Petitioner, a resident of the state of Florida, appeals by right the final opinion and judgment of the Michigan Tax Tribunal (MTT) granting respondent summary disposition and holding petitioner responsible for taxes under Michigan’s former Single Business Tax Act, former MCL 208.1 et seq.
I. BACKGROUND
A bill for taxes due, also referred to as the notice of intent to assess (the Notice), was issued by respondent to petitioner on October 18, 2011. The Notice alleged that petitioner was liable under the act for taxes in the amount of $72,286.39
The petition alleged respondent did not make a preliminary determination that petitioner was the individual responsible for paying the taxes and that the tax liability was subject to a bankruptcy plan and ultimately discharged by the United States Bankruptcy Court for the Southern District of Florida on August 3, 2011.
The MTT issued its final opinion and judgment on August 24, 2012. It affirmed the proposed order, holding that the referee properly analyzed state and federal law to determine that Michigan’s single business tax (SBT) was a nondischargeable excise tax under 11 USC 507(a)(8)(E). Petitioner moved for reconsideration of the MTT’s opinion on two occasions and was denied both times. At no point did petitioner file a motion to amend his petition. In none of the papers filed with the MTT after his initial petition did petitioner contend there was a material question of fact regarding whether he was a responsible corporate officer and that, regardless of the characterization of the SBT, summary disposition was, therefore, inappropriate.
II. PETITIONER’S RIGHT TO AMEND HIS PLEADINGS
Petitioner argues the MTT denied him the right to amend his pleadings and incorrectly applied MCR 2.116(I)(5). We find no support for this argument in the record. Our standard of review is clear. “Where fraud is not claimed, this Court reviews the tribunal’s decision for misapplication of the law or adoption of a wrong principle.” Wexford Med Group v Cadillac,
Petitioner has had an opportunity to amend his pleadings and Petitioner has currently failed to timely exercise that “right” or demonstrate why he should be entitled to an extended opportunity to exercise that “right.”
Respondent’s motion for abeyance came after the referee’s proposed order. That order granted summary disposition to respondent and rejected petitioner’s claim that his tax liability was discharged by the Florida bankruptcy court. The referee’s proposed order stated that the viability of an amendment of petitioner’s pleading at that point was poor because, as a matter of law, petitioner had stated no other claim and no amendment could change the fact that the SBT was nondischargeable by law. The referee was expressing the futility of amendment at that point. See Tierney v Univ of Mich Regents,
3. Although MCR 2.116(I)(5) does require the Tribunal to provide the parties with an opportunity to amend their pleadings, Petitioner has not filed any motion to amend or amended pleadings since the filing of Respondent’s January 11, 2012, Motion for Summary Disposition, the Tribunal’s April 17, 2012, Proposed Order granting that Motion and the filing of Petitioner’s May 7, 2012, exceptions to that Order. In that regard, Petitioner has had an opportunity to amend his pleadings and Petitioner has currently failed to timely exercise that “right” or demonstrate why he should be entitled to an extended opportunity to exercise that “right.”
While that order might have implied to petitioner that he was precluded from subsequently filing a motion to amend, the MTT clarified that order later when it addressed petitioner’s motion for reconsideration:
Furthermore, the Tribunal finds that the August 3, 2012 Order does not stand for the proposition that Petitioner cannot amend his pleadings, but rather, that Petitioner has failed to demonstrate that an amendment would be justified.
The MTT correctly applied MCR 2.116(I)(5). MCR 2.116(I)(5) only states that the court shall provide the opportunity for amendments. The rule does not refer to a limitations period. However, MCR 2.116(1)(5) does refer to the amendment procedure in MCR 2.118 which provides that “[a] party may amend a pleading once as a matter of course within 14 days after being served with a responsive pleading . ...” MCR 2.118(A)(1). Respondent filed its answer to petitioner’s petition on December 8, 2012. Approximately nine months later, when the MTT issued its order granting abeyance, petitioner had still not filed an amendment. While MCR 2.116(I)(5) mandates “the court shall give the parties an opportunity to amend,” according to MCR 2.118(A)(2), after 14 days the right becomes discretionary:
Except as provided in subrule (A)(1), a party may amend a pleading only by leave of the court or by written consent of the adverse party. Leave shall be freely given when justice so requires. [Emphasis added.]®
There was no error in the MTT’s application of MCR 2.116(1)(5) to the facts of this case.
III. PETITIONER’S RIGHT TO DISCOVERY
Petitioner next argues he was promised a later opportunity to conduct discovery by the MTT, but did not receive it. We find no merit in this argument. In order to properly preserve an issue for appeal, it must be “raised before, and addressed and decided by, the trial court.” Hines v Volkswagen of America, Inc,
“We review a trial court’s decision to grant or deny discovery for abuse of
[T]he Tribunal assigned the case to the above-noted Tribunal member for review and entry of a final order adopting or modifying the Proposed Order or an order vacating the Proposed Order and scheduling the case for hearing, which would include an opportunity for conducting discovery. [Emphasis added.]
Petitioner’s reliance on this language is misplaced. It is clear that the MTT did not indicate that an opportunity for conducting discovery would be afforded if the MTT decided to adopt or modify the proposed order. To adopt or modify the proposed order would substantially mean to affirm it, while vacating the order would be the opposite. The word “or” separates the two possibilities. See People v Nicholson,
Petitioner also contends he was denied procedural due process when he was not afforded the opportunity to conduct discovery. We disagree. Because this issue was also not preserved before the MTT, plain-error analysis is appropriate. People v Carines,
The MTT did not err when it granted respondent’s motion for abeyance and ordered discovery closed until a final opinion was issued. First, there is no constitutional right to discovery in any judicial or quasi-judicial proceeding, including an administrative proceeding. In re Del Rio,
Petitioner cites no court rule or MTT rule with which the MTT failed to comply. Petitioner argues that a scheduling conference was required to take place, citing Mich Admin Code, R 792.10247. However, Mich Admin Code, R 792.10247 concerns prehearing conferences and provides that discovery is not permitted after the prehearing conference.
Second, petitioner fails to tell this Court how the outcome of his MTT proceeding would have been different with discovery
The MTT did not commit plain error or deny petitioner procedural due process. Even if a prehearing conference did not take place, petitioner had his opportunity to be heard on issues involving discovery by way of his answer to respondent’s motion for abeyance and his subsequent motions for reconsideration.
IV PETITIONER’S TAX LIABILITY
The heart of petitioner’s claim is found in the question whether the SBT liability was discharged in bankruptcy as a “non-excise tax.” As was the case with our review of petitioner’s claimed right to amend his pleadings, our standard of review here is limited and clear. “This Court’s review of Tax Tribunal decisions in nonproperty tax cases is limited to determining whether the decision is authorized by law and whether any factual findings are supported by competent, material, and substantial evidence on the whole record.” Toaz v Treasury Dep’t,
Both parties to this appeal agree that the issue presented is whether Michigan’s former SBT was an excise tax. This is an issue of first impression for this Court. Under the United States bankruptcy code, certain excise taxes cannot be discharged in bankruptcy. 11 use 523(a)(1)(A); 11 USC 507(a)(8)(E). This Court’s determination of whether the SBT was an excise tax will answer the ultimate question of whether petitioner’s liability for the SBT was discharged in his Florida bankruptcy case. If the SBT was not an excise tax, it was dischargeable in bankruptcy and the MTT erred by granting summary disposition in favor of respondent. On the other hand, if the SBT was an excise tax, it was not dischargeable in bankruptcy and the MTT’s grant of summary disposition was proper.
A. PETITIONER’S BANKRUPTCY
On November 3, 2010, petitioner, as an individual debtor, filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of Florida. Petitioner checked under “Types of Priority Claims”
11 USC 523(a) states:
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-
(1) for a tax or a customs duty-
(A) of the kind and for the periods specified in section 507(a)(3) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed!.]
