FORD MOTOR CO V DEPT OF TREASURY
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STATE OF MICHIGAN
COURT OF APPEALS
FORD MOTOR COMPANY,
FOR PUBLICATION
May 20, 2010
9:05 a.m.
Plaintiff-Appellant,
v
No. 283925
Court of Claims
LC No. 06-000182-MT
DEPARTMENT OF TREASURY,
Defendant-Appellee.
Advance Sheets Version
Before: ZAHRA, P.J., and WHITBECK and M. J. KELLY, JJ.
ZAHRA, P.J.
This is a tax case arising under Michigan’s repealed Single Business Tax Act (SBTA),
MCL 208.1 et seq.1 Defendant the Department of Treasury, conducted an audit of plaintiff Ford
Motor Company, to determine the tax due under the SBTA for the years 1997 through 1999.
Defendant assessed plaintiff a tax liability of $21,726,713 above the single business taxes
already paid by plaintiff. Defendant determined that voluntary contributions made to an
irrevocable trust created under a voluntary employees’ beneficiary association (VEBA), 26 USC
501(c)(9), amounted to employee compensation that was taxable under the SBTA. Plaintiff paid
the additional tax liability under protest and brought suit in the Court of Claims, arguing that
contributions made to the VEBA trust were not compensation for purposes of the SBTA. The
Court of Claims rejected plaintiff’s claim and granted summary disposition to defendant.
Plaintiff appeals as of right. We hold that contributions plaintiff made to the VEBA trust in the
tax years in question did not constitute compensation under the SBTA. Therefore, these
contributions were not subject to the single business tax. We reverse.
I. BASIC FACTS AND PROCEEDINGS
The facts are not in dispute. Under the SBTA in effect during the tax years at issue,
employee compensation paid by a business was taxable. MCL 208.9(1) and (5). The SBTA
definition of “compensation” during the time at issue included “payments for insurance for
which employees are the beneficiaries, including payments under health and welfare and
1
The SBTA was repealed by 2006 PA 325.
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noninsured benefit plans . . . .” MCL 208.4(3) as amended by 1995 PA 285.2 Before the
creation of the VEBA trust, plaintiff paid for health-care services rendered to employees as
required by plaintiff’s employee health-care plan. Both litigants treated the payments made for
health-care services rendered on behalf of plaintiff’s employees as compensation under the
SBTA. On June 27, 1997, plaintiff established the VEBA trust and began to make voluntary,
periodic contributions into it. Plaintiff made contributions to the VEBA trust in the following
amounts: $1.59 billion (1997), $1.7 billion (1998), and $2.287 billion (1999). For the tax years
at issue, employees submitted bills for health-care services covered under the employee healthcare plan to plaintiff, and plaintiff would pay the bills and receive reimbursement from the
VEBA trust. When calculating its SBTA liability for those years, plaintiff included as
compensation the payments it made for health-care services rendered to employees for which it
later received reimbursement from the VEBA trust.
Defendant audited plaintiff and concluded that the contributions made into the VEBA
trust during the years 1997 through 1999 were taxable compensation and should have been added
to plaintiff’s tax base and then “offset” by the amounts the VEBA trust reimbursed plaintiff for
payments it made for health-care services rendered to employees. Plaintiff paid the additional
tax liability under protest and brought suit in the Court of Claims. At the heart of plaintiff’s
complaint was the assertion that contributions made to the VEBA trust were not compensation
for purposes of the SBTA. The Court of Claims rejected plaintiff’s assertion. This appeal
ensued.
II. STANDARD OF REVIEW
This Court reviews de novo a trial court’s decision to grant or deny a motion for
summary disposition. Spiek v Dep’t of Transp, 456 Mich 331, 337; 572 NW2d 201 (1998).
Statutory interpretation is also reviewed de novo on appeal. Detroit v Ambassador Bridge Co,
481 Mich 29, 35; 748 NW2d 221 (2008).
III. ANALYSIS
The Court of Claims incorrectly determined that the contributions plaintiff made to the
VEBA trust were compensation under the SBTA.
The single business tax “‘is a business activity tax that was enacted “to provide for the
imposition, levy, computation, collection, assessment and enforcement . . . of taxes on certain
commercial, business, and financial activities . . . .” 1975 PA 228.’” TMW Enterprises, Inc v
Dep’t of Treasury, 285 Mich App 167, 173; 775 NW2d 342 (2009), quoting Fluor Enterprises,
Inc v Dep’t of Treasury, 477 Mich 170, 174; 730 NW2d 722 (2007). The SBTA imposes a value
added tax. TMW, 285 Mich App at 173. A value added tax differs from an income tax because
it is a tax on economic activity, whereas an income tax is a tax on what has been received from
the economy. Id., citing ANR Pipeline Co v Dep’t of Treasury, 266 Mich App 190, 199; 699
2
The definition of “compensation” was revised by 1999 PA 115, effective July 14, 1999.
However, the changes were minor and do not affect our analysis.
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NW2d 707 (2005). Before its repeal, any person engaged in business activity in Michigan was
subject to the SBTA. MCL 208.31.
Compensation paid to employees was one of the many activities taxed under the SBTA.
