Opinion
Docket No. 124639.
Decided November 4, 1991, at 9:25 A.M.
Howard Howard (by Patrick R. Van Tiflin and Todd D. Chamberlain), for the plaintiff.
Frank J. Kelley, Attorney General, Gay Secor Hardy, Solicitor General, and Richard R. Roesch and Daniel M. Greenberg, Assistant Attorneys General, for the defendant.
Before: NEFF, P.J., and GILLIS and MICHAEL J. KELLY, JJ.
This case arose out of a 1986 audit by defendant Michigan Department of Treasury of plaintiff Montgomery Ward Company, Inc., for the 1982, 1983, and 1984 tax years. On March 3, 1987, a notice of intent to assess a single business tax deficiency was issued by defendant. Plaintiff paid $1,591,811.74 under protest and then appealed the payment to the Court of Claims. Defendant brought a counterclaim which was dismissed for lack of subject-matter jurisdiction. The court entered a judgment in favor of plaintiff and against defendant for refund of the single business tax paid and payment of statutory interest. Defendant appeals as of right. We affirm.
I
We note at the outset that this case was resolved on the basis of procedural considerations, not the substantive claims relating to tax liability. For clarity, however, we will briefly set out the uncontested facts of this case.
The single business tax allows a taxpayer to subtract interest income from its tax base. MCL 208.9(7)(b); MSA 7.558(9)(7)(b). Defendant contended that plaintiff had improperly subtracted interest income from its tax base.
As a retail seller, plaintiff makes many sales on credit and then assesses finance charges on those credit balances not paid within thirty days. Plaintiff then sells to Montgomery Ward Credit Corporation (MWCC) its unpaid credit accounts on a monthly basis. The sale includes its unpaid credit accounts and all finance charges accrued on the date of the transfer to MWCC. By the terms of the agreement between plaintiff and MWCC, the ownership of subsequent finance charges remained with plaintiff, and the finance charges were sold to MWCC only after they accrued. Plaintiff then subtracted these later-accrued finance charges from its single business tax base on the theory that they represented interest income earned. Defendant contended that the interest payments received by plaintiff after the sale of the underlying obligation to MWCC should not be treated as interest income of plaintiff, but, rather, should be attributed to MWCC. In October 1986, plaintiff met with defendant in order to discuss the basis of the assessed tax deficiency. No final assessment had been issued by defendant for the amount assessed and paid by plaintiff.
On March 12, 1987, plaintiff paid $43,385, plus interest, on the tax asserted in the notice of intent to assess. On April 8, 1987, plaintiff paid the additional sum of $1,591,811.74 under protest. On July 7, 1987, plaintiff brought suit in the Court of Claims, seeking a refund of the taxes paid under protest. Defendant thereafter filed its answer. Plaintiff did not exercise its right to an informal conference with the Commissioner of Revenue following receipt of the notice of intent to levy. Plaintiff also did not seek a refund from the commissioner for any of the amount appealed to the Court of Claims.
In June 1988, defendant successfully moved to be allowed to file an amended answer and counterclaim, in which it presented a new and alternate theory of liability. Defendant contended that when plaintiff sells its accounts receivable to MWCC, plaintiff pays to MWCC a periodic discount amount that is intended to provide MWCC with an amount equal to 1.5 times the fixed charges on its debt. Its debt is generated by its sale of commercial paper to third parties. The fixed charges are the interest on the commercial paper together with administrative expenses. The single business tax requires the addition of interest payments back to the tax base. MCL 208.9(9)(4)(f); MSA 7.558(9)(4)(f). Defendant asserted that the discount payments made by plaintiff to MWCC should be added back to its tax base.
The Court of Claims granted plaintiff's motion for summary disposition of defendant's counterclaim on the basis that defendant had failed to follow the notice procedures of the Single Business Tax Act and the revenue act. These acts required defendant to provide plaintiff with notice, an opportunity for an informal conference, and a written decision setting forth the reasons for its assessment. Accordingly, the Court of Claims found that it lacked subject-matter jurisdiction of the counterclaim. Defendant thereafter moved to dismiss plaintiff's complaint for lack of subject-matter jurisdiction on the basis that plaintiff had failed to follow statutorily established methods of seeking a tax refund or relief from an assertion of tax due, but the Court of Claims denied defendant's motion.