The bankruptcy court discharged petitioner under 11 USC 1141. Therefore, under § 523, if petitioner had debt for a tax or customs duty of the kind and for the periods specified in either 11 USC 507(a)(3) or (8), that debt was not discharged. Section 507(a) identifies the priority
Respondent asserts that its SBT claim against petitioner fits the description of an excise tax under 11 USC 507(a)(8)(E)(i). Section 507(a)(8) refers to
allowed unsecured claims of governmental units, only to the extent that such claims are for-
(E) an excise tax on-
(i) a transaction occurring before the date of the filing of the petition for which a return, if required, is last due, under applicable law or under any extension, after three years before the date of the filing of the petition!.]
In this case, petitioner filed for bankruptcy on November 3, 2010, and the return for the 2007 tax year, which respondent claims petitioner is liable for, would have been due in 2008. Petitioner does not dispute that the year 2008 is within the three years of his 2010 bankruptcy filing. There is still, however, the remaining question of whether petitioner’s SBT liability was for an excise tax.
B. EXCISE TAXES
Petitioner and respondent disagree over the characterization of an excise tax. Petitioner urges this Court to hold that excise taxes are specific, generally indirect taxes imposed on transactions and consequently that the SBT was not an excise tax. Respondent, contrarily, requests this Court adopt the definition of an excise tax as a privilege tax imposed on a corporation for engaging in business activity in the state and to hold that the SBT was an excise tax. The MTT determined the SBT was “a tax upon the privilege of doing business that is measured by the ‘adjusted tax base’ of persons with business activity in this state.” (Quotation marks and citation omitted; emphasis omitted.)
Petitioner argues that the MTT incorrectly relied on federal law to answer the question whether the SBT was an excise tax. He claims the tax nature of the SBT is a question of state law because there is no “federal or state statutory definition” of the term “excise tax.” This argument is meritless given that petitioner’s request for relief is cloaked in federal law. In order for this Court to determine whether the SBT was an excise tax dischargeable in a federal bankruptcy, it must first analyze what an excise tax is and second, determine whether the SBT met those characteristics. “Whether an obligation is a tax within the meaning of the Bankruptcy Code is determined by federal law.” In re Fagan,
As a beginning then, it would be helpful to review how other panels of this Court and our Supreme Court have interpreted excise taxes. The case of Dooley v Detroit,
In Dooley the Supreme Court concluded that Detroit’s tax on income was a proper excise tax. Dooley,
“Taxes fall naturally into three classes, namely, capitation or poll taxes, taxes on property, and excises. In general, it may be said that all taxes fall into one or the other of the foregoing classes, any exaction which is clearly not a poll tax or a property tax being an excise.” [Dooley,370 Mich at 205 , quoting 51 Am Jur, Taxation, § 24.]
And further stating:
“In its modern sense an excise tax is any tax which does not fall within the classification of a poll tax or a property tax, and embraces every form of burden not laid directly upon persons or property. The affirmative definitions of excise or excise tax found in the later decisions exhibit some variety in phraseology.” [Dooley,370 Mich at 205 , quoting 51 Am Jur, Taxation, § 33. And further citing 16 McQuillin, Municipal Corporations (3rd ed), § 44.190.]
The Dooley Court also referred to other taxes the Court had previously found to be excise taxes. In a line of decisions, the Court had held Michigan’s corporate franchise tax “was an excise tax on the franchise to do business as a corporation within the State.” Dooley,
Later, in Continental Motors Corp v Muskegon Twp,
The federal courts have also had an opportunity to define and explain the nature of excise taxes. Petitioner in the instant case chose to appeal in the MTT and subsequently in this Court. Other litigants took the route of appealing in the bankruptcy court and subsequently in the federal circuit courts. In this case, the hearing referee identified the bankruptcy court as an alternative forum in which petitioner could have sought relief and recognized that the bankruptcy court was “better suited to interpret its own orders and controlling case law.” Respondent and the MTT cite In re Quiroz,
In Fagan, the debtor, a corporate officer, claimed that the Michigan Department of Treasury continued to collect fuel taxes on the corporation when the tax liability was discharged in the debtor’s Chapter 7 bankraptcy. Fagan,
The first analytical step in Fagan was determining whether an obligation was a tax.
