ARAMARK SERVICES INC V DEPT OF TREASURY
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STATE OF MICHIGAN
COURT OF APPEALS
ARAMARK SERVICE, INC.,
UNPUBLISHED
August 11, 2009
Plaintiff-Appellant,
v
No. 284267
Ingham Circuit Court
LC No. 06-000091-MT
DEPARTMENT OF TREASURY,
Defendant-Appellee.
Before: Owens, P.J., and Talbot and Gleicher, JJ.
PER CURIAM.
In this case brought under Michigan’s Single Business Tax Act (SBTA) MCL 208.1 et
seq, repealed by 2006 PA 325, plaintiff appeals as of right from an order granting defendant
summary disposition under MCR 2.116(I)(2). We reverse.
I. Facts
Plaintiff, Aramark Services, Inc., is a Delaware corporation with its principal place of
business in Philadelphia, Pennsylvania. During the time period relevant to this controversy,
plaintiff conducted business within the State of Michigan. Defendant Department of Treasury is
statutorily responsible for the collection of taxes under the Single Business Tax Act (SBTA),
pursuant to 1975 PA 228, MCL 208.1 et seq. The tax in controversy is the Michigan Single
Business Tax (SBT) paid by plaintiff for tax years beginning October 1, 1993 through September
30, 1998.
Plaintiff timely filed its SBT annual returns for the years in issue. On March 28, 2006,
defendant issued to plaintiff a bill for taxes due, which assessed SBT of $792,198.00 and interest
of $685,309.08 for the years in issue. On May 2, 2006, plaintiff paid the final assessment in full
under protest.
Plaintiff wholly owns several subsidiaries. To assist its subsidiaries, plaintiff borrowed
money from lenders and loaned it to its subsidiaries for their use in conducting business activity.
Plaintiff paid interest to the lenders as compensation for the use and forbearance of the borrowed
money. Plaintiff allocated the interest charges on the borrowed money to its subsidiaries, which
paid the interest to plaintiff. The interest paid by plaintiff’s subsidiaries to plaintiff was interest
arising solely from the subsidiaries’ use of the money borrowed by plaintiff on the subsidiaries’
behalf.
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Plaintiff and its subsidiaries filed a consolidated federal income tax return. The interest
payments made to lenders were deducted when arriving at the federal taxable income of the
consolidated group; the interest payments were allocated to plaintiff’s subsidiaries in pro forma
federal income tax returns prepared for plaintiff and its subsidiaries. In the final assessment,
defendant included in plaintiff’s SBT base the interest paid to lenders for the loans attributable to
plaintiff’s subsidiaries.
In ruling in favor of defendant, the trial court concluded that plaintiff, not its subsidiaries,
was paying interest to the lender.
I. Standard of Review
We review a motion for summary disposition under MCR 2.116(I)(2) de novo. Sharper
Image Corp v Dep’t of Treasury, 216 Mich App 698, 701; 550 NW2d 596 (1996). We also
review questions of statutory interpretation de novo. In re MCI Telecommunications, 460 Mich
396, 413; 596 NW2d 164 (1999). The goal of statutory interpretation is to give effect to the
intent of the Legislature. Gladych v New Family Homes, Inc, 468 Mich 594, 597; 664 NW2d
705 (2003).
III. Analysis
The SBTA is not a tax on income, but rather, a tax placed on the value-added portion of a
product, which allows for certain exclusions, exemptions, and industry-specific adjustments.
ANR Pipeline Co v Dep’t of Treasury, 266 Mich App 190, 198; 699 NW2d 707 (2005). “Value
added” is considered to be the increase in the value of goods and services created by whatever a
business does to them between the time of purchase and the time of sale. Id., quoting Trinova
Corp v Dep’t of Treasury, 433 Mich 141, 149; 445 NW2d 428 (1989). “In short, a value-added
tax is a tax upon business or economic activity.” Id., citing Trinova, supra at 149.
SBT liability is calculated starting with the taxpayer’s business income, which is also that
taxpayer’s federal taxable income. MCL 208.9; MCL 208.3(3). From that base, adjustments are
made to increase this base amount for items paid by the taxpayer that do not reduce the value
added to the product, including dividends, interest, and depreciation, but only to the extent
deducted from the federal taxable base. MCL 208.9(4); ANR Pipeline Co, supra at 199. Next,
adjustments are made to decrease this base amount for dividends, interest, and royalty income
received by the taxpayer. MCL 208.9(7); Id. “These items are removed from the SBT base
because, although those items represent income for federal tax purposes, they do not represent
value added to the product. That is, they do not result from the use of capital by the recipient.”
Id. Under the SBTA, once these adjustments have been made, the taxpayer will be liable for tax
in accordance with the adjusted tax base multiplied by the existing SBT percentage. MCL
208.31.
The question here is whether interest payments relative to loans obtained by plaintiff, on
behalf of plaintiff’s subsidiaries, should be included in plaintiff’s SBT base, or that of its
subsidiaries, where the subsidiaries were responsible for reimbursing plaintiff for the loan
payment amounts.
