COUNTY ROAD ASSOCIATION OF MI V GOVERNOR
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STATE OF MICHIGAN
COURT OF APPEALS
COUNTY ROAD ASSOCIATION OF
MICHIGAN and CHIPPEWA COUNTY ROAD
COMMISSION,
UNPUBLISHED
January 13, 2004
Plaintiffs-Appellees,
v
GOVERNOR OF MICHIGAN, DIRECTOR OF
THE DEPARTMENT OF TRANSPORTATION,
DEPARTMENT OF TRANSPORTATION,
DIRECTOR OF THE DEPARTMENT OF
MANAGEMENT AND BUDGET,
DEPARTMENT OF MANAGEMENT AND
BUDGET, STATE BUDGET DIRECTOR,
STATE TREASURER, DEPARTMENT OF
TREASURY, SECRETARY OF STATE, and
STATE OF MICHIGAN,
No. 245931
Ingham Circuit Court
LC No. 02-000308-CZ
Defendants-Appellants,
and
MICHIGAN PUBLIC TRANSIT ASSOCIATION,
ANN ARBOR TRANSPORTATION
AUTHORITY, CAPITAL AREA
TRANSPORTATION AUTHORITY, and
SUBURBAN MOBILITY AUTHORITY FOR
REGIONAL TRANSPORTATION,
Intervening Plaintiffs-Appellees.
Before: Talbot, P.J., and Owens and Fort Hood, JJ.
PER CURIAM.
We granted defendants leave to appeal from the trial court’s order issuing a preliminary
injunction to preclude the State from transferring pursuant to executive order $20 million from
the Michigan Transportation Fund (“MTF”) to the Department of State or to the state general
fund as expenses incurred in the collection of sales taxes. We also stayed the court-ordered
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preliminary injunction.1 On appeal, defendants argue that the trial court abused its discretion in
ruling that the state employed a cost allocation methodology that inaccurately assessed the
amount of expenses incurred from the collection of sales taxes, and that the court improperly
imposed a substitute allocation methodology. We affirm in part, reverse in part and remand.
I. Facts and Procedural History
On November 6, 2001, former Governor John Engler issued Executive Order 2001-9, to
reduce state expenditures by a total amount of $319 million. The expenditure reductions
included the transfer of a total amount of $144 million from various revenue funds to the state’s
general fund for Fiscal Year 2001-2002. The executive order was issued pursuant to Const 1963,
art 5, § 20, which mandates the Governor, with the approval of the appropriating legislative
committees, to reduce expenditures when actual revenues for a fiscal year are expected to fall
below the revenue estimates upon which the fiscal year appropriations were based. In this case,
the executive order was issued with the concurrence of the appropriation committees of the
House and Senate.
The MTF was established by § 10 of 1978 PA 444 as the depository for sales taxes on
motor vehicles and motor fuels. See Southeastern Michigan Transportation Authority v
Secretary of State, 104 Mich App 390, 405; 304 NW2d 846 (1981). Plaintiffs consist of
governmental agencies who receive funding from the MTF. Plaintiffs filed suit to challenge the
constitutionality of the executive order with respect to the transfer of several funds. The single
issue on this appeal relates to plaintiffs’ claim in their request for a preliminary injunction that
the MTF was overcharged by $40 million in costs for the collection of the sales taxes. The trial
court determined that only $20 million of the disputed amount of costs were not necessary
collection expenses, and the court issued a preliminary injunction enjoining the transfer of that
amount of the funds.
II. Analysis
We review a trial court’s decision to grant a preliminary injunction for an abuse of
discretion. Alliance for Mentally Ill of Michigan v Dep’t of Community Health, 231 Mich App
647, 661; 588 NW2d 133 (1998). A trial court’s findings of fact will be sustained unless they are
clearly erroneous or we are convinced that we would have reached a different result. Cipri v
Bellingham Frozen Foods, Inc, 235 Mich App 1, 9; 596 NW2d 620 (1999). In deciding whether
to grant a preliminary injunction, a court must consider (1) the likelihood that the party seeking
1
This appeal is submitted together with an appeal from the same case below, County Road Ass’n
of Michigan v Governor of Michigan, ___ Mich App ___; ___ NW2d ___ (published opinion of
the Court of Appeals, issued 01/__/2004 (Docket No. 245767), where intervening plaintiffs, a
group of state agencies who received benefits from the Comprehensive Transportation Fund,
intervened to challenge the constitutionality of the transfer of $12,750,000 from Comprehensive
Transportation Fund to the state general fund. The trial court granted intervening plaintiffs’
request for a preliminary injunction enjoining the transfer. In that decision, we vacated the
preliminary injunction.
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the preliminary injunction will prevail on the merits, (2) the danger that party will suffer
irreparable harm if the injunction is not issued, (3) the risk that the party would be harmed more
by the absence of an injunction than the opposing party would be by the granting of the
injunction, and (4) harm to the public interest if the injunction is issued. Fruehauf Trailer Corp
v Hagelthorn, 208 Mich App 447, 449; 528 NW2d 778 (1995). The court’s decision must not be
arbitrary and must be based on the facts of the particular case. Ins Comm’r v Arcilio, 221 Mich
App 54, 77; 561 NW2d 412 (1997). On appeal, defendants challenge only the first prong of the
above considerations by asserting that the trial court abused its discretion when it determined that
plaintiffs were likely to prevail on the merits because the state’s methodology used in
determining the cost of collecting the taxes was flawed.
Const 1963, art 9, § 9 governs the distribution of revenues collected from the sales taxes
of motor vehicles and motor vehicle parts, accessories and fuel. It provides that, after the
payment of “necessary collection expenses,” the revenues must be used exclusively for
transportation purposes. In this case, plaintiffs presented the testimony of Bruce Berend, a
certified public accountant. He testified that the collection of sales taxes was part of the same
overall transaction that collected motor vehicle title transaction and registration fees. He stated
that the state’s methodology in determining the cost for the sales tax collection allowed the MTF
to be charged for the costs related to the collection of motor vehicle title transaction and
registration fees that are not sales taxes specifically dedicated to the MTF. According to
Berend’s calculations, the MTF was improperly billed for $8,073,000 in costs not related to the
collection of sales taxes. He also testified that another $4,400,000 was overcharged to the MTF
for some type of overhead costs related to the collection of sales taxes that are unclear from the
record. In addition to the above two estimates, Berend testified that the state’s methodology
improperly allowed the MTF to be billed for the costs of processing automobile dealer licensing,
driver improvement programs, and drivers’ license appeals, which are not part of the necessary
costs of collecting sales taxes. According to Berend, these costs added up to an additional $7.3
million overcharge to the MTF. Berend calculated the total overcharge at $20 million. While he
faulted the allocation of other costs to the MTF in the course of his testimony, he did not assign
any dollar figure to those amounts. Rather, he acknowledged that his estimate of amounts
improperly charged to the MTF was based only on the sales tax collection and the costs for
automobile dealer licensing, driver improvement programs, and drivers’ license appeals. It is
evident that the trial court’s preliminary injunction to enjoin the transfer of $20 million from the
MTF was based only on the three figures provided by Berend.
With respect to the total amounts of $8,073,000 and $4,400,000 that plaintiffs claim were
overcharged sales tax collection expenses, Const 1963, art 9, § 9 plainly allows the deduction of
“necessary collection expenses” in obtaining tax revenue that it otherwise dedicates to
transportation purposes. Nothing in the language of Const 1963, art 9, § 9 directs the exclusion
of necessary collection expenses if they incidentally further other governmental functions.
While Berend testified that the Department of State collects sales taxes as an incidental part of
vehicle titling transactions, he never described any additional incremental costs incurred from the
collection of the incidental fees. Thus, the evidence does not support a conclusion that plaintiffs
are likely to prevail on the merits with regard to those costs.
With respect to the cost for processing automobile dealer licensing, driver improvement
programs, and driver’s license appeals, it is undisputed, for purposes of considering the
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preliminary injunction at issue, that the Department of State charged the MTF $7,300,000 for
these activities as part of its alleged necessary collection expenses. Defendants make no
argument as to how the costs for these activities could possibly be reasonably characterized as
expenses incurred in the collection of sales taxes. Rather, defendants present nothing to dispute
the accuracy of Berend’s testimony on the matter. Thus, we conclude that the trial court properly
determined that plaintiffs were likely to prevail on the merits with respect to $7,300,000 of the
$20 million covered by the preliminary injunction at issue.
Defendants next argue that the steering committee, charged by 1996 PA 341 to adopt the
state’s methodology for determining the necessary costs for the collection of sales taxes, was
entitled to deference in adopting the state’s cost allocation methodology. We disagree. No
reasonable standard of deference could sustain a conclusion that the costs for licensing
automobile dealers, driver improvement programs, and drivers’ license appeals are necessary
expenses for the collection of sales taxes. Further, the two cases upon which defendants rely in
support of their argument, In re Kurzyniec Estate, 207 Mich App 531; 526 NW2d 191 (1994),
and J & P Market, Inc v Liquor Control Comm, 199 Mich App 646; 502 NW2d 374 (1993), are
not on point because they each involve essentially adjudicative or quasi-judicial decisions by an
administrative tribunal or agency as opposed to the type of state budgetary decision at issue here.
Finally, defendants argue that plaintiffs’ claim for injunctive relief should be considered
barred by the doctrine of laches because plaintiffs did not challenge until the year 2002 the
methodology that has been used since 1996. Laches is an equitable defense that may be invoked
when the delay in bringing a claim prejudices the other party. Great Lakes Gas Transmission Co
v MacDonald, 193 Mich App 571, 577; 485 NW2d 129 (1992). Given that plaintiffs brought
their suit during FY 2001-02, the same fiscal year in which the executive order directed the
transfer of funds from the MTF, we see no reasonable basis for charging plaintiffs with undue
delay that prejudiced defendants. Thus, defendants’ argument is without merit.
Affirmed in part, reversed in part and remanded. We direct the trial court on remand to
modify the December 23, 2002, preliminary injunction at issue so that it only applies to the
amount of $7,300,000. We do not retain jurisdiction.
/s/ Michael J. Talbot
/s/ Donald S. Owens
/s/ Karen M. Fort Hood
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