327 Mich. 556 | Mich. | 1950
Lead Opinion
This is an appeal from a decree entered in the circuit court for the county of Wayne, in chancery, permanently enjoining the State department of revenue and its commissioner from taking any proceedings against the plaintiffs to enforce or collect any sales-tax penalties, or interest, for the period between January 1,1942, and March 31,1948. Said decree also provided that certain compromise agreements entered into by the department of revenue and plaintiffs were binding on both parties.
On April 27, 1948, a written agreement was entered into by the department of revenue and the plaintiffs, compromising a claim made by the department of revenue that the plaintiffs had underpaid the State for sales tax, and interest. As a result of that agreement and in accordance therewith, plaintiffs paid to the department $89,534.91, representing the balance of sales tax, including interest, for the period from July 1, 1944, to October 31,1947. In that agreement the department of revenue agreed that it would not claim any penalty either for negligent return or fraudulent return after said period beginning July 1,1944, and such penalty was thereby waived. It was further agreed that the department reserved the right to collect sales tax, interest and penalty for the period from January 1, 1942, to June 30, 1944. On April 30, 1948, another similar agreement was entered into by the department and the
During the months of May and June, 1948, the parties continued negotiations for an adjustment of the department’s claims against the plaintiffs for the period prior to July 1, 1944. On July 9, 1948, the department and the plaintiffs entered into a third written agreement whereby the plaintiffs agreed to pay the actual sales tax which the department might find to be due from the plaintiffs for the period from January 1, 1942, to June 30, 1944, and the department agreed to waive all claims for penalties and interest. This agreement further provided that the proceedings for the assessment for that period be “discontinued and (that) there should be no further liability for sales tax, interest or penalties on the part of these taxpayers # * * by reason of the operation of the aforesaid businesses from 1933 up to March 31,1948.”
On July 26, 1948, counsel for the plaintiffs made final payment according to the terms of the agreement of July 9th. Under these 3 agreements plaintiffs paid the department of revenue approximately $131,000.
On October 15, 1948, notwithstanding these compromise agreements and full performance thereof by the plaintiffs and acceptance of payments by the department, defendants gave plaintiffs notice of intent to assess deficiencies aggregating $181,000 for penalties and interest; and defendants advised the plaintiffs that the attorney general had ruled that the compromise agreements were invalid as to such penalties and interest. The department claimed deficiencies for penalties and interest on all sales taxes that had been paid by plaintiffs under the settlement agreements, for the entire period from January 1, 1942, to March 31, 1948. Thereupon plaintiffs filed the instant bill of complaint to enjoin
The court decreed that the compromise agreements were valid in toto, that there was no deficiency in sales tax and, hence, no penalties or interest could be assessed, dismissed defendants’ cross bill, and entered the decree enjoining the defendants from taking any further proceedings to collect interest and penalties. Defendants appeal.
Defendants concede that plaintiffs have paid the State in full for all sales taxes, and that the amounts claimed by the department as proper estimates of sales tax were accepted by plaintiffs as the proper amounts. As a part of the compromise agreements the plaintiffs waived any defenses, including their claim that part of the sales tax as claimed by the department was barred by the 3-year provision in the statute. It is a fair conclusion from the record that the plaintiffs waived any claim of defenses and that the department accepted and was paid the amount of its claims for sales tax, in compromise and satisfaction of the department’s claims against the plaintiffs; and that the department waived any further claim against the plaintiffs for sales tax, interest or penalties. In the concluding compromise agreement the department agreed that there would be no further claims against the plaintiffs for sales
The defendants’ present position is that.the waiver of any further claim for penalties and interest was void. They insist that as to penalties and interest the compromise'agreements were void, and that under the sales tax act the department had no authority to make such agreements. They rely on section 9 of the sales tax act,
“If any part of the deficiency is due to a fraudulent intent to evade the tax, then there shall be added as a penalty 100 per cent, of such deficiency.”
Counsel for defendants concedes that no fraud of any kind was involved in the making of the 3 compromise agreements. It is admitted that plaintiffs provided the department with their books and records and that the department completed the audit of plaintiffs’ books and records prior to the final compromise agreement in which the department fixed the amount claimed by it, and which amount the plaintiffs have paid in full. Defendants concede that plaintiffs do not owe any further sales tax. Their only claim is for penalties and interest.
