RICHMOND MASTER DISTRIBUTORS INC V DEPT OF TREASURY
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STATE OF MICHIGAN
COURT OF APPEALS
S. ABRAHAM & SONS, INC.,
FOR PUBLICATION
December 11, 2003
9:00 a.m.
Plaintiff-Appellee,
v
No. 241154
Court of Claims
LC No. 01-018042-MT;
99-017452-CM
DEPARTMENT OF TREASURY,
Defendant-Appellant.
GITZEN COMPANY,
Plaintiff-Appellee,
v
No. 241155
Court of Claims
LC No. 01-018041-MT;
00-017570-CM
DEPARTMENT OF TREASURY,
Defendant-Appellant.
MOTOR CITY TOBACCO AND CANDY
COMPANY,
Plaintiff-Appellee,
No. 241156
Court of Claims
LC No. 01-018045-MT;
00-017572-CM
v
DEPARTMENT OF TREASURY,
Defendant-Appellant.
EBY-BROWN COMPANY,
Plaintiff-Appellee,
v
No. 241157
-1-
Court of Claims
LC No. 01-018044-MT;
00-017569-CM
DEPARTMENT OF TREASURY,
Defendant-Appellant.
RICHMOND MASTER DISTRIBUTORS,
Plaintiff-Appellee,
No. 241158
Court of Claims
LC No. 01-018043-MT;
00-017571-CM
v
DEPARTMENT OF TREASURY,
Defendant-Appellant.
Updated Copy
February 27, 2004
Before: Smolenski, P.J., and Murphy and Wilder, JJ.
WILDER, J.
In these consolidated cases, defendant Department of Treasury appeals by right the trial
court's decisions to grant tax refunds to plaintiffs S. Abraham & Sons, Inc. (Abraham), Gitzen
Company, Motor City Tobacco and Candy Company (Motor City), Eby-Brown Company (EbyBrown), and Richmond Master Distributors, as well as the trial court's decision to award
plaintiffs attorney fees and costs as a contempt sanction. We affirm in part and reverse in part.
I
In 1999, plaintiffs, wholesalers of tobacco products as defined by the Tobacco Products
Tax Act (TPTA), MCL 205.421 et seq., jointly filed a complaint against defendant in the Court
of Claims,1 alleging that, during various periods ranging from 1994 to 1998, they prepaid
tobacco-products taxes to defendant that included taxes on sales to customers who failed to pay
plaintiffs for their purchases. After allegedly reasonable collection efforts failed, plaintiffs
timely requested refunds from defendant in 1998 and 1999 for the taxes they paid on these
uncollectible accounts. Defendant denied plaintiffs' refund requests. In count I of their
complaint, plaintiffs alleged that defendant unlawfully and erroneously interpreted the TPTA and
that plaintiffs were entitled to refunds for overpaid taxes, together with interest, costs, and
1
By filing that action, plaintiffs were appealing a treasury department decision, pursuant to MCL
205.22. Their complaint, however, did not indicate its status as an appeal.
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attorney fees.2 Defendant successfully moved for misjoinder, and plaintiffs then filed separate
but virtually identical complaints.
Thereafter, the parties filed cross-motions for summary disposition. In the Abraham
action, the Court of Claims, Michael G. Harrison, J., concluded that a bad-debt deduction is
available to Abraham under the TPTA, denied defendant's motion for summary disposition, and
granted Abraham's motion for summary disposition. Additionally, the trial court remanded the
case to defendant "for a determination of the refund, if any, to be awarded to the [p]laintiff under
MCL 205.427(6) . . . ." The trial court did not retain jurisdiction.
Defendant claimed an appeal of right from the trial court's decision in the Abraham suit.
This Court dismissed defendant's appeal on May 3, 2000, asserting a lack of jurisdiction
"because no determination has yet been made regarding the amount of the refund that the
plaintiff is to receive." Defendant did not request leave to appeal the trial court's decision to this
Court.
On August 16, 2000, the trial court heard plaintiffs' and defendant's motions for summary
disposition in the four remaining cases. Defendant repeated the arguments raised in its motion in
the Abraham suit and also argued that because the statute on which the trial court primarily relied
in granting summary disposition to Abraham, MCL 205.427a, did not take effect until December
1997, plaintiffs' claims before the effective date of MCL 205.427a should be denied. As in the
Abraham case, the trial court concluded that a bad-debt deduction is available under the TPTA
and remanded to defendant for a determination of the refund, if any, to be awarded to plaintiffs.
The trial court did not address defendant's arguments about the relevance of the effective date of
MCL 205.427a.
Pursuant to the remand orders, defendant's Commissioner of Revenue issued a Decision
and Order of Determination in each case, denying plaintiffs' refund requests and reserving
defendant's right to appeal the trial court's orders. In part, the decisions stated:
It appearing that the recommendation [from the Administrator, Customer
Contact Division,] is supported by authority and reasoned opinion, and the same
is accordingly accepted;
* * *
2
Plaintiffs included two other counts in their complaint that are not relevant on appeal. In count
II, plaintiffs claimed that defendant acted arbitrarily and capriciously in determining the meaning
of "causes [for refunds] the department considers expedient," MCL 205.427(6), violating
plaintiffs' due process rights. Similarly, in count III, plaintiffs claimed defendant's failure to
recognize a bad-debt deduction under the TPTA amounted to an arbitrary classification in light
of defendant's recognition of a bad-debt deduction for the sales and use taxes, which violated
plaintiffs' right to equal protection.
