JAMES RIVER PAPER CO INC V DEPT OF TREASURY
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STATE OF MICHIGAN
COURT OF APPEALS
JAMES RIVER PAPER COMPANY, INC.,
UNPUBLISHED
June 20, 2000
Plaintiff-Appellee,
v
No. 214884
Court of Claims
LC No. 92-014540-CM
DEPARTMENT OF TREASURY,
Defendant-Appellant.
Before: Zahra, P.J., and White and Hoekstra, JJ.
PER CURIAM.
Defendant appeals as of right the amended order of the court of claims requiring defendant to
pay a single business tax refund to plaintiff in the amount of $90,464, plus statutory interest. The court
of claims granted summary disposition to plaintiff and entered this order on the basis of the court’s
interpretation and application of the Single Business Tax Act (SBTA), MCL 208.1 et seq.; MSA
7.558(1) et seq., explaining that “the statute should not be . . . interpreted to require the taxpayer to
attribute the depreciation add back where the taxpayer did not receive a [capital acquisition
deduction].” The court of claims reasoned that the statute could be construed this way and that this
construction was consistent with the overall scheme of the statute. Despite the logic of the court of
claims’ decision, we conclude that the unambiguous language of the statute does not provide for this
interpretation. We hold that the SBTA requires plaintiff to add back depreciation when determining its
tax base under MCL 208.9; MSA 7.558(9), and thus we reverse.
In this single business tax case, plaintiff, a Virginia corporation that transacted business in
Michigan1 during the relevant period, the 1985 tax year,2 requested a refund on single business taxes for
1
Although not relevant to this appeal, we note that James River Corporation of Virginia was the parent
corporation of plaintiff. A 1985 merger and reorganization resulted in the transfer of assets to plaintiff.
After the merger, plaintiff was a multistate taxpayer subject to Michigan tax liability because two of the
merged corporations whose assets plaintiff acquired had locations in Michigan.
2
The 1985 tax year began April 29, 1985, and ended April 27, 1986.
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that tax year. Defendant denied this request, and thereafter plaintiff filed suit in the court of claims
seeking to obtain a single business tax refund plus interest.
Plaintiff moved for summary disposition, focusing its argument on its alleged entitlement to the
capital acquisition deduction (CAD) with regard to its construction-in-progress assets obtained in a
statutory merger. As an alternative, plaintiff argued that if it is not entitled to the CAD, it should not be
required to add back depreciation when calculating its tax base. Defendant, in turn, filed a cross-motion
for summary disposition and principally argued that plaintiff was not entitled to the CAD. At the hearing
on the parties’ motions for summary disposition, the court of claims construed the CAD provision,
MCL 208.23(a); MSA 7.558(23)(a), in a manner favorable to defendant; that is, it concluded that the
SBTA did not allow plaintiff to take the CAD for assets that it acquired during a 1985 merger.
However, the court of claims agreed with plaintiff’s “fall-back” position that it was not required to add
back the depreciation of the assets acquired in the merger to its single business tax base where plaintiff
did not receive the CAD. 3
This Court reviews the t ial court’s decision to grant or deny summary disposition de novo.
r
Spiek v Dep’t of Transportation, 456 Mich 331, 337; 572 NW2d 201 (1998). Resolution of the
issue on appeal also requires this Court to engage in statutory interpretation. We review questions of
law, including statutory interpretation, de novo. Messenger v Dep’t of Consumer & Industry
Services, 238 Mich App 524, 530; 606 NW2d 38 (1999). Recently, in Sun Valley Foods Co v
Ward, 460 Mich 230, 236; 596 NW2d 119 (1999), our Supreme Court summarized the well
established rules of statutory construction:
The foremost rule, and our primary task in construing a statute, is to discern and give
effect to the intent of the Legislature. This task begins by examining the language of the
statute itself. The words of a statute provide "the most reliable evidence of its intent...."
If the language of the statute is unambiguous, the Legislature must have intended the
meaning clearly expressed, and the statute must be enforced as written. No further
judicial construction is required or permitted. Only where the statutory language is
ambiguous may a court properly go beyond the words of the statute to ascertain
legislative intent. [Citations omitted.]