Fagan recognized there are “two generally accepted definitions of ‘excise tax[.]’ ” Fagan,
“[a] tax imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. A tax on the manufacture, sale, or use of goods or on the carrying on of an occupation or activity, or a tax on the transfer of property. In current usage the term has been extended to include various license fees and practically every internal revenue tax except the income tax (e.g., federal alcohol and tobacco excise taxes)!.]” [Fagan,465 BR at 477 , quoting Black’s Law Dictionary (6th ed) (citation and quotation marks omitted; alterations in original; emphasis omitted).]
The second, adopted by petitioner, is from a general dictionary definition:
“an internal tax, duty or impost levied upon the manufacture, sale, or consumption of a commodity within a country and [usually] forming an indirect tax that falls on the ultimate consumer!;] c: any of various duties or fees levied on producers of excisable commodities!;] d: any of various taxes upon privileges (as of engaging in a particular trade or sport, transferring property, or engaging in business in a corporate capacity) that are often assessed in the form of a license or other fee[.]” [Fagan,465 BR at 477 , quoting Webster’s Third New International Dictionary (citation and quotation marks omitted; alterations in original; emphasis omitted).]
Because both definitions have been employed to describe an excise tax, neither should be counted as “wrong.” Instead, the SBT should be analyzed to determine whether it possessed the characteristics commonly attributed to excise taxes.
C. THE SINGLE BUSINESS TAX ACT
When the Fagan court analyzed whether fuel taxes were excise taxes under 11 USC 507(a)(8)(E), it first looked to the preface of the act that imposed the fuel taxes to ascertain the act’s purpose. The relevant act here, the Single Business Tax Act, provided that it was an act
to provide for the imposition, levy, computation, collection, assessment and enforcement, by lien or otherwise, of taxes on certain commercial, business, and financial activities; to prescribe the manner and times of making certain reports and paying taxes; to prescribe the powers and duties of public officers and state departments; to permit the inspection of records of taxpayers; to providefor interest and penalties on unpaid taxes; to provide exemptions, credits, and refunds; to provide penalties; to provide for the disposition of funds; to provide for the interrelation of this act with other acts; and to provide an appropriation. [ 1975 PA 228 , title.]
“[T]he Single Business Tax Act was enacted to provide for a tax on financial activities beginning January 1, 1976.” Comerica Bank-Detroit v Dep’t of Treasury,
In Michigan, the rationale for adopting the SBT (a modified [value-added tax] VAT) stemmed from three main points. The first is the benefits received principle: because all businesses benefit from government services, all businesses should remit a business tax. The second is that whereas corporate income taxes are levied only on corporations, VATs are levied on all types of businesses (including sole proprietorships, partnerships, and limited liability companies) regardless of organizational structure. The third point is revenue stability: the base of VATs, which consists mainly of compensation, is broad and fairly stable.[11 ]
Other panels of this Court have analyzed the purpose and process of the SBT. Soon after the SBT was enacted its constitutionality was challenged in Stockier v Dep’t of Treasury,
Later in Fluor Enterprises, Inc v Dep’t of Treasury,
Petitioner argues, although not specifically, that “value added” is synonymous with “ad valorem” and concludes that an excise tax is “ ‘practically any tax which is not an ad valorem tax.’ ” (Citation omitted.) First, petitioner’s authority for the statement that an excise tax is any tax but an ad valorem tax is taken from Callaway v Overland Park, 211 Kan 646, 651;
The SBT had the characteristics of an excise tax as defined under federal bankruptcy law. That definition of an excise tax is an assessment that taxes the “enjoyment of a privilege” or “the carrying on of an occupation or activity,” both of which describe the purposes of the SBT. Fagan,
The MTT’s analogy of the SBT to the Texas franchise tax is sound. The Texas franchise tax was held to be an excise tax because it met accepted definitions and descriptions of an excise tax. Nat’l Steel,
The final analytical step from Fagan is determining whether the SBT was an excise tax on a transaction as required by 11 USC 507(a) (8) (E) (i). Fagan,
Petitioner disagrees with the state and federal analyses employed by the MTT to determine how to interpret Michigan’s Single Business Tax Act. Petitioner asserts the proposed order, which was adopted by the MTT, purported to quote statements from the case of New York City v Feiring,
Whether the present obligation is a “tax” entitled to priority within the meaning of the statute is a federal question. Intended to be nation-wide in its application, nothing in the language of§ 64 or its legislative history suggests that its incidence is to be controlled or varied by the particular characterization by local law or the state’s demand. Hence we look to the terms and purposes of the Bankruptcy Act as establishing the criteria upon the basis of which the priority is to be allowed. [Feiring, 313 US at 285 (citations and quotation marks omitted).]