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Pursuant to § 27(6), MCL 405.427(6) . . . , an abatement or refund of the
tax may be made by the Department for causes the Department considers
expedient. The Department in review of this matter does not consider
uncollectible accounts as such a cause for abatement or refund.
The March 1, 2000 Opinion and March 21, 2000 Order [of the trial court]
notwithstanding, the Department is of the position that the [TPTA] does not
provide for a bad debt deduction or refund of tobacco taxes paid by a licensee in
the event that a tobacco retailer's account becomes uncollectible. The amount of
refund tabulated above [specific to each case] is not recommended to be paid,
subject to the rights of the Department to appeal of any Final Order or Order
directing payment.
On the same day the decisions were issued, defendant's Customer Contact Division
Administrator wrote letters to plaintiffs' counsel denying each of the refund requests. Thereafter,
plaintiffs each filed a "Verified Complaint and Appeal" in the Court of Claims. In count I of the
virtually identical complaints, plaintiffs claimed an appeal from defendant's decision to deny
their refund requests, as permitted by MCL 205.22. Plaintiffs alleged that defendant's denial of
the refund requests in May 2001 directly contravened the prior orders of the Court of Claims. In
count II, plaintiffs asserted that defendant's Decision and Order of Determination in each case
"blatantly thwarts" the prior orders of the Court of Claims and requested that defendant be held
in contempt for disregarding the prior orders.
Subsequently, defendant moved for summary disposition pursuant to MCR 2.116(C)(8)
and (C)(10) and to strike or dismiss count II of plaintiffs' complaints pursuant to MCR 2.115(B).
Defendant once again asserted that plaintiffs bear the responsibility for the tobacco products tax
and that the TPTA does not contain an express or implied bad-debt deduction. In requesting that
count II of plaintiffs' complaints be stricken, defendant also asserted that because the trial court
had not ordered defendant to actually pay plaintiffs a tobacco tax refund, defendant had complied
with Judge Harrison's orders and plaintiffs' claim of contempt was vexatious and unwarranted.
Plaintiffs opposed both motions and requested summary disposition in its favor pursuant to MCR
2.116(I)(2).
The Court of Claims, Thomas L. Brown, J., denied defendant's motion for summary
disposition and granted plaintiffs' request for summary disposition pursuant to MCR 2.116(I)(2).3
Plaintiffs requested that the trial court hold an evidentiary hearing to determine the refund
3
The order resolving defendant's motion indicates that the Court of Claims granted plaintiffs'
motion for summary disposition. Plaintiffs, however, did not file a motion for summary
disposition but requested summary disposition pursuant to MCR 2.116(I)(2) in response to
defendant's motion.
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amount due each plaintiff in light of defendant's decision on remand. Defendant and the trial
court agreed on this procedure. The trial court held defendant's motion to strike in abeyance.4
In February 2002, the trial court received testimony concerning the amount of plaintiffs'
refund requests. The trial court rejected defendant's arguments that Eby-Brown lacked sufficient
documentation to support its refund request and also concluded that Motor City made reasonable
efforts to collect the debt owed by R&J Distributors (R&J).
On April 2, 2002, plaintiffs filed a "Motion to Award Costs and Fees to Plaintiff Based
on Defendant's Contempt of Court,"5 which the trial court heard on April 16, 2002. Defendant
opposed the motion, contending that plaintiffs had failed to produce evidence of indirect
contempt and that the record did not support a finding of direct contempt. The trial court granted
plaintiffs' motion, stating in part:
Well, the [c]ourt agrees with the [p]laintiff[s] that the [d]efendant's
machinations in this matter to cause the [p]laintiffs economic detriment by way of
attorneys fees, costs on filing unnecessary motions, so on, so forth, and the failure
to follow Judge Harrison's orders. I could probably go through here and go to
great, make great effort to perhaps reduce Mr. Brown's request, but since the
[d]efendant's going to appeal the whole thing, the whole kit and caboodle, I am
going to grant his request and we will let the parties justify them on appeal.
The trial court awarded plaintiffs costs and attorney fees from the time of filing their initial
complaints. This appeal followed.
II
This Court reviews questions of statutory interpretation de novo. People v Schaub, 254
Mich App 110, 114-115; 656 NW2d 824 (2002). Our main goal when interpreting a statute is to
give effect to the Legislature's intent, as expressed in the language of the statute itself. STC, Inc
v Dep't of Treasury, 257 Mich App 528, 533; 669 NW2d 594 (2003). If the statutory language is
unambiguous, judicial construction is neither permitted nor required. Id. However, if reasonable
minds could differ with respect to the language's meaning, the language is ambiguous, and
judicial construction is necessary. In re MCI, 460 Mich 396, 411; 596 NW2d 164 (1999).
"Where ambiguity exists . . . this Court seeks to effectuate the Legislature's intent through a
reasonable construction, considering the purpose of the statute and the object sought to be
accomplished." Macomb Co Prosecutor v Murphy, 464 Mich 149, 158; 627 NW2d 247 (2001),
4
The record does not reflect that the Court of Claims ever decided the merits of defendant's
motion.
5
On the following day, defendant filed a motion for summary disposition on the contempt count
of plaintiffs' complaint. Because of the timing of the hearing on plaintiff 's motion for attorney
fees, the trial court did not hear defendant's motion for summary disposition.