“Compensation” was defined under MCL 208.4(3), at the relevant time, as follows:
Except as otherwise provided in this section, “compensation” means all
wages, salaries, fees, bonuses, commissions, or other payments made in the
taxable year on behalf of or for the benefit of employees, officers, or directors of
the taxpayers and subject to or specifically exempt from withholding under
chapter 24, sections 3401 to 3406 of the internal revenue code. Compensation
includes, on a cash or accrual basis consistent with the taxpayer’s method of
accounting for federal income tax purposes, payments to state and federal
unemployment compensation funds, payments under the federal insurance
contribution act and similar social insurance programs, payments, including selfinsurance, for worker’s compensation insurance, payments to individuals not
currently working, payments to dependents and heirs of individuals because of
current or former labor services rendered by those individuals, payments to a
pension, retirement, or profit sharing plan, and payments for insurance for which
employees are the beneficiaries, including payments under health and welfare and
noninsured benefit plans and payments of fees for the administration of health and
welfare and noninsured benefit plans.[3]
The controlling question presented in this matter is whether contributions to the VEBA
trust were “compensation” within this definition. The primary goal of judicial interpretation of
statutes is to ascertain and give effect to the intent of the Legislature. Booker v Shannon, 285
Mich App 573, 575; 776 NW2d 411 (2009). “‘Statutory language should be construed
reasonably, keeping in mind the purpose of the act.’” Twentieth Century Fox Home
Entertainment, Inc v Dep’t of Treasury, 270 Mich App 539, 544; 716 NW2d 598 (2006)
(citations omitted). The first criterion in determining intent is the specific language of the
statute. In re MCI Telecom Complaint, 460 Mich 396, 411; 596 NW2d 164 (1999). If the plain
and ordinary meaning of the language is clear, judicial construction is normally neither necessary
nor permitted. Nastal v Henderson & Assoc Investigations, Inc, 471 Mich 712, 720; 691 NW2d
1 (2005). “[E]very word or phrase of a statute should be accorded its plain and ordinary
meaning, taking into account the context in which the words are used.” Priority Health v Office
of Fin & Ins Servs Comm’r, 284 Mich App 40, 43; 770 NW2d 457 (2009) (citations and
quotation marks omitted).
For many reasons, we conclude that plaintiff’s contributions to the VEBA trust were not
“compensation” to employees taxable under the SBTA. Central to this conclusion is the premise
that plaintiff’s contributions to the VEBA trust represent only potential compensation to its
3
See footnote 2.
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employees. Thus, the contributions cannot yet reasonably be considered compensation “for the
benefit of employees.” Defendant directs this Court to the language establishing the VEBA trust,
which provides that the assets are held “for the benefit of the employees . . . .” However, this
fact actually works against defendant’s claim. While the VEBA assets may be held for the
benefit of the employees, the employees receive no substantive benefit until plaintiff or the
VEBA trust directly pays the costs for the employees’ health-care services as required by
plaintiff’s employee health-care benefit plan. The only benefit plaintiff’s employees receive
from plaintiff’s VEBA trust contributions is the peace of mind associated with knowing that
plaintiff’s contributions to the VEBA trust are earmarked to address future medical claims under
the employee health-care benefit plan. However, this peace of mind does not fall within the
statutory definition of “compensation” under the SBTA.
Moreover, there is no dispute that the monies paid into the VEBA trust did not secure any
medical care and could be significantly depleted as a result of market forces. In such a case,
plaintiff would still be required pursuant to its employee health-care benefit plan to pay for its
employees’ health-care costs. This scenario demonstrates that the VEBA trust merely serves as a
savings fund implemented to facilitate the payment of plaintiff’s employees’ future health-care
services. “Compensation” taxable under the SBTA was defined to include “payments made in
the taxable year on behalf of or for the benefit of employees . . . .” MCL 208.4(3). In this
context, “compensation” equates with the payment of actual health-care costs incurred by
plaintiff’s employees, not the setting aside of money intended to serve as a source of proceeds
for the payment of future health-care costs.
This conclusion is further supported by the method defendant employed, as maintained at
oral argument, to determine the “actual” and “real” tax. As mentioned, defendant determined
that contributions made into the VEBA trust were taxable compensation under the SBTA and
then “offset” the amounts the VEBA trust reimbursed plaintiff for payments it made for healthcare services rendered to employees. However, nothing under the SBTA provided for
subtraction from compensation of a payment made to an employer from any fund. Yet, the
SBTA did specifically provide for other offsets. For instance, the SBTA expressly allowed for
“offsets” of business losses. MCL 208.23b(h). In sharp contrast to this express provision
allowing an offset of business losses, the SBTA’s silence in regard to the offset of compensation
that was taxed but never actually paid is notable. Defendant recognized that payments by
plaintiff made directly for health-care services provided to employees pursuant to plaintiff’s
employee health-care benefit plan were compensation under the SBTA. Defendant further
recognized that to include those payments in plaintiff’s tax base would have resulted in double
taxation. Thus, defendant invented this offset fiction to justify its continued stream of tax
revenue based on VEBA trust contributions. Significantly, this method of taxation also reflects
that defendant knew that some of the contributions to the VEBA trust were not to be used to pay
for health benefits in the tax year in which they were paid. Such a tax policy is irreconcilably
inconsistent with the express authority under the statute, which limited compensation subject to
the single business tax to payments made on behalf of the employees in the tax year.
We also find significant that plaintiff’s contributions to the VEBA trust exceeded the
compensation required under the UAW-Ford Motor Company contract. Defendant argues that
the contributions to the VEBA trust are akin to purchasing health insurance, which eventually
would be used by employees. Again, the payment of proceeds into the VEBA trust was not in
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any way tantamount to the purchase of health insurance. Significantly, payments into the VEBA
trust were not required by a contractual obligation and were not paid in order to procure
insurance to cover medical services due to employees under plaintiff’s health-care benefit plan.
We conclude that defendant improperly taxed contributions to the VEBA trust as
compensation under the SBTA. We reverse and remand for further proceedings consistent with
this opinion. We do not retain jurisdiction.
/s/ Brian K. Zahra
/s/ William C. Whitbeck
/s/ Michael J. Kelly
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