The proposed order and the actual quote from Feiring both communicate that federal law determines what is and is not a tax. Because the sentence purportedly quoted in the proposed order was an accurate paraphrase of Feiring, petitioner’s complaint is reduced to one of clerical error, a placement of quotation marks where there should have been none.
The second challenged statement in the proposed order purportedly quoting Feiring is as follows:
Some courts have held that an income tax and a property tax are not excise taxes. Id, [sic] 673, citing, Jenson v Henneford, 185 Wash 209;53 P2d 607 , 610 (1936). On the other hand, the United States Supreme Court has held that an “excise tax” is “. . . practically any tax which is not an ad valorem tax ..., imposed on the performance of an act, the engaging in an occupation or the enjoyment of a privilege. ...” City of New York v Feiring,313 US 283 , 285;61 S Ct 1028 , 1029 (1941).
Petitioner is correct that the quoted language is not from Feiring. The language is instead from Callaway, 211 Kan at 651. This error does not, however, eviscerate the analytical soundness of the proposed order as a whole. Nor does it establish that the MTT ignored the common law. The 18-page proposed order cited a myriad of sources, the overwhelming majority of which were correctly cited and supportive of the order’s conclusions. The MTT’s decision to not accept a particular definition of “excise tax,” that would have favored petitioner, is not evidence that the MTT completely ignored the common law on the subject of excise taxes.
D. DERIVATIVE LIABILITY UNDER MCL 205.27a(5)
MCL 205.27a(5) permits the Department of Treasury to collect revenue from officers of limited liability companies. Under MCL 205.27a(5), “[t]he sum due for a liability may be assessed and collected under the related sections of this act.” Petitioner never contends that he is not a corporate officer of Jefferson Beach Properties.
The plain language of MCL 205.27a(5) provides that the liability is for taxes:
If a. .. limited liability company... liable for taxes administered under this act fails for any reason to file the required returns or to pay the tax due, any of its officers ... is personally liable for the failure.. .. The dissolution of a.. . limited liability company ... does not discharge an officer’s . .. liability for a prior failure of the ... limited liability company ... to make a return or remit the tax due. The sum due for a liabilitymay be assessed and collected under the related sections of this act. [MCL 205.27a(5), as amended by 2003 PA 23 .]
“The words of a statute provide ‘the most reliable evidence of [the Legislature’s] intent....’” Sun Valley Foods Co v Ward,
Petitioner erroneously asserts his case is similar to that of Livingstone v Dep’t of Treasury,
E. SUMMARY DISPOSITION
The proposed opinion and order granted respondent’s motion for summary disposition under MCR 2.116(C)(8). The MTT’s final opinion and judgment affirmed and adopted the proposed order. “This Court reviews the grant or denial of summary disposition de novo to determine if the moving party is entitled to judgment as a matter of law.” Maiden v Rozwood,
A motion under MCR 2.116(C)(8) allows dismissal of a claim when “[t]he opposing party has failed to state a claim on which relief can be granted.” Petitioner’s pleadings only made one claim and it was that he was not liable for taxes under the Single Business Tax Act because those taxes were included in an earlier bankruptcy he had filed in the Southern District of Florida and were discharged by that bankruptcy. Respondent argued that the taxes at issue were excise taxes that were not dischargeable in bankruptcy proceedings. The MTT agreed with respondent. As a matter of law, an excise tax on a transaction is not dischargeable in a bankruptcy proceeding. 11 USC 507(a) (8) (E) (i). The order of discharge and final decree from the Southern District of Florida notified petitioner of this fact. The SBT was an excise tax on a transaction and, therefore, not dischargeable. Petitioner points to no other support adequate to sustain his claim that he is not liable for the taxes. The MTT had no ground to grant petitioner
E JURISDICTION
Petitioner argues that the MTT lacked jurisdiction to grant summary disposition in favor of respondent as a matter of law. He contends that respondent had a burden to demonstrate it had jurisdiction to seek payment from petitioner after the liability was discharged from bankruptcy in Florida. This issue was not presented to the MTT and is, therefore, new on appeal. Issues not addressed by the trial court are not preserved for this Court’s review. Fast Air, Inc v Knight, 235 Mich App 541, 549;
G. RETROACTIVE EFFECT OF
As part of the supplemental authority provided to this Court, petitioner has directed our attention to the case of Shotwell v Dep’t of Treasury,
As used in subsections (5) and (6):
(b) “Responsible person” means an officer, member, manager of a manager-managed limited liability company, or partner for the business who controlled, supervised, or was responsible for the filing of returns or payment of any of the taxes described in subsection (14) during the time period of default and who, during the time period of default, willfully failed to file a return or pay the tax due for any of the taxes described in subsection (14). ...