-5-
citing Frankenmuth Mut Ins Co v Marlette Homes, Inc, 456 Mich 511, 515; 573 NW2d 611
(1998).
We review a trial court's order of contempt for abuse of discretion. In re Contempt of
Steingold, 244 Mich App 153, 157; 624 NW2d 504 (2000), citing Schoensee v Bennett, 228
Mich App 305, 316; 577 NW2d 915 (1998). "[T]o the extent that [this Court's] review in this
case requires [it] to examine questions of law, such as the nature of the contempt orders and
whether the contempt statute permitted the sanctions imposed in this case, review is de novo." In
re Contempt of Auto Club Ins Ass'n, 243 Mich App 697, 714; 624 NW2d 443 (2000).
This Court applies the substantial evidence test to the Court of Claims decision regarding
an appeal from a treasury department decision. Curis Big Boy, Inc v Dep't of Treasury, 206
Mich App 139, 143; 520 NW2d 369 (1994).6
6
The parties assert that the applicable standard of review is that described in Boyd v Civil
Service Comm, 220 Mich App 226; 559 NW2d 342 (1996), and recently reiterated in Mantei v
Michigan Pub School Employees Retirement Sys, 256 Mich App 64, 71-72; 663 NW2d 486
(2003):
On direct review of an agency decision, a trial court must determine
whether the administrative action was authorized by law and whether the agency
decision was supported by competent, material, and substantial evidence on the
whole record. Const 1963, art. 6, § 28; MCL 24.306(1); Boyd [, supra at 232].
Substantial evidence is any evidence that reasonable minds would accept as
adequate to support the decision; it is more than a mere scintilla of evidence but
may be less than a preponderance of the evidence. . . . This Court's review of the
circuit court's decision is, in turn, limited to a determination "whether the lower
court applied correct legal principles and whether it misapprehended or grossly
misapplied the substantial evidence test to the agency's factual findings." Boyd,
supra at 234. This standard of review is indistinguishable from the "clearly
erroneous" standard of review.
We disagree. Pursuant to MCL 205.22, a taxpayer has the option to appeal an adverse
departmental decision to the Court of Claims or the Tax Tribunal. Because proceedings before
the Tax Tribunal are original, a departmental decision that has been appealed to the Tax Tribunal
is reviewed by the tribunal de novo. MCL 205.735. MCL 205.22 also provides that either the
taxpayer or the department may appeal by right to this Court a decision of the Tax Tribunal or
the Court of Claims, and that the appeal shall be taken on the record made at the tribunal or the
Court of Claims. In Curis Big Boy, supra at 143, this Court discussed the standard of review on
an appeal from the Tax Tribunal:
Our review of Tax Tribunal decisions, absent fraud, is limited to whether
the tribunal made an error of law or adopted a wrong principle. We accept the
(continued…)
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III
A. Bad-Debt Deduction
Defendant first claims that the trial court erred by finding that a bad-debt deduction was
available under the TPTA before it was amended and by granting plaintiffs refunds for taxes prepaid on uncollectible accounts. We disagree.
In 1993, the Legislature enacted the TPTA and repealed its predecessor, the Cigarette
Tax Act, MCL 205.501 et seq. The TPTA contains provisions regulating distributors of tobacco
products and establishing a tax on the sale of tobacco products. In 1997, the Legislature made
substantial additions to the TPTA, including establishing requirements for affixing treasury
department stamps to packages of cigarettes, MCL 405.426a, and expressly stating the
Legislature's intent to impose the tobacco products tax on the consumer: "[i]t is the intent of this
act to impose the tax levied under this act upon the consumer of the tobacco products by
requiring the consumer to pay the tax at the specified rate," MCL 205.427a.
At all times relevant to this appeal,7 § 7 of the TPTA, MCL 205.427, provided:
(1) Beginning May 1, 1994, a tax is levied on the sale of tobacco products
sold in this state as follows:
(a) For cigars, noncigarette smoking tobacco, and smokeless tobacco, 16%
of the wholesale price.
(b) For cigarettes, 37.5 mills per cigarette.
(2) On or before the twentieth day of each calendar month, every licensee
under section 3 [MCL 205.423] other than a retailer, secondary wholesaler,
unclassified acquirer licensed as a manufacturer, or vending machine operator
(…continued)
factual findings of the tribunal as final, provided they are supported by competent,
material, and substantial evidence. Dow Chemical Co v Dep't of Treasury, 185
Mich App 458, 462-463; 462 NW2d 765 (1990).
The Court of Claims and the Tax Tribunal are in identical postures when conducting a review of
a departmental decision. We conclude there is no principled, statutory basis to conduct our
review of a decision of the Court of Claims any differently than we would when reviewing a
decision of the Tax Tribunal. Accordingly, we will also review the decision of the Court of
Claims to determine whether there was competent, material, and substantial evidence on the
whole record to support the decision. See Curis Big Boy, supra.
7
The Legislature amended the TPTA in July 2002. Additionally, in December 2002, the
Legislature added § 7b to the TPTA, MCL 205.427b, which expressly permits a licensee under
the act to deduct bad debts beginning January 1, 2003. This opinion addresses the act's
construction before these amendments.
