One Court of Justice

In Walter Toebe Constr. Co. v. Department of Treasury, No. 291764, published on Sept. 2, 1010, after release on July 27, 2010, the Michigan Court of Appeals considered whether property is considered industrial personal property based on the definition contained in the general property tax act (“GBTA”), rather than the assessor’s classification.  The now-repealed single business tax act defined industrial personal property as personal property “classified as industrial personal property” under the GBTA.  Thus, the Court of Appeals concluded, the SBTA did not import the definition of industrial personal property from the GBTA, but rather the classification of the property by the tax assessor.  Because the tax assessor had determined the property was commercial personal property – albeit erroneously – the Treasury Department was entitled to rely on that classification and was not required to make an independent assessment of the property.

On August 10, 2010, the Court of Appeals published its per curiam opinion in River Investment Group, LLC v. Casab, No. 290645.  In this case, the Wayne County Treasurer foreclosed on plaintiff’s property and sold that property to defendant.  Plaintiff initiated an action in circuit court for damages against defendant based on alleged improvements plaintiff had made to the property after the foreclosure,where plaintiff alleged that it had not received notice of the foreclosure.  The circuit court dismissed that action for lack of jurisdiction, finding that the court of claims had exclusive jurisdiction over such an action.  The Court of Appeals affirmed this ruling.  The Court found that MCL 600.6519 and MCL 600.6437 confer jurisdiction to the court of claims to hear claims against the state, but they do not preclude the court from exercising any additional jurisdiction that my be provided elsewhere by the Legislature.  Specifically, the Court of Appeals found that MCL 211.78l(2), indicates that the court of claims will have exclusive jursidiction over any claims for monetary damages arising out of a failure to provide notice of a tax foreclosure, regardless of whether the defendant is a public or private entity.  Thus, summary disposition of plaintiff’s claims was appropriate in the circuit court.

The Michigan Supreme Court took substantive action in six cases:

In re P.M. (Department of Human Services v. Mullins), No. 140983:  The Court granted oral argument on the application.

Iron Mountain Information Management, Inc. v. Naftaly, Nos. 140817-140824:  The Court granted leave to appeal limited to the issue of whether the circuit courts have subject-matter jurisdiction over appeals from a decision of the state tax commission regarding property classification.  The Court ordered that the case be argued and submitted with Midland Cogeneration Venture Ltd. v. Naftaly, No. 140814.

Midland Cogeneration Venture Ltd. v. Naftaly, No. 140814:  The Court granted leave to appeal to address the same issue as Iron Mountain.

People v. McCauley, No. 140422:  The Court ordered oral argument on the application to address whether a defendant can raise a challenge to the effective assistance of his counsel during the plea-bargaining process where the defendant rejected the plea offer and subsequently received a fair trial, and if so, what remedies should be available to the defendant.  The Court invited amicus briefs from the Prosecuting Attorneys Association of Michigan and the Criminal Defense Attorneys of Michigan.  Our post on the Court of Appeals’ decision conditionally vacating the defendant’s sentence is here.

People v. Breidenbach, No. 140153:  The Court ordered oral argument on the application to address three issues:  (1) whether the Court should reconsider the rule of People v. Helzer, 404 Mich. 410 (1978), that a determination of sexual delinquency is a separate, alternative form of sentencing rather than a penalty enhancement; (2) whether the defendant waived or forfeited the right to a second jury’s determination of his status as a sexual delinquent; and (3) whether any error was harmless or harmless beyond a reasonable doubt.  Again, the Court invited the Prosecuting Attorneys Association of Michigan and the Criminal Defense Attorneys of Michigan to submit amicus briefs.  

Friend v. Friend, No. 139165:  In lieu of granting leave to appeal after having heard argument on the application, the Court remanded the case to the Houghton County Circuit Court for clarification as to whether the alimony award was alimony in gross or periodic alimony.  The Court further ordered that as a precondition of the trial court clarifying the nature of its award, the plaintiff purge herself of any outstanding findings of contempt within 90 days.  The Court denied leave to appeal on all other issues, including whether the Court should adopt the fugitive-disentitlement doctrine.  Justices Corrigan, Markman, and Young dissented and would have applied the fugitive-disentitlement doctrine and condition consideration of the appeal on plaintiff’s compliance with trial court’s orders.

The Court also denied leave to appeal in six cases.

On Wednesday, June 23, 2010, the Michigan Supreme Court denied seventeen applications for leave to appeal and one motion for reconsideration.  In addition, the Court granted various procedural motions including several motions for leave to submit amicus curiae briefs.  The Court also took substantive action in four cases.  In Harrington v. Fatchett-Harrington, No. 140833, in lieu of granting leave to appeal, the Court vacated the order of the Court of Appeals which had dismissed plaintiff’s claim of appeal and remanded the case to the Court of Appeals for reinstatement of the appeal.  In Woodward Parking Co. v. City of Detroit, No. 140073, the Court vacated the Court of Appeals’ decision in light of the Court’s decision in Briggs Tax Service, LLC. v. Detroit Public Schools.  In People v. LaRose, No. 139699, the Court remanded the case to the Court of Appeals after determining that the defendant-appellant was deprived of a direct appeal as a result of ineffective assistance of counsel.  Finally, the Court granted leave to appeal in Hamed v. Wayne County, No. 139505 to clarify the application of Michigan’s Civil Rights Act to prisoners.  The Woodward Parking, LaRose, and Hamed cases are discussed further after the jump. Read more »

On Wednesday, May 26, 2010, the Michigan Supreme Court denied seven applications for leave to appeal.  The Court also took substantive action regarding two criminal cases and one civil case which are discussed after the jump.

Read more »

Prior to 1997, Ford Motor Co. paid for healthcare services rendered to its employees, and it correctly reported those payments as employee compensation, which was taxable under the Single Business Tax.  From 1997 through 1999, Ford continued to pay directly for healthcare services and also continued to pay taxes on that amount, but the company added another step.  During those years, Ford first set aside money in the Voluntary Employees’ Beneficiary Association (VEBA), which was a trust that acted as a savings fund; then, when an employee needed reimbursement for healthcare bills, Ford would pay the bill (as it had before) and then seek reimbursement from VEBA.  Ford did not report the money it put into VEBA as employee compensation.  The Department of the Treasury concluded that both the money that Ford put into VEBA and Ford’s payments for healthcare services counted as employee compensation and therefore taxed Ford on both amounts, while allowing Ford to offset the VEBA amounts against actual payments.  Ford paid the tax liability—$21.7 million—under protest.  In Ford Motor Co. v. Department of Treasury, No. 283925 (published May, 20, 2010), the Court of Appeals held that the payments to VEBA were not taxable.

As Judge Zahra explained for the panel, the payments into the trust fund did not fall within the definition of “compensation” set out in MCL § 208.4(3).  Additionally, the money in the trust fund was only potential compensation; it did not benefit the employees just by sitting in the fund.  After all, even if the fund lost all its value, Ford would still be required to meet its obligations under its healthcare benefit plan.  And finally, the Treasury Department’s approach of offsetting the payments had no basis in the statute, showed that the Treasury knew its approach could amount to double taxation, and ignored the fact that some money put into the trust fund would be used to make payments during different tax years.  Accordingly, the Court reversed the summary disposition the trial court had granted in the Department’s favor.

On May 4, 2010, the Court of Appeals approved for publication a previously released opinion in Midwest Business Corp. v. Department of Treasury, No. 288686.  Plaintiff was in the business of selling bus parts and remanufacturing buses.  Plaintiff had remanufacturing contracts with various transit authorities that involved the sale and installation of bus parts in Michigan, on buses that were then shipped to destinations outside of Michigan.  The Court of Appeals rejected plaintiff’s argument that revenue from the remanufacturing contracts should have been sourced to the destinations as sales of tangible personal property under the single business tax act (“SBTA”), MCL § 208.1 et seq.  The Court of Appeals agreed with the Court of Claims that the sale of the bus parts with respect to these contracts was merely incidental to the service of rehabilitating the buses, which was performed in Michigan.  Here, the Court of Appeals determined that plaintiff was not acting simply as a retailer of bus parts, but was selling remanufacturing services that included disassembling, removing, repairing, inspecting, reconditioning, rebuilding, replacing, restoring, painting, servicing, cleaning, testing, and reassembling various components and parts of the buses.  The Court of Appeals held that the remanufacturing contracts at issue, as well as similar remanufacturing contracts, are predominantly for the provision of service and properly sourced to Michigan under the SBTA where the service was actually performed.

In First Industrial, L.P. v. Department of Treasury, No. 139748, the Michigan Supreme Court unanimously reversed the Court of Appeals’ decision in lieu of granting the application for leave.  The Court concluded that the Court of Appeals failed to give respectful consideration to the long-standing policy of the Department of Treasury regarding the carryover of business losses under the now-repealed Single Business Tax Act.  The Court reinstated the decision of the Court of Claims which held, consistent with the Department of Treasury’s published policy, that a business is only entitled to a carryover of a predecessor’s entity’s business losses after an asset transfer if the predecessor entity has ceased all operations and rejecting the plaintiff’s argument that the cessation of operations in Michigan is sufficient.

The Court also denied leave to appeal in Esselman v. Garden City Hospital, No. 139288, a medical malpractice action.  The case is noteworthy only for the unusual alignment of justices.  The decision sparked a strongly worded dissent from Justice Young accusing the majority of countenancing a departure from the standard for Notices of Intent set forth in Roberts v. Mecosta County Hospital, 470 Mich. 679 (2004).  Justice Young’s dissent was joined by Justice Corrigan.  Chief Justice Kelly replied with an equally strongly worded concurrence rejecting Justice Young’s criticism.  Interestingly, Justice Markman issued a concurrence in which he distinguished the Court of Appeals’ decision from Roberts, but Justice Weaver indicated that she would have granted leave.  Thus, Justices Corrigan, Weaver, and Young would have granted leave, but Justice Markman voted with Chief Justice Kelly and Justices Cavanagh and Hathaway to deny leave.

On April 6, 2010, the Court of Appeals published a per curiam opinion in the consolidated cases of One’s Travel Ltd. v. Dep’t of Treasury, No. 287254 and Data Tech Services Inc., No. 287255.  Plaintiffs are for-profit Michigan corporations that are subject to taxation under the Single Business Tax Act (SBTA), MCL § 208.1 et seq.  Plaintiffs are subsidiaries of a state-chartered credit union that is exempt from taxation under the SBTA.  The SBTA has a small business tax credit that reduces the single business tax liability of an entity whose “gross receipts” do not exceed a certain threshold amount. 

For an entity that is part of (1) an affiliated group, (2) a controlled group of corporations, or (3) an entity under common control, the individual entity qualifies for the tax credit only if the aggregated “business activities” of all the entities in the group do not exceed the threshold amount.  The Court of Appeals concluded that the subsidiaries and the tax-exempt credit union formed an “affiliated group.”  The Court of Appeals also determined that the credit union has business activity because it transfers property and performs services within Michigan with the objective of benefit to others.  Because the consolidated gross receipts exceed the threshold amount, the subsidiaries do not qualify for the tax credit.  The Court of Appeals affirmed the Court of Claims’ ruling in favor of the Michigan Department of Treasury.

Yesterday, the Michigan Supreme Court issued a unanimous opinion in the consolidated appeal of Briggs Tax Service, LLC v. Detroit Public Schools, Nos. 138168, 138179, 138182, reversing the Court of Appeals and reinstating the decision of the Tax Tribunal dismissing the petitioner’s claims.  Briggs claimed that the defendants had collected property taxes from it for three years for a millage that was not in effect.  The Supreme Court agreed with the Tax Tribunal that the 3-year window in MCL § 211.53a for recovering excess taxes paid because of a mutual mistake of fact by the assessor and taxpayer did not apply.  Instead, the claims had to be filed within 30 days of issuance of the tax bills.  Briggs’ claims were therefore untimely. Read more »

On March 16, 2010, the Court of Appeals issued a 2-1 opinion in Kasberg v. Ypsilanti Twp., No. 287682.  The Court of Appeals reversed the Michigan Tax Tribunal’s dismissal of an appeal regarding a township’s tax assessment of a parcel of real property.  The appellants had filed this appeal with the Tax Tribunal, arguing that the township wrongfully denied them a tax exemption known as a “payment in lieu of taxes” (PILOT) pursuant to the State Housing Development Authority (SHDA) Act.  MCL § 125.1415a.  The Tax Tribunal granted summary disposition in favor of the township, on the ground that the Tax Tribunal lacked jurisdiction.  The Court of Appeals held that the Tax Tribunal has exclusive and original jurisdiction over any “proceeding for direct review of a final decision . . . relating to assessment . . . under the property tax laws of this state” pursuant to the clear and unambiguous language of MCL § 205.731(a). 