As to the sales tax, interest or penalties, the department had a doubtful claim against the plaintiffs for any deficiency prior to 3 years from the filing date of an annual return. Section 9 of the sales tax act, supra, on which the defendants rely, concludes:
“No deficiency, interest or penalty shall be assessed for any year after the expiration of 3 years from the date set for the filing of the annual return for such year.”
Section 6a of the department of revenue act
“The provisions of this section shall not he construed to prevent a compromise of interest and/or penalties.”
Said section 6a was construed by this Court to the effect that it does not prevent a compromise of interest or penalties, in F. M. Sibley Lumber Co. v. Department of Revenue, 311 Mich 654; Kress v. Department of Revenue, 322 Mich 590. The change made in the rule by the 1949 amendment to section 11 of the sales tax act, supra, was subsequent to the instant tax liability.
The 3 settlement agreements did not compromise or reduce the sales tax. The department fixed the amounts of the sales tax from January 1, 1942, to March 31, 1948, and the amounts were fully paid by plaintiffs. The only amounts compromised were the interest and penalties. Plaintiffs have paid the full amount of the sales tax owing the State which was demanded by the department. We do not agree with the proposition now advanced by the defendants that the plaintiffs are now liable for penalties and interest “due to a fraudulent intent to evade
In this case that State sales-tax collecting agency has entered into compromise agreements in which the taxpayer has waived certain doubtful rights and the State has waived any further claims against the taxpayer. There was a mutual compromise of doubtful claims, and an adjustment of asserted rights, with full knowledge, and without any evidence of fraud, mistake or unconscionable advantage. Plaintiffs were represented by competent legal counsel, and the compromise agreements were entered into by the department after an audit of the plaintiffs’ books and records and with the co-operation of the attorney general’s department# The Court has often held that the settlement of disputed matters and the compromise of doubtful claims is favored by the law. Efforts toward amicable settlement of disputed claims to avoid litigation meet with judicial approval. Booth Fisheries Co. v. Alpena Circuit Judge, 170 Mich 611; Scholz v. Boening, 278 Mich 76; In re Peck’s Estate, 323 Mich 11. Nor does the law encourage a claimant to retain the money received under such circumstances and subsequently litigate for the purpose of recovering a greater sum. Lehaney v. New York Life Ins. Co., 307 Mich 125.
To summarize, at the expense of repetition, the department here makes no claim for any further sales tax on the ground of fraud. The sole claim is for penalties and interest, on sales tax admittedly paid in full, on the sole ground of fraudulent intent to evade the tax. The State had a doubtful claim against plaintiffs both as to the amount of the sales tax itself, and as to interest or penalties. The amount of the sales tax was not compromised. The amount of interest and penalties was. While section 6a, supra, of the department of revenue act, denies to the department the right to compromise or
CL 1948, § 205.59 (Stat Aim 1947 Cum Supp § 7.530). This was prior to the amendment by PA 1949, No 272, which has no bearing on the present ease.
CL 1948, § 205.61 (Stat Ann 1947 Cum Supp § 7.532). The 1949 amendment has no bearing.
Substituted for State board of tax administration by PA 1941, No 122. CL 1948, § 205.13 (Stat Ann 1947 Cum Supp § 7.657 [13]).
CL 1948, § 205.6a (Stat Ann 1947 Cum Supp § 7.657 [6a]).
CL 1948, § 14.131 (Stat Ann § 3.231).
Concurrence Opinion
(concurring). I concur with Mr. Chief Justice Boyles in affirmance. In so doing, it is my view, however, that while section 11 of the sales tax act and section 6a of the department of revenue act may be considered to contain a recognition of the existence of certain powers of compromise, neither contains a grant of power to compromise the interest and penalties for fraud provided for in section 9 of the sales tax act, and that neither in F. M. Sibley Lumber Co. v. Department of Revenue, 311 Mich 654, nor in Kress v. Department of Revenue, 322 Mich 590, was that precise question presented nor determined by this Court. It is, further, my view that were statutory authority for the commissioner of revenue to make the compromise agreements in question lacking, no judicial disposition to look with favor upon the compromise settlement of disputed claims, or, equally, to look with disfavor upon those who would repudiate such settlements while retaining the fruits thereof could possibly serve to supply that which is wanting in the statute and thus to validate the agreements.
The tax, including penalties and interest, levied under the sales tax act is a specific tax. PA 1927, No 375, created a collection department. Section 4 of the act (CL 1948, § 14.134 [Stat Ann § 3.234]) empowered it to settle and compromise delinquent