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shall file a return with the department stating the wholesale price of each tobacco
product other than cigarettes purchased, the quantity of cigarettes purchased, the
wholesale price charged for all tobacco products other than cigarettes sold, the
number of individual packages of cigarettes and the number of cigarettes in those
individual packages, and the number and denominations of stamps affixed to
individual packages of cigarettes sold by the licensee for each place of business in
the preceding calendar month. The return shall also include the number and
denomination of unaffixed stamps in the possession of the licensee at the end of
the preceding calendar month. Wholesalers and unclassified acquirers shall also
report accurate inventories of affixed and unaffixed stamps by denomination at
the beginning and end of each calendar month and all stamps acquired during the
preceding calendar month. The return shall be signed under penalty of perjury.
The return shall be on a form prescribed by the department and shall contain or be
accompanied by any further information the department requires.
(3) To cover the cost of expenses incurred in the administration of this act,
at the time of the filing of the return, the licensee shall pay to the department the
tax levied in subsection (1) for tobacco products sold during the calendar month
covered by the return, less compensation equal to both of the following:
(a) One percent of the total amount of the tax due on tobacco products sold
other than cigarettes.
(b) One and one-fourth percent of the total amount of the tax due on
cigarettes sold.
(4) Every licensee and retailer who, on May 1, 1994, has on hand for sale
any cigarettes acquired after February 1, 1994 upon which a tax has been paid
pursuant to former 1947 PA 265 [the Cigarette Tax Act] shall file a complete
inventory of those cigarettes before June 1, 1994 and shall pay to the department
at the time of filing this inventory a tax equal to the difference between the tax
imposed in subsection (1) and the tax that has been paid pursuant to former 1947
PA 265.
(5) The department may require the payment of the tax imposed by this act
upon the importation or acquisition of a tobacco product. A tobacco product for
which the tax under this act has once been imposed and that has not been
refunded if paid is not subject upon a subsequent sale to the tax imposed by this
act.
(6) An abatement or refund of the tax provided by this act may be made by
the department for causes the department considers expedient. The department
shall certify the amount and the state treasurer shall pay that amount out of the
proceeds of the tax.
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(7) A person liable for the tax may reimburse itself by adding to the price
of the tobacco products an amount equal to the tax levied under this act.
(8) A wholesaler, unclassified acquirer, or other person shall not sell or
transfer any unaffixed stamps acquired by the wholesaler or unclassified acquirer
from the department. A wholesaler or unclassified acquirer who has any
unaffixed stamps on hand at the time its license is revoked or expires, or at the
time it discontinues the business of selling cigarettes, shall return those stamps to
the department. The department shall refund the value of the stamps, less the
appropriate discount paid.
(9) If the wholesaler or unclassified acquirer has unsalable packs returned
from a retailer, secondary wholesaler, vending machine operator, wholesaler, or
unclassified acquirer with stamps affixed, the department shall refund the amount
of the tax less the appropriate discount paid. If the wholesaler or unclassified
acquirer has unaffixed unsalable stamps, the department shall exchange with the
wholesaler or unclassified acquirer new stamps in the same quantity as the
unaffixed unsalable stamps. An application for refund of the tax shall be filed on
a form prescribed by the department for that purpose, within 4 years from the date
the stamps were originally acquired from the department. A wholesaler or
unclassified acquirer shall make available for inspection by the department the
unused or spoiled stamps and the stamps affixed to unsalable individual packages
of cigarettes. The department may, at its own discretion, witness and certify the
destruction of the unused or spoiled stamps and unsalable individual packages of
cigarettes that are not returnable to the manufacturer. The wholesaler or
unclassified acquirer shall provide certification from the manufacturer for any
unsalable individual packages of cigarettes that are returned to the manufacturer.
(10) On or before the twentieth of each month, each manufacturer shall
file a report with the department listing all sales of tobacco products to
wholesalers and unclassified acquirers during the preceding calendar month and
any other information the department finds necessary for the administration of
this act. This report shall be in the form and manner specified by the department.
(11) Each wholesaler or unclassified acquirer shall submit to the
department an unstamped cigarette sales report on or before the twentieth day of
each month covering the sale, delivery, or distribution of unstamped cigarettes
during the preceding calendar month to points outside of Michigan. A separate
schedule shall be filed for each state, country, or province into which shipments
are made. For purposes of the report described in this subsection, "unstamped
cigarettes" means individual packages of cigarettes that do not bear a Michigan
stamp. The department may provide the information contained in this report to a
proper officer of another state, country, or province reciprocating this privilege.
We agree that the language of the TPTA does not expressly state a bad-debt deduction.
Nevertheless, we conclude that relevant provisions of the act conflict to the extent that they are
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susceptible to different, reasonable meanings. For example, the language of § 7(3) and § 7(7),
both of which address the obligations of the licensee to collect the tobacco tax and pay the tax to
the treasury, appears to conflict with the language of § 7a, which states clearly the Legislature's
intent that consumers pay the tax. Additionally, because the TPTA includes "use" in the
definition of "sale," MCL 205.422(m), the act imposes a tax on the use of tobacco products, akin
to a use tax payable by the consumer, while simultaneously imposing a tax on the sale of tobacco
products, see MCL 205.427(1), similar to a sales tax payable by the wholesaler. This apparently
conflicting language creates an ambiguity in the TPTA, such that the construction of the
ambiguous language in the Use Tax Act (UTA), MCL 205.91 et seq., by this Court in Michigan
Bell Telephone Co v Dep't of Treasury, 229 Mich App 200; 581 NW2d 770 (1998), and our
Supreme Court in World Book, Inc v Dep't of Treasury, 459 Mich 403; 590 NW2d 293 (1999), is
relevant to our construction of the TPTA.
As we noted in Michigan Bell, "[c]onflicting provisions of a statute must be read together
to produce an harmonious whole and to reconcile any inconsistencies wherever possible."
Michigan Bell, supra at 216, citing Gross v General Motors Corp, 448 Mich 147, 164; 528
NW2d 707 (1995); Weems v Chrysler Corp, 448 Mich 679, 699-700; 533 NW2d 287 (1995).
Moreover, ambiguities in a taxing statute are construed in favor of the taxpayer, Michigan Bell,
supra at 217, and this Court should avoid construing a statute in a manner that renders any part
of it surplusage or nugatory. World Book, supra at 417. Consistent, then, with the analysis and
method of construction employed in both Michigan Bell and World Book, we conclude that a
bad-debt deduction is available under the TPTA to effectuate the legislative intent that
consumers, and not wholesalers, be ultimately responsible to pay the tobacco tax.
In Michigan Bell, we interpreted the UTA, which stated that "[e]ach consumer storing,
using or otherwise consuming in this state tangible personal property or services purchased for or
subsequently converted to such purpose or purposes shall be liable for the tax imposed by this act
. . . . The payment to the department of the tax, interest and penalty assessed by the department
shall relieve the seller . . . from the payment of the amount of the tax which he may be required
under this act to collect from the purchaser." MCL 205.97. The UTA also required sellers to
collect the "tax imposed by this act from the consumer," and provided penalties, including
liability for the use tax owed, for a seller's failure to collect the use tax. Michigan Bell, supra at
213-214, citing MCL 205.99, MCL 205.106. The plaintiff telephone company asserted that it
should not be liable to pay the use tax owed by its customers to the state unless it had actually
collected the tax, Michigan Bell, supra at 204, whereas the defendant argued that the plaintiff
became liable for the tax even if the plaintiff could not collect the tax. The defendant asserted
that the UTA did not relieve the seller of liability even if it used reasonable care in collecting the
tax and that the act imposes personal liability on the seller for uncollected use tax. Michigan
Bell, supra at 214-215.
This Court found instead that the Tax Tribunal properly held that the plaintiff "could not
be required to pay its customers' use taxes where [the plaintiff] had used reasonable business care
in trying to collect them." Id. at 212-213. We noted that the UTA reflects that the consumer is
the taxpayer and that the seller does not share joint tax liability. Id. at 215. "[T]he ultimate
burden of paying the tax is on the consumer or purchaser, which is the party exercising the
privilege of use, storage, or consumption." Id. at 215, citing Lockwood v Comm'r of Revenue,
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357 Mich 517, 527; 98 NW2d 753 (1959). We also found "that this is an important concept,
because it represents one of the primary distinctions between the use tax and the sales tax, the
legal incidence of which falls upon the seller only in the case of the sales tax." Michigan Bell,
supra at 215, citing MCL 205.52. "'One may be charged with the duty of collecting a tax on
behalf of government although the ultimate burden of such tax does not rest on him.'" Michigan
Bell, supra at 215-216, quoting Lockwood, supra at 527.
Importantly, we also opined that the provisions of the UTA that impose the tax on the
consumer and the provisions that impose tax liability on the seller "appear to conflict such that a
literal reading of each could lead reasonable minds to differ regarding their meaning in relation
to one another." Michigan Bell, supra at 216. As such, we held that the Tax Tribunal properly
engaged in construction of the statute and appropriately decided that before the defendant could
subject the plaintiff to use tax liability or criminal penalties, it would have to prove intent or fault
on the part of the plaintiff. Id. "Unquestionably, [the act] requires . . . more than a mere lack of
success in collecting use taxes from its consumers." Id. Moreover, we noted that "ambiguities in
a taxing statute are to be resolved in favor of the taxpayer," id. at 217, and "that [MCL 205.97]
imposes the actual tax obligation only on the consumer . . . ." Michigan Bell, supra at 217.
In World Book, the Michigan Supreme Court agreed with this Court's finding in
Michigan Bell that the UTA did not require the "seller to become, in effect, its customers' use-tax
payment guarantor." World Book, supra at 415. The plaintiff in World Book, an out-of-state
corporation that marketed and sold products in Michigan, conceded that its sales were subject to
either the UTA or the General Sales Tax Act (GSTA), MCL 205.51 et seq. The initial question
before the Court was which of the two taxes applied to the product sales at issue. Although the
provisions of these acts supplement and complement each other, World Book, supra at 406,
citing Elias Bros Restaurants, Inc v Treasury Dep't, 452 Mich 144, 153; 549 NW2d 837 (1996),
the GSTA expressly permitted the seller to deduct bad debts when calculating its tax liability,
MCL 205.54i, whereas the UTA contained no such express provision. World Book, supra at
405-406. After concluding that the UTA applied, the Court then held that the seller's liability for
use tax is secondary to the consumer's liability for the tax. Id. at 412-413. The Court further
found that the department could hold the seller responsible for uncollected taxes only where the
department could demonstrate some level of fault on the part of the seller. Id. at 413. "If the
seller were liable for use tax when unable to collect it through no fault of its own, the tax would
fall onto the seller. It would, in effect, convert the use tax into a sales tax." Id. at 417, citing
Lockwood, supra at 527.
Defendant argues that the logic of Michigan Bell and World Book should not apply in
interpreting the TPTA. First, defendant relies on Cunningham Drug Stores, Inc v Comm'r of
Revenue, 319 Mich 467, 473; 29 NW2d 915 (1947), which construed provisions of the TPTA's
predecessor, the Cigarette Tax Act, to argue that because the TPTA imposes a tax on the
privilege of selling tobacco products, the TPTA is therefore analogous to the GSTA, which
imposes a tax on the privilege of selling products in Michigan, MCL 205.52(1). In short,
defendant claims that plaintiffs bear the legal incidence of the tobacco products tax, just as a
seller bears the legal incidence of the sales tax. Defendant also contends that MCL 205.427(5),
(6), and (7) also support the conclusion that plaintiffs bear the burden of the tax. We reject each
of these arguments, however, as they fail to account for and apply the Legislature's specifically
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expressed intent in § 7a that consumers of tobacco products are to pay the tax imposed by this
act. The interpretation urged by defendant would render plaintiffs guarantors of their customers'
tobacco tax. Such a construction of the statute, however, would be wholly inconsistent with the
intent of the Legislature.
Defendant also claims that World Book and Michigan Bell apply only to the UTA as a
complement to the GSTA. As plaintiffs note, however, Michigan Bell and World Book both
emphasized the language and consumer orientation of the UTA. The complementary nature of
the UTA and GSTA played no part in this Court's analysis in Michigan Bell. Furthermore, while
the Supreme Court noted in World Book that imposing primary tax liability on the seller would
eviscerate the distinction between the use tax and the sales tax, World Book, supra at 417, the
Court did not rely on the provisions of the GSTA to justify its construction of the complementary
act.
Next, defendant claims that the trial court failed to give deference to the treasury
department's interpretation of the act. Specifically, defendant points to 1999 AC, R 205.452,
promulgated by the department, which addresses tax liability for stamps "which are lost through
negligence, theft, or mysterious disappearance or which are not otherwise accounted for in the
records of the wholesaler or unclassified acquirer." Defendant argues that this rule demonstrates
that the department interprets the TPTA as imposing the tax on the wholesaler. As plaintiffs
assert, however, this rule does not pertain to a customer's failure to pay a wholesaler for tobacco
products. Additionally, having been promulgated in 1998, this rule is not a "longstanding"
interpretation of the TPTA that is worthy of great deference by this Court.8 See Motycka v Gen
Motors Corp, 257 Mich App 578, 581; 669 NW2d 292 (2003); Barker Bros Const v Bureau of
Safety & Regulation, 212 Mich App 132, 136; 536 NW2d 845 (1995).
Additionally, defendant claims that its decision to deny plaintiffs' refund requests is
sanctioned by MCL 205.427(6), which provides that "[a]n abatement or refund of the tax
provided by this act may be made by the department for causes the department considers
expedient. . . ." We disagree with the construction of the statute proposed by defendant, which
would give the department nearly unfettered discretion to grant or deny a refund. First, the
provision permits defendant to make refunds for expedient reasons, not deny refunds for
expedient reasons. More importantly, defendant seeks to use this provision both to avoid its
8
Although we are cognizant of instances in which this Court has deferred to an agency's
construction of a statute, we question the continued viability of this precedent. We review
questions of statutory interpretation de novo, Schaub, supra, which, by definition, precludes
granting deference to a lower tribunal's interpretation of a statute. See Buchanan v City Council
of Flint, 231 Mich App 536, 542 n 3; 586 NW2d 573 (1998). Further, as our Supreme Court
recently reiterated, "'[a]n agency interpretation cannot overcome the plain meaning of a statute.'"
Koontz v Ameritech Services, Inc, 466 Mich 304, 324; 645 NW2d 34 (2002), quoting Consumers
Power Co v Pub Service Comm, 460 Mich 148, 157 n 8; 596 NW2d 126 (1999). We also note
that it is within the province of the courts, not administrative agencies, to determine and apply
the law. Charles Reinhart Co v Winiemko, 444 Mich 579, 591-592; 513 NW2d 773 (1994).
-12-
clear statutory authority to grant a refund and to ignore the trial court's order to calculate the
amount due and owing to plaintiffs. Under MCL 205.22, aggrieved taxpayers may appeal
departmental decisions. MCL 205.427(6) does not permit defendant to disregard an appellate
ruling simply because it does not agree with the court's reasoning.9
Furthermore, defendant asserts that the trial court ignored legislative history that
evidences a legislative intent not to include a bad-debt deduction in the TPTA. As defendant
notes, when introduced in January 1997, HB 4215 contained a provision permitting the
deduction of bad debts when calculating the tax levied. Because that provision did not survive
the enactment of HB 4215, defendant claims the Legislature did not intend to permit a bad-debt
deduction. Although "[w]here the Legislature has considered certain language and rejected it in
favor of other language, the resulting statutory language should not be held to explicitly
authorize what the Legislature explicitly rejected," In re MCI, 460 Mich 396, 415; 596 NW2d
164 (1999), our construction of the statute does not rest on what the Legislature expressly
authorized but on how to harmonize conflicting statutory provisions. In addition, rather than
expressly rejecting a bad-debt deduction, it is equally plausible that the Legislature decided that
an expressly stated provision for a bad-debt deduction was unnecessary in light of the addition of
§ 7a, expressing its intent to impose the tax on the consumer.