Judge Markey’s dissent can be found here.

After oral argument, the Supreme Court vacated its order granting leave to appeal in Superior Hotels, L.L.C. v. Township of Mackinaw, No. 138696, and denied leave to appeal because the Court was “no longer persuaded that the question should be reviewed.”  The Court originally granted leave to address whether the State Tax Commission has jurisdiction to correct an error in the taxable value of real estate in earlier years where no portion of the property was omitted. 

The Court of Appeals concluded that the State Tax Commission did have jurisdiction to correct this type of error, reversing the decision of the Tax Tribunal.  The Court of Appeals’ published decision remains controlling authority on this issue.  Our earlier post on the decision is here.

In Wolf v. City of Detroit, No. 279853 (published Jan. 21, 2010), the Court of Appeals concluded that the solid waste inspection fee imposed by the City of Detroit was not a disguised tax and therefore did not violate the Headlee Amendment, which prohibits imposing a tax without a vote of the City’s electorate.

Read more »

On January 14, 2010, the Michigan Court of Appeals released its published opinion in the consolidated cases of Michigan’s Adventure, Inc. v. Dalton Township, No. 283770, and Essex v. Dalton Township, No. 283869.  The plaintiffs sought to challenge the validity of the defendants’ special tax assessment (the “Dalton Tax”) in Michigan circuit court.  The Court held that the circuit court did not have jurisdiction; the Michigan Tax Tribunal (“MTT”) had exclusive jurisdiction over the plaintiffs’ claims.  The Court’s opinion may be found here.

Read more »

On January 12, 2010, the Court of Appeals published its opinion in Paris Meadows, LLC v. City of Kentwood, No. 286978.  This case presented the question of whether an as-yet undeveloped area of a condominium subdivision that had been designated in the master deed as part of the general common area, but which the developer retained the right to develop with additional units, could be taxed separately from the other condominium units.  The Court of Appeals concluded that it could not be taxed separately.  It analyzed the Michigan Condominium Act’s definitions and taxation provisions, and concluded that municipalities lack authority to tax any part of a condominium project separately from the units themselves, unless that part has been withdrawn from the common elements pursuant to the terms of the statute.  Here, the area in question was still part of the common elements, and was not withdrawn.  Thus, it was not subject to separate taxation.  Such common elements are only subject to taxation via pro rata shares attributable to the individual condominium units.

On December 29, 2009, the Court of Appeals published its opinion in Granger Land Development Co. v. Department of Treasury, Case No. 286355.  Under the unique facts of the case, the Court reaffirmed the proposition that the use or consumption of personal property is exempt from Michigan’s use tax when it is used for industrial processing and is not affixed to or used in the development of real property.  Granger, a landfill operator, employs a complicated and involved process for removing both methane gas and wastewater, or leachate, from its landfills.  In short, Granger constructs impermeable cells, complete with compactors and horizontal and vertical wells, to monitor and capture leachate and methane gas.  Ultimately, Granger sells the captured methane to other companies, which in turn burn the gas to create electricity they sell to a local utility.  At issue was whether the materials and equipment used and consumed to build and maintain these cells should be subject to use tax. Read more »

On December 29, 2009, the Court of Appeals published its consolidated opinion in multiple appeals related to classification of assessable property, Nos. 291579, 291586, 291729, 291730, 291731, 291732, 291733, 291734, and 291907.  In each of these cases, plaintiffs owned assessable parcels of property and challenged the classification of that property to the March board of review.  Then each plaintiff appealed the decision of the March board of review to the State Tax Commission (“STC”) through filing of a classification complaint petition pursuant to MCL § 211.34c(6).  The STC upheld the classification in all these cases, and plaintiffs filed complaints in the relevant circuit courts.  The STC moved for summary disposition in each case on the grounds that the circuit courts lacked jurisdiction.  The Court of Appeals found the circuit courts erred in denying summary disposition in these cases.  Specifically, the Court of Appeals found that MCL § 211.34c(6) “clearly states that an appeal may not be taken from STC’s decision in a property classification appeal.”  Additionally, the Court of Appeals found that review under the Administrative Procedures Act is inapplicable because the STC review does not constitute a “contested case.”  The Court of Appeals also rejected arguments that the right to review exists in the Revised Judicature Act or the Michigan Constitution on the grounds that both provide for the Legislature to exert authority over administrative review, and here the Legislature decided to exercise that authority by cutting off appellate review to the circuit court.