(d) “Willful” or “willfully” means the person knew or had reason to know of the obligation to file a return or pay the tax, but intentionally or recklessly failed to file the return or pay the tax. [Emphasis added.]
Arguably, petitioner knew of his obligation to pay the SBT because he listed the Michigan Department of Treasury and Michigan business taxes as creditors on his bankruptcy petition in the Southern District of Florida.
Petitioner argues that these new changes to MCL 205.27a(5) support remand to the MTT. Petitioner argues that on remand: (1) respondent should be required to prove petitioner is a responsible person by showing petitioner willfully failed to file a return or pay a tax due, and (2) petitioner should be allowed to conduct more discovery to defend against the assertion that he is a responsible person.
We concur with petitioner only on the points that Shotwell did determine
Affirmed.
Notes
All references to MCL 208.1 et seq. are to sections that were in effect for the 2007 tax year unless otherwise noted.
$61,080 tax due, and $11,206.39 interest.
Petitioner had filed for Chapter 11 bankruptcy in Florida the previous year, November 3, 2010.
“Leave to amend should be denied only for particularized reasons, such as undue delay, bad faith, or dilatory motive on the movant’s part, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, or where amendment would be futile.” Tierney,
“Discovery shall not he conducted after completion of the prehearing conference, unless otherwise provided by the tribunal.” Mich Admin Code, R 792.10247(11).
Capitalization altered.
While not dispositive, it is worth knowing that when enacted, the SBT replaced multiple other taxes, including the corporate income tax and the corporate franchise tax. House Fiscal Agency, Background and History: Michigan’s Single Business Tax (November 2003), p 7. See also Gillette Co v Department of Treasury,
A capitation tax is a direct tax on income. “No Capitation, or other direct, Tax shall be laid, unless in the Proportion to the Census of Enumeration herein before directed to be taken.” US Const, art I, § 9. See also Wikman v Novi,
There are “requirements that must be met in order for an obligation to the government to qualify for priority as a tax under federal bankruptcy law.” Nat’l Steel,
See United States v New York,
House Fiscal Agency, Background and History: Michigan’s Single Business Tax (November 2003), p 37. “Value added taxes are based on the economic activity or the value that businesses add to the production of goods and services. The tax base is final sales less the cost of goods sold or the cost of materials used as inputs.” Id.
“The appellate courts of this state have rejected the theory that the single business tax is a tax upon income.” Gillette Co v Dep’t of Treasury,
See also Columbia Assoc, LP v Dep’t of Treasury,
Most notably, ad valorem is used in our state’s constitution: “The legislature shall provide for the uniform general ad valorem taxation of real and tangible personal property not exempt by law .... The legislature may provide for alternative means of taxation of designated real and tangible personal property in lieu of general ad valorem taxation. Every tax other than the general ad valorem property tax shall be uniform upon the class or classes on which it operates.” Const 1963, art 9, § 3. See Consumers Power Co v Muskegon,
Respondent alleges petitioner “signed several tax filings, company statements, and checks in the payment of Jefferson Beach’s tax liabilities.”