Plaintiff also moved for summary disposition with regard to its principal claim for refund on the grounds that there was no material issue of fact and defendant had failed to state a valid defense to plaintiff's claim. The court entered a judgment of summary disposition in favor of plaintiff.
II
Defendant first argues that the Court of Claims erred in denying its motion to dismiss for lack of jurisdiction because an appeal from a notice of intent to assess is not statutorily authorized. Plaintiff argues that its appeal to the Court of Claims is jurisdictionally sound. We agree with plaintiff.
If the plain and ordinary meaning of statutory language is clear, judicial construction is normally neither necessary nor permitted. Nat'l Exposition Co v Detroit, 169 Mich. App. 25, 29; 425 N.W.2d 497 (1988). Here, the language of §§ 21 and 22 of the revenue act clearly evidences an intent by the Legislature to allow an appeal from a notice of intent to assess.
Sections 21 and 22 of the revenue act, MCL 205.21; MSA 7.657(21) and MCL 205.22; MSA 7.657(22), govern the procedure for assessment of tax due and appeals from those assessments. Section 21(1) provides in pertinent part:
As soon as possible after procuring information, the department shall assess the tax determined to be due and shall notify the taxpayer of the assessed amount and the specific reasons for the assessment.
Section 21(2) provides that, after determining the amount of tax due from a taxpayer, the department shall give notice to the taxpayer of its intent to levy the tax, and the notice shall include a statement advising the taxpayer of the right to an informal conference. That section further provides in pertinent part:
If the taxpayer serves written notice upon the department within 20 days after receipt of the notice to the taxpayer and remits the uncontested portion of the liability, the taxpayer may request an informal conference on the question of liability for the assessment. . . . The taxpayer may appear or be represented before the department and present testimony and argument. After the conference, the commissioner shall render a decision and order in writing, setting forth the reasons and authority, and levy any tax, interest, and penalty found to be due and payable. The assessments shall be final and subject to appeal as provided in section 22. The final notice of assessment shall include a statement advising the taxpayer of a right to appeal.
Defendant relies on the language that states that a final notice of assessment is appealable to support its argument that a taxpayer may appeal only a final assessment and not the initial assessment found in the notice of the intent to levy taxes described in § 21(1). This argument is not persuasive.
Section 22 of the act deals with appeals from departmental action and states in pertinent part:
(1) A person aggrieved by assessment, decision, or order of the department may appeal the contested portion of an assessment, decision, or order to the .. . court of claims within 90 days after the assessment, decision, or order.
Because § 21(1) clearly describes the amount contained in an initial notice of intent to levy tax as an "assessment," the initial assessment is within the purview of § 22. There is nothing in § 21(2) that indicates that only final assessments that follow an informal conference are meant to be appealable. In this case, plaintiff appealed from the "assessment" contained within the notice of intent to levy.
Section 22 also requires that, in an appeal to the Court of Claims, the appellant must first pay the tax, including penalties and interest, under protest and claim a refund as part of the appeal. Plaintiff correctly paid the amount in controversy before the appeal and then claimed a refund as part of the appeal. Plaintiff therefore satisfied the requirements to perfect the jurisdiction of the Court of Claims.
Plaintiff's arguments are persuasive with respect to why a taxpayer should not have to wait for a final assessment before initiating an appeal. The statute clearly states that a taxpayer "may" request an informal conference. Because this is optional, it should not be a prerequisite to an appeal. Additionally, the notice of intent to levy states that the taxpayer will be assessed additional penalty and interest if the amount assessed is not paid within thirty days. In light of this, it is disingenuous to argue that the notice represented only an intent to assess and not an assessment.
Defendant also argues that plaintiff's payment in response to the notice of intent to levy should be viewed as a voluntary payment. If plaintiff's payment were viewed as voluntary, plaintiff could appeal under § 30 of the revenue act only if it formally sought a refund from the department and that request for refund was denied. Thus, defendant argues that plaintiff failed to exhaust available administrative remedies before seeking an appeal in the Court of Claims. This argument also is not persuasive. While a taxpayer has the option to utilize § 30 to request a refund from a voluntary payment, plaintiff's payment was not voluntary. The notice of intent to levy warned that unless the amount assessed was paid within thirty days, interest and penalty would be assessed. Thus, the payment was not voluntary but was made in response to defendant's threat of additional interest and penalty.
III
Defendant next argues that, even assuming the Court of Claims had jurisdiction, the court erred in dismissing defendant's counterclaim. Once a plaintiff has perfected an appeal and properly invoked the jurisdiction of the Court of Claims, the statutorily prescribed rules and jurisdictional provisions of the Court of Claims apply. Defendant contends that the rules of the Court of Claims specifically allow counterclaims and that its filing of a counterclaim does not offend the requirement of exhaustion of administrative remedies.
Plaintiff contends that the counterclaim filed by defendant set forth an additional theory of recovery of taxes due from plaintiff that was based on a completely different set of operative facts than the first assessment. Plaintiff claims that defendant's filing of a completely different claim violated its rights to notice of assessment, the right to an informal conference, the amount of tax, interest and penalty, and the reasons and authority for the assessment. According to plaintiff, the denial of these rights clearly violated the mandatory statutory protections provided by the revenue act. We agree with plaintiff.
Section 22 of the revenue act requires that an appeal to the Court of Claims
be perfected as provided under . . . chapter 64 of Act No. 236 of the Public Acts of 1961, as amended, being sections 600.6401 to 600.6475 of the Michigan Compiled Laws, and rules adopted under that chapter for the court of claims.
Section 6419(1)(b) of the Court of Claims Act, MCL 600.6419(1)(b); MSA 27A.6419(1)(b), provides that the court has power and jurisdiction:
To hear and determine any claims or demands, liquidated or unliquidated, ex contractu or ex delicto, which may be pleaded by way of counterclaim on the part of the state or any department, commission, board, institution, arm, or agency of the state against any claimant who may bring an action in the court of claims. Any claim of the state or of any department, commission, board, institution, arm, or agency of the state may be pleaded by way of counterclaim in any action brought against the state, or any other department, commission, board, institution, arm, or agency of the state.
In granting plaintiff's motion for summary disposition of defendant's counterclaim, the court found that defendant was required by the terms of either § 87 of the Single Business Tax Act, MCL 208.87; MSA 7.558(87), or § 21(2) of the revenue act, MCL 205.21(2); MSA 7.657(21)(2), to provide plaintiff with notice, an opportunity for an informal conference, and a written decision setting forth the reasons for its assessment. The court further found that defendant had failed to do so before bringing its counterclaim, that it therefore had failed to exhaust its administrative remedies before bringing its counterclaim, and that the court was without subject-matter jurisdiction.
In reaching this decision, the court reasoned that pursuant to Bechtel Power Corp v Dep't of Treasury, 128 Mich. App. 324; 340 N.W.2d 297 (1983), revenue statutes must be construed against the taxing authority, that the mandatory directives of the Single Business Tax Act and the revenue act required defendant to grant these procedural rights to plaintiff, and that the Court of Claims Act and the revenue act, because they deal with the same subject matter, must be construed in the event of a conflict to preserve the meaning and intent of each other so that neither denies the effectiveness of the other. See People v Tucker, 177 Mich. App. 174, 179; 441 N.W.2d 59 (1989), and Paquin v Northern Michigan University, 79 Mich. App. 605, 607; 262 N.W.2d 672 (1977).
This reasoning is especially persuasive because otherwise defendant could "counterclaim" any amount on any theory for the tax years in question. Defendant argues that there is no problem with lack of notice because the counterclaim deals with the same set of "operative facts." This is not much assurance to a taxpayer if any liability alleged to have accrued within a given tax year is considered to have arisen from the same set of "operative facts." Under such circumstances, a taxpayer could be ambushed at the appellate level with an entirely new theory of tax liability and be forced to defend against a much larger tax liability than that from which it originally appealed.
The procedural situations of taxpayer appeal cases are not analogous to the situation in which the typical "counterclaim" arises. In taxpayer appeal cases, the plaintiff's or taxpayer's claim is for relief from a tax assessment imposed by the treasury. If counterclaims are allowed, the defendant would be allowed to assert additional claims against the plaintiff, and the plaintiff would be forced to defend itself without the procedural safeguards considered necessary in the revenue act for imposing tax assessments.
We conclude that the tax assessment asserted by defendant in its counterclaim represented an entirely different theory of liability even though it dealt with the same tax years and transactions. The Court of Claims did not err in dismissing the counterclaim for lack of jurisdiction.
Affirmed.