Three years ago, the Court of Appeals addressed whether a financing provider for vehicles sales qualified as a taxpayer, when it was the dealer, not the financing provider, that actually paid the taxes on the vehicle sale.  If the financing provider qualified as a taxpayer under MCL § 205.54i, then it could deduct from its total proceeds any bad debts (debts that were uncollectible).  After the Court of Appeals concluded in that case, DaimlerChrysler Services North America, LLC v. Department of Treasury, 271 Mich App 625 (2006), that the financing provider could benefit from this tax reduction because it was acting in combination with the dealer and so was part of a single taxable unit, the Legislature amended MCL § 205.54i specifically to reverse DaimlerChrysler.  The amendment provided it was “curative” and “shall be retroactively applied” to express “the original intent of the legislature that a deduction for a bad debt for a taxpayer . . . is available exclusively to those persons with the legal liability to remit the tax on the specific sale at retail.”  The amendment stated that it “correct[s] any misinterpretation of the meaning of the term ‘taxpayer’ that may have been caused by the Michigan [C]ourt of [A]ppeals decision in Daimler Chrysler.”  The amendment had one narrow exception:  If a court had already issued a final order granting a refund under DaimlerChrysler (and the window for appealing that final order had closed), that refund was permissible if payable within the one-month period of October 2009.

Yesterday, the Court of Appeals rejected an appeal by a financing provider who contended that the Legislature intended in the exception to preserve refunds for any entity that was previously entitled to a refund under DaimlerChrysler.  In GMAC LLC v. Department of Treasury, Nos. 289261, 289262, & 289263 (published Nov. 19, 2009), the Court concluded that this argument was “contrary to the plain language of the statute” and that the amendment applied retroactively.  Because GMAC did not fall within the narrow exception, the Court held that it did not qualify for the bad-debt reduction.  The Court also rejected GMAC’s argument that it had been deprived of due process, citing a U.S. Supreme Court case stating that “a taxpayer has no vested right in [tax legislation].”

On October 27, 2009, the Michigan Court of Appeals published its opinion in Prayer Temple of Love v. Wayne County Treasurer, No. 282995.  The case arises out of a foreclosure action initiated by the Wayne County Treasurer against the Prayer Temple based upon an unpaid assessment of property taxes.  Prayer Temple defended the foreclosure action arguing that its property was used for religious purposes and therefore was statutorily exempt from property taxes.  The Wayne County Treasurer disagreed, arguing that Prayer Temple’s outreach center was leased to a private party.  During the foreclosure proceedings the Wayne County Circuit Court agreed with Prayer Temple and ruled it was exempt from the assessed taxes.  The Court of Appeals, however, concluded that the Circuit Court did not have jurisdiction to make that ruling.  The Court of Appeals held that the Circuit Court can hear purely legal challenges to an assessment (i.e., that a tax assessment was made under the authority of an unconstitutional statute), but that the relevant statutes invest the Michigan Tax Tribunal with exclusive jurisdiction to hear arguments that factual circumstances render an assessment improper.  Thus, the Court of Appeals concluded that the Circuit Court did not have the jurisdiction to conclude that Prayer Temple was entitled to the protection of the religious-purposes exception to property taxes.

The Court of Appeals published its opinion in PNC Bank National Association v. Department of Treasury, No. 283560, on September 8, 2009.  The Court of Appeals affirmed the Court of Claims’ grant of summary disposition to the Michigan Department of Treasury (DOT).  The DOT made a tax assessment against a national banking association based in Pennsylvania by including interest income from loans, which were either loans secured by real property located in Michigan or were unsecured loans made to Michigan customers, when calculating its Single Business Tax (SBT).  The Court of Appeals rejected the association’s argument that the interest income should not be included in its SBT tax base because it received payments from these Michigan loan transactions at an out-of-state mailing address.  In interpreting the applicable statute that was in effect during the relevant tax years, MCL § 208.65 (repealed December 31, 2007), the Court of Appeals held that the association received interest income as a result of business activity within Michigan and therefore must pay Michigan tax on that interest.  We posted about this case in more detail earlier here.