Four Zero One Associates LLC v. Department of Treasury
332639
| Mich. Ct. App. | Jun 15, 2017Background
- Four Zero One Associates, LLC (petitioner) sought the Small Business Alternative Credit (SBAC) under the Michigan Business Tax Act for tax year 2008.
- The Department of Treasury (respondent) denied the SBAC because shareholder/officer Lawrence F. DuMouchelle’s compensation exceeded the $180,000 statutory limit when a $30,000 bonus paid in 2008 was included.
- Four Zero One concedes the $30,000 bonus was paid in 2008 but contends its accrual method of accounting (and deduction of the bonus in 2007) means the bonus should be treated as 2007 compensation for SBAC eligibility.
- The Tax Tribunal granted the Department’s motion for summary disposition (MCR 2.116(C)(10)), holding that “compensation” includes bonuses in the year actually paid, irrespective of the taxpayer’s federal accounting method.
- The Court of Appeals reviewed de novo the statutory interpretation and whether the statutory definition of “compensation” is ambiguous or requires applying the taxpayer’s accounting method.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a bonus is ‘‘compensation’’ for the year it is paid or under the taxpayer’s elected cash/accrual accounting method | Four Zero One: statute is ambiguous; apply accrual method (year deducted) or resolve ambiguity for taxpayer; last-antecedent rule supports its reading | Treasury: statutory definition treats bonuses (and other listed payments) as payments counted in the year made (cash-basis treatment), regardless of taxpayer’s accounting method | Court: Held that the statute is unambiguous; bonuses and listed payments count as compensation in the year paid, so DuMouchelle’s 2008 bonus is 2008 compensation |
Key Cases Cited
- Toaz v. Dep’t of Treasury, 280 Mich. App. 457 (2008) (standard of review for Tax Tribunal decisions in nonproperty tax cases)
- Midamerican Energy Co. v. Dep’t of Treasury, 308 Mich. App. 362 (2014) (comparison of accrual and cash methods for income recognition)
- Book-Gilbert v. Greenleaf, 302 Mich. App. 538 (2013) (inclusion/omission of statutory language construed as intentional)
- Younkin v. Zimmer, 497 Mich. 7 (2014) (deference to agency interpretations charged with statute administration when persuasive)
- Tuscola Co. Bd. of Comm’rs v. Tuscola Co. Apportionment Comm’n, 262 Mich. App. 421 (2004) (discussion of the last antecedent rule and its limits)