PM ONE, LTD v DEPARTMENT OF TREASURY
Docket No. 210644
Michigan Court of Appeals
March 17, 2000
240 Mich App 255
Submitted November 10, 1999, at Lansing. Decided March 17, 2000, at 9:20 A.M.
The Court of Appeals held:
1. PM One did not acquire either title to or possession of the goods and services. Although the Tax Tribunal concluded that the money flowing thrоugh the central depository account to the third-party vendors constituted consideration to PM One in the form of reimbursement, these transactions cannot be considered PM One‘s “sales” under the SBTA because PM One neither provided the disputed goods and services nor received or otherwise owned the consideration that flowed through the central depository account from the client‘s individual account to the third-party vendors.
2. To the extent that PM One might have ever “received” money that flowed into the central depository account, it did so solely on behalf of the client because of an express agency relationship. Therefore, the exception in the SBTA that excludes from “gross receipts” amounts received in an agency capacity solely on behalf of another applies in this case. The exception to the agency exclu
3. Case law does not provide any meaningful construction of the SBTA that would convert the challenged transactions through the central depository account into taxable reimbursement to PM One. The challenged transactions are not part of PM One‘s gross receipts.
4. There is no merit to the department‘s indirect-payment theory that the Single Business Tax should apply to the challenged transactions because they passed through the central depository account and added value to PM One‘s business by allowing it to perform its management obligations under its contracts with its clients. Every time an agent performs contractual obligations the agent is ultimately working toward earning its management fee and thus benefits from being able to carry out the terms of an agency agreement. Managing the central depository account and drawing on it tо pay third-party vendors did not, in and of itself, affect PM One‘s compensation for its work as an agent in any manner, whether directly or indirectly.
Reversed.
HOOD, