, or you may win your Headlee claim only to wind up with a disappointed client.  On third remand from the Michigan Supreme Court, the Court of Appeals in Adair v. Michigan denied all attorney fees because counsel were unable to show how much of the time they spent on the one Headlee claim in the 21-count complaint.  Under the Headlee Amendment, Const 1963, art 9, § 32, a taxpayer who sustains a Headlee suit is entitled to “costs incurred in maintaining such suit.”  The Michigan Supreme Court has held this includes a reasonable attorney fee.  The party seeking reimbursement must prove that the requested fee was incurred in maintaining the Headlee claim, and that the fee is reasonable under the framework in Smith v. Khouri, 481 Mich. 519, 751 N.W.2d (2008).  But the attorneys could not satisfy that burden here.  First, they could not specifically identify the time spent on the Headlee claim, as opposed to the other 2o claims brought against the state before the first remand.  Second, they offered only their own opinion testimony on the reasonableness of their fees after the first remand—no credible surveys or other reliable evidence showing the customary fee charged in their locality.  And finally, they were not entitled to attorney fees under Headlee for their post-judgment services following the second remand.  As to other costs, the court disagreed with the special master’s position that such costs are not limited to those in the neutral provisions of the Michigan Court Rules and Revised Judicature Act.  It therefore remanded to the special master for more generous assessment of the costs incurred in maintaining the Headlee claim, in accordance with the Supreme Court’s analysis in Macomb County Taxpayers Association v L’Anse Creuse Public School, 455 Mich. 1, 564 N.W.2d 457 (1997).

The Court of Appeals published its decisions in Fradco, Inc v. Department of Treasury, No. 306617 and SMK, LLC v. Department of Treasury, No. 306639, in which it answered the question of when the 35-day limitations period to file an appeal of a tax assessment to the Tax Tribunal begins, in the event the taxpayer has appointed a representative to receive notices from the Department of Treasury.  The Court determined that, according to MCL 205.8, when a taxpayer appoints an official representative to receive notice, the Department is required to provide all letters and notices regarding that dispute (including assessments) to that representative.  Additionally, MCL 205.22 requires that an appeal of an assessment be brought within 35 days of that assessment, and MCL 205.28(1) requires service of that assessment upon the taxpayer.  In looking at these various statutory requirements in a holistic and harmonious manner, the Court determined that the 35-day period would not commence until service of a copy of the assessment on both the taxpayer and its officially designated representative.  Thus, the Tax Tribunal had the authority to hear the appeals in these two cases that were filed more than 35 days after the assessments, but less than 35-days after the Department had notified the taxpayers’ official representatives.