965 N.W.2d 720
Mich. Ct. App.2020Background
- Emagine operated Michigan movie theaters and sold concessions, including bottled water and prepackaged candy; it paid sales tax 2010–2014 but sought refunds for taxes paid after concluding some items were exempt.
- Parties narrowed the dispute to sales from January–December 2013 and agreed on a refund amount of $79,026.27 for that period.
- Treasury refunded bottled water tax but denied refunds for prepackaged candy, relying on Mich Admin Code R 205.136(5) (Rule 86(5)), which interprets “eating utensils provided by the seller” and contains a 75% prepared-food-sales test.
- The MTT and ALJ concluded Rule 86(5) conflicted with MCL 205.54g(4) and was invalid, and analyzed candy under the statute; however, after further factual findings the MTT denied Emagine’s refund claim because the record showed customers paid the tax.
- On appeal Treasury challenged the invalidation of Rule 86(5); Emagine appealed the denial of refund. The Court of Appeals affirmed: Rule 86(5) is invalid as conflicting with the statute, and the MTT’s factual finding that customers paid the tax is supported by the record.
Issues
| Issue | Emagine's Argument | Treasury's Argument | Held |
|---|---|---|---|
| Whether Rule 86(5)’s 75% test for when utensils are “provided by the seller” conflicts with MCL 205.54g(4) | Rule 86(5) is a permissible interpretation of the undefined phrase "provided by the seller" | Rule 86(5) validly fills a gap and refines statutory terms (and aids SSUTA compliance) | Rule 86(5) invalid: it conflicts with the statute by effectively rewriting the statutory definition and rendering other statutory categories surplusage |
| Whether Emagine is entitled to a refund for prepackaged candy sales because it did not actually collect tax from customers | Emagine contends tax was an operating expense (not collected from customers) and thus it should get a refund | Treasury contends records show tax was collected from customers, barring a refund under anticapture rules | Held for Treasury: substantial record evidence (financial records and witness testimony) supports MTT finding that customers paid the tax, so no refund |
Key Cases Cited
- Mich Properties, LLC v Meridian Twp, 491 Mich 518 (standards of review for MTT decisions)
- Clonlara, Inc. v. State Bd. of Ed., 442 Mich 230 (agencies may interpret statutes but cannot promulgate rules that conflict with statute)
- In re Complaint of Rovas Against SBC Mich, 482 Mich 90 (agency interpretations not binding if they conflict with legislative intent)
- Mich Farm Bureau v Dep’t of Environmental Quality, 292 Mich App 106 (scope of rulemaking authority reviewed de novo)
- Grass Lake Improvement Bd v Dep’t of Environmental Quality, 316 Mich App 356 (statute controls when rule and statute conflict)
- Dextrom v Wexford Co., 287 Mich App 406 (summary-disposition standard under MCR 2.116(C)(10))
- Alken-Ziegler, Inc. v Hague, 283 Mich App 99 (use of ordinary/dictionary meaning for undefined statutory terms)
- Andrie Inc v Dep’t of Treasury, 496 Mich 161 (legal responsibility for sales tax rests with seller though economic burden may be passed to consumers)
- Ally Financial Inc v State Treasurer, 502 Mich 484 (SSUTA obligations do not override conflicting state law)