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“For ease of administration . . . the SBTA uses the federal income tax system as a
reference and starting point, and through various required additions and subtractions, converts
the federal tax base into a consumption-type [value-added tax] VAT base.” Mobil Oil v Dep’t of
Treasury, 422 Mich 473, 497; 373 NW2d 730 (1985); MCL 208.9. The necessary adjustments
are made only “to the extent deducted [and included] in arriving at federal taxable income.”
MCL 208.9(4).
Typically, a taxpayer’s federal taxable income is determined based on the taxpayer’s
federal income tax returns, which are prepared by the taxpayer and submitted to the Internal
Revenue Service. Here, plaintiff and its subsidiaries filed a consolidated federal income tax
return. In accordance with federal regulations, plaintiff attached pro forma returns to its federal
income tax return to differentiate the income and associated tax applicable for it and each
subsidiary.1 The parties stipulate that the interest payments were allocated to plaintiff’s
subsidiaries for federal income tax purposes.
The goal in statutory construction is to discern and give effect to the Legislature’s intent.
Neal v Wilkes, 470 Mich 661, 665; 685 NW2d 648 (2004). The intent of the Legislature is most
reliably evidenced through the words used in the statute. Id. If the language in the statue is
unambiguous, judicial construction is neither required nor permitted. Nastal v Henderson &
Assoc Investigations, Inc, 471 Mich 712, 720; 691 NW2d 1 (2005), citing Sun Valley Foods Co v
Ward, 460 Mich 230, 236; 596 NW2d 119 (1999). However, if a statute is ambiguous then
judicial construction is appropriate. Adrian School Dist v Michigan Pub School Employees
Retirement Sys, 458 Mich 326, 332; 582 NW2d 767 (1998). A statute is ambiguous “only if it
‘irreconcilably conflict[s]’ with another provision or when it is equally susceptible to more than a
single meaning.” Fluor Enterprises, Inc v Dep’t of Treasury, 477 Mich 170, 177 n 3; 730 NW2d
722 (2007) (emphasis in original).
Here, considering the plain language of the statute, the Legislature did not give defendant
discretion to determine whether an adjustment made under the SBTA was necessary, but instead
provided under the SBTA that adjustments were to be made only to the extent deducted or
included for federal tax purposes. The provisional language under MCL 208.9(4), “to the extent
deducted [and included] in arriving at federal taxable income,” is not ambiguous. It clarifies
that adjustments cannot be made unless they were first part of the taxpayer’s federal taxable
income.
The language in the SBTA provides for use of the taxpayer’s federal taxable income as
the starting point for the SBTA, implying that the Legislative relied on and accepted the internal
revenue code credit and deduction regimen. Here, plaintiff filed a consolidated federal income
1
Federal consolidated returns are authorized under internal revenue code (IRC) section 1501,
although IRC section 1502 requires income tax to be determined to clearly reflect income-tax
liability. 26 USC 1501; 26 USC 1502. IRC section 482 authorizes the allocation of income and
deductions between organizations where two or more organizations are owned or controlled by
the same interest, and the allocation will clearly reflect the income of the organization. 26 USC
482.
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tax return, as permitted by federal law. With its consolidated return, plaintiff filed pro forma
returns to outline the federal taxable income for it and each subsidiary in accordance with federal
tax laws.2
Had the Legislature intended to ensure that every credit and deduction was taken strictly
by the organization that paid or received funds, it could have included this language in the
SBTA. The Legislature did not include such a requirement. Instead, it relied on federal tax law
as the starting point, and permitted credits and deductions only to the extent included in the
taxpayer’s taxable income.
“Tax laws generally will not be extended in scope by implication or forced construction.
When there is doubt, tax laws are to be construed in favor of the taxpayer.” Michigan Bell Tel
Co v Dep’t of Treasury, 445 Mich 470, 477; 518 NW2d 808 (1994). However, exemptions from
tax are not favored and must be construed strictly in favor of the government. Elias Bros
Restaurants, Inc v Dep’t of Treasury, 452 Mich 144, 150; 549 NW2d 838 (1996).
For the foregoing reasons, the Court of Claims erred in concluding that plaintiff was
required to include interest in its tax base where the interest was deducted by plaintiff’s
subsidiaries for federal taxable income purposes. Given this disposition, we need not address the
remaining issues.
Reversed and remanded for proceedings consistent with this opinion. We do not retain
jurisdiction.
/s/ Donald S. Owens
/s/ Michael J. Talbot
/s/ Elizabeth L. Gleicher
2
Although the Legislature provided the definition of “affiliated group,” and the qualifications
necessary to file a consolidated SBT return, it does not force a parent corporation and its
subsidiaries to file a joint return where each organization is a “person” under the Act. MCL
208.3; MCL 208.6. Had the Legislature intended that result, it could have easily included that in
the SBTA.
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