On appeal, defendant argues that the court of claims erred in granting plaintiff summary
disposition because the court’s ruling that plaintiff was not required to add back depreciation deducted
on its federal tax return pursuant to MCL 208.9(4); MSA 7.558(9)(4) was based on an erroneous
interpretation of the clear language of the SBTA. In response to defendant’s argument, plaintiff
contends, and the court of claims agreed, that it should be exempted from the depreciation add back
requirement of MCL 208.9(4)(c); MSA 7.558(9)(4)(c) as to the construction-in-progress assets it
obtained in a 1985 statutory merger because it did not take the CAD for these assets. Plaintiff
maintains that its interpretation of the statute is necessary to avoid double-taxation of the construction
3
See MCL 208.9(4)(c); MSA 7.558(9)(4)(c).
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in-progress assets. Plaintiff alleges that double-taxation would occur if defendant does not allow plaintiff
to take the CAD, and yet requires plaintiff to add back the assets’ depreciation pursuant to MCL
208.9(4)(c); MSA 7.558(9)(4)(c) to arrive at its tax base and also requires plaintiff to “recapture” the
CAD when it sells the assets in question, pursuant to MCL 208.23b(a); MSA 7.558(23b)(a).4
We find that the court of claims erred in holding that plaintiff is exempt from adding back the
depreciation of the construction-in-progress assets to its profits to arrive at its tax base, which MCL
208.9(4)(c); MSA 7.558(9)(4)(c) explicitly requires, because there is no express provision in the
SBTA that supports this conclusion. MCL 208.9(4)(c); MSA 7.558(9)(4)(c) states clearly that to the
extent deducted in arriving at federal taxable income, a taxpayer must add back the value of
depreciation of personal property to its profits in order to arrive at its pre-apportionment tax base, and
thus this provision must be enforced as written. See Sun Valley Foods, supra. The SBTA does not
provide that the add back of depreciation is contingent on whether the taxpayer took the CAD for the
personal property at issue.
The court of claims’ view of the add back provision ignores the fact that the single business tax
is a consumption-type value-added tax that taxes the user of economic inputs, such as tangible personal
property. See Mobil Oil Corp v Dep’t of Treasury, 422 Mich 473, 496 n 14, 498; 373 NW2d 730
(1985). Under this theory, the question asked is not who owns the input, but who used the input and
combined it with others in order to add value to the economy. Id. at 498. In the case of tangible
personal property, depreciation represents that portion of the value of the personal property that was
used in production; it is an “input” which, in combination with other economic inputs, adds value to the
economy. See id., 496 n 14. Thus, the value of the depreciation of personal property is included in the
taxpayer’s pre-apportionment tax base for the purposes of the SBTA. Plaintiff is incorrect in its attempt
to portray its single business tax liability as contingent on whether it took the CAD for the assets at
issue. Nothing in the statutory scheme links these two separate provisions together, making one
dependent on the other.5 Thus, because the statutory language controls, see Sun Valley, supra, the trial
court erred in granting summary disposition to plaintiff.
4
On appeal, both parties focus attention on the court of claims’ decision with regard to the CAD;
however, the only issue raised on appeal is whether plaintiff is entitled to forgo adding back depreciation
as an adjustment to its tax base. Because plaintiff makes no cross-appeal with regard to the court of
claims’ determination that plaintiff was not entitled to take the CAD, plaintiff’s argument that plaintiff is
entitled to the CAD is not properly before us. Further, although plaintiff addresses a sub-argument to
the proper application of § 23b, the “recapture” section, defendant does not address this section, the
judgment does not address this section, and the tax refund ordered does not appear to relate to this
section. We therefore conclude that the operation of § 23b is not properly before us.
5
Indeed, the provision in effect in 1986, impliedly recognizes that the add back of depreciation
deducted in arriving at federal taxable income is not tied to the CAD. The statute provided:
(4) Add, to the extent deducted in arriving at federal taxable income:
(continued...)
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Reversed.
/s/ Brian K. Zahra
/s/ Helene N. White
/s/ Joel P. Hoekstra
(...continued)
***
(c) Any deduction for depreciation, amortization, or immediate or accelerated write-off
related to the cost of tangible assets for which a capital acquisition deduction was
claimed in any tax year pursuant to section 23, and for the 1976 tax year, 72%, and for
the 1977 tax year and subsequent tax years 100% of any deduction for other
depreciation, amortization, or immediate or accelerated write-off related to the cost of
tangible assets. [Emphasis supplied.]
Further, we reject plaintiff’s argument that in interpreting § 23(a), the CAD provision, defendant placed
a gloss on the word “cost” that requires that the same word, when used in § 9(4)(d), the add back
provision, be construed as excluding the depreciation at issue here. Defendant did not place a gloss on
the word “cost”; rather, it interpreted the words “paid or accrued” in that section.
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