In summary, we reconcile the conflicting provisions of the TPTA in the same manner as
the UTA was construed by this Court in Michigan Bell and by the Supreme Court in World Book.
Because, like the UTA, the TPTA levies the tax on the consumer but does not impose joint tax
liability on the wholesaler, we conclude that the sanctions for a wholesaler's failure to pay the tax
may not be imposed when the wholesaler's failure to pay occurs because of its good faith
inability to collect the tax that is the responsibility of the consumer. Similarly, when a
wholesaler prepays the tax on behalf of consumers and is unable to recoup the tax, the
wholesaler may seek reimbursement from defendant.
B. Impact of the Effective Date of § 7a
Alternatively, defendant argues that the trial court erred by failing to limit its ruling to
permit reimbursement to plaintiffs only for taxes paid after the effective date of § 7a.10 We
disagree.
9
Defendant also claims that because plaintiffs have no information concerning the whereabouts
of the tobacco products, the department did not act "arbitrarily and capriciously" in denying the
refund request. Defendant fails to explain, however, how this affects the question of law before
the Court. Whether plaintiffs can substantiate their losses may affect the ultimate judgment in
this matter, but does not affect whether, as a legal question, plaintiffs may take a bad-debt
deduction.
10
Defendant did not raise this argument in its first motion for summary disposition concerning
the Abraham case, but properly raised it in its other motions for summary disposition. However,
(continued…)
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We first reject defendant's assertion that because § 7a of the TPTA did not take effect
until 1997, the consumer focus of the TPTA did not exist before the 1997 enactment of § 7a and
no reimbursement for claims arising before December 30, 1997, is warranted.
While the Legislature generally may be presumed to change the law when it amends a
statute,
"[t]he rule is not applied in reverse for the purpose of determining the meaning of
the statute before amendment by presuming that it must have been something
different than that which is the clear intent of the statute after amendment. * * *
While in many and perhaps most instances it undoubtedly is the legislative intent,
in enacting an amendment to change existing law, there are, as undoubtedly, other
instances, particularly if uncertainty exists as to the meaning of a statute, when
amendments are adopted for the purpose of making plain what the legislative
intent had been all along from the time of the statute's original enactment."
[Production Credit Ass'n of Lansing v Dep't of Treasury, 404 Mich 301, 319; 273
NW2d 10 (1978), quoting Detroit Edison Co v Janosz, 350 Mich 606, 87 NW2d
126 (1957)].
Accordingly, we will not presume that before the Legislature enacted § 7a, the Legislature did
not intend to impose the tobacco-products tax on the consumer.
Second, while we agree with defendant's contention that the addition of § 7a to the TPTA
did not alter the payment scheme set forth in §§ 7(5), 7(6), and 7(7) of the act, the conclusion we
reach from this fact differs from that which defendant proposes. We find that the amendment of
the TPTA adding § 7a represented the Legislature's attempt to clarify the act rather than to
change its focus. In our judgment, the fact that the payment scheme was not altered by the
addition of § 7a supports rather than undercuts the conclusion that the focus of the act did not
change, and that the act also contained a consumer focus to the tax before its amendment. In
other words, by its amendment adding § 7a, the Legislature attempted to communicate more
clearly that which it had always intended under the act; although the tax was to be collected by
the wholesaler for transmittal to the department, the tax ultimately was to be imposed on the
consumer. Therefore, while the trial court did not address this issue, we find no basis to limit the
amount of the reimbursement to taxes paid after the effective date of § 7a.
C. Contempt Proceedings
(…continued)
as defendant notes in its statement of questions presented, the trial court did not specifically
address the effect of the effective date in its rulings. Ordinarily, an issue is not properly
preserved if the trial court does not decide the issue. Fast Air, Inc v Knight, 235 Mich App 541,
549; 599 NW2d 489 (1999). Nevertheless, we consider the issue because defendant's claim of
error is that the trial court failed to consider the effective date of the statute. To the extent that
defendant failed to initially raise the issue in the Abraham case, we address the issue as a
question of law, having knowledge of all of the facts necessary for resolution of the issue.
Steward v Panek, 251 Mich App 546, 554; 652 NW2d 232 (2002).
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Defendant next asserts that the trial court erred by awarding plaintiffs attorney fees and
costs as contempt sanctions. We agree.
Pursuant to MCL 600.1701(g), "parties to actions, attorneys, counselors, and all other
persons . . . disobeying any lawful order, decree, or process of the court" may be held in
contempt. Although the trial court's order presumes an underlying finding of contempt, the trial
court did not make findings that defendant was in contempt of the prior Court of Claims order.
When adjudicating contempt proceedings without a jury, the trial court "must make findings of
fact, state its conclusions of law, and direct entry of the appropriate judgment." In re Contempt
of Calcutt, 184 Mich App 749, 758; 458 NW2d 919 (1990), citing MCR 2.517(A). Without
specific findings that defendant was in contempt of an order of the court, the trial court lacked
any basis for awarding plaintiffs attorney fees and costs.11
D. Specific Refund Determinations
Finally, defendant disputes the trial court's refund determinations for Eby-Brown and
Motor City. We conclude that the trial court's decision in each case is supported by competent,
material, and substantial evidence and, therefore, affirm its decision in each case.
In the Eby-Brown matter, rather than presenting live testimony, the parties submitted
exhibits for the trial court's consideration. In support of its claim for a refund, plaintiff submitted
a copy of its letter requesting a refund for $24,739.50, an exhibit showing interest calculations
through February 21, 2002, a copy of the letter from the department delineating its position and
denying Eby-Brown's request, and a copy of the department's Decision and Order of
Determination in this matter. In response, defendant submitted a summary of Eby-Brown's
11
We do not remand to the trial court for findings of fact and conclusions of law, however,
because numerous procedural defects tainted the contempt "hearing." First, defendant's alleged
disobedience of the Court of Claims order occurred outside the court's presence, requiring
compliance with the procedures detailed in MCR 3.606. Auto Club Ins Ass'n, supra at 712-713,
718; see also MCL 600.1711. Contrary to MCR 3.606, plaintiffs did not institute the contempt
proceedings with a motion to show cause or support their motions for contempt with affidavits
(other than an affidavit supporting the amount of attorney fees requested). As such, the trial
court lacked jurisdiction over defendant. Steingold, supra at 159, quoting Michigan ex rel
Wayne Prosecutor v Powers, 97 Mich App 166, 168; 293 NW2d 752 (1980). Moreover,
plaintiffs did not fulfill their obligation to advise defendant whether the contempt being alleged
was criminal or civil in nature, see Auto Club Ins Ass'n, supra at 716, citing In re Contempt of
Robertson, 209 Mich App 433, 438; 531 NW2d 763 (1995), and did not appear to serve their
motions by personal service on the alleged contemnor, as required when the alleged contempt
consists of disobeying an order of the court, Steingold, supra at 158; MCL 600.1968(4); MCR
2.107(B).
-15-
claim, an analysis of the merit of the claim, and a schedule of Eby-Brown's uncollectible
accounts compiled by defendant that reduces Eby-Brown's claim to $17,359.12.12
The trial court noted that, in its Decision and Order of Determination, defendant had not
found a lack of diligence that would justify denying Eby-Brown's claim. Although defendant
admitted that Eby-Brown had not received payment for the tobacco products, defendant argued
that a refund was inappropriate because Eby-Brown could not document what happened to the
tobacco products after they were sold. However, as Eby-Brown stated in its response to
defendant's request to inspect the tobacco products, if plaintiff had access to the products, the
accounts would not be uncollectible. Defendant fails to articulate what documentation EbyBrown could provide to more adequately substantiate its claims, and defendant's request for
evidence concerning the whereabouts of the products after their sale does not defeat EbyBrown's refund request. Accordingly, the evidence the trial court relied on satisfies the
substantial evidence test.
Regarding the trial court's decision with respect to Motor City, defendant challenges
Motor City's request concerning its account with R&J and argues that the trial court erred by
concluding that Motor City exercised reasonable collection efforts and was therefore eligible to
be reimbursed for prepaid taxes. Rex Pierce, former administrator of the tobacco tax for
defendant, testified that the department denied the claim because Motor City had in its
possession a check from R&J for approximately $127,000 that it did not cash because it knew
that R&J did not have funds to cover the check, but nevertheless continued to sell products to
R&J and, subsequently, receive additional bad checks. Despite this evidence, the trial court
found that plaintiff had used reasonable efforts to collect the debt and should not be prohibited
from receiving a refund on that basis.
We conclude that the trial court's decision was based on competent, material, and
substantial evidence. Robert Feucht, vice-president and co-owner of Motor City, testified that
Motor City's business practice was to receive a business check from a customer at the time of
purchase and then hold that check until the customer returned (usually within seven days) with a
cashier's check to replace the original check. According to Feucht, before R&J delivered the
$127,000 check that it could not cover, R&J had been a "faithful" paying customer of Motor City
for approximately five years.
Plaintiff did not attempt to cash the $127,000 check dated July 12, 1994, until September
27, 1994. Feucht testified that in the interim, R&J provided a number of explanations why it was
having difficulty making payment on the $127,000 check and also provided what appeared to be
legitimate assurances that the amount owed would be paid. When Motor City learned from the
bank that R&J's account contained insufficient funds to cover the check, Motor City decided to
continue supplying R&J, believing that if it failed to continue to supply R&J, R&J would make
even fewer sales from which Motor City could recover payment on the $127,000 debt. Feucht
12
Defendant has not provided these exhibits to the Court for our review.
-16-
also testified that if his company had been able to cash the $127,000 check at any time, it would
have done so. Additionally, Motor City's attorney testified that he pursued informal collection
efforts and filed suit when these informal efforts failed. We conclude that this testimony
constituted competent, material, and substantial evidence in support of the trial court's
conclusion that Motor City used reasonable efforts to collect the debt owed by R&J.
IV
We conclude that the trial court properly resolved the ambiguity in the TPTA in
plaintiffs' favor and determined that plaintiffs are entitled to reimbursement for tobacco-product
taxes paid on uncollectible accounts. This conclusion applies equally to plaintiffs' claims
accruing before and after the amendment of the TPTA that added § 7a. We reverse the trial
court's award of attorney fees and costs in light of the procedural irregularities that tainted the
"contempt" proceedings and the trial court's failure to make specific findings of contempt.
Finally, we conclude that the trial court's factual findings that Eby-Brown and Motor City were
entitled to reimbursement for prepaid taxes are supported by competent, material, and substantial
evidence.
Affirmed in part and reversed in part.
/s/ Kurtis T. Wilder
/s/ Michael R. Smolenski
/s/ William B. Murphy
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