Adamo Demolition Co. v. Department of Treasury
303 Mich. App. 356
| Mich. Ct. App. | 2013Background
- Adamo Demolition challenges the Department of Treasury’s reallocation of employees’ compensation to Mancorp and E-Connect as professional employer organizations under MCL 208.4(4).
- Adamo entered PEO arrangements outsourcing HR to Mancorp (2005) and E-Connect (2006–2007), with employees leased back to Adamo.
- Mancorp and E-Connect paid employees’ salaries and withheld taxes; Mancorp/E-Connect had rights to direct/control employees and to hire/fire; Adamo retained daily management duties.
- Tribunal held service providers qualify as PEOs under MCL 208.4(4) and that Adamo’s compensation should not be attributed to Adamo, awarding costs to Adamo.
- Department appeals; Michigan Court of Appeals reviews de novo interpretation of tax statutes and the Tribunal’s legal conclusions; court ultimately affirms PEO status but reverses forfeiture of costs.
- Court remands for correction of judgment and notes Herald Wholesale governs the outcome, with nuanced differences due to Adamo’s ownership/roles.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Mancorp and E-Connect qualify as PEOs under MCL 208.4(4). | Department argues the agreements give service providers substantial employer rights. | Adamo Demolition contends Herald Wholesale controls, owner status does not negate PEOs. | Yes; service providers qualify as PEOs under 208.4(4). |
| Whether Adamo’s ownership/status affects PEO characterization. | Department asserts owner status could negate PEO benefits. | Adamo’s ownership does not remove employees from PEO control; records show managerial duties. | Owner status does not defeat PEO status under 208.4(4). |
| Whether E-Connect’s disclaimer defeats sharing of direction and control. | Department contends disclaimer breaks any shared control. | Tribunal properly found non-daily control shared; disclaimer does not eliminate nondaily control. | disclaimer does not negate shared control; PEO shared rights remain valid. |
| Whether the Department’s position was frivolous and merits costs. | Department’s position was baseless and repeatedly challenged precedent. | No clear evidence of frivolous conduct; record lacks proof of repeated bad faith. | The Tribunal erred in finding the Department’s position frivolous; reverse costs award. |
| Whether Herald Wholesale controls the outcome given shifting jurisprudence. | Herald provides clear guidance supporting Department’s position. | Herald’s scope is limited; facts here differ due to ownership and control structure. | Herald Wholesale is not controlling to deny PEO status under these facts. |
Key Cases Cited
- Herald Wholesale, Inc v Dep’t of Treasury, 262 Mich App 688 (2004) (held PEO may pay leased employees and officers; officer status can be PEO employee)
- Ford Motor Co v City of Woodhaven, 475 Mich 425 (2006) (statutory interpretation principles for tax and public policy)
- Mich Props, LLC v Meridian Twp, 491 Mich 518 (2012) (interpretation and application of tax statutes; statutory meaning)
- Pontiac Country Club v Waterford Twp, 299 Mich App 427 (2013) (principles of statutory interpretation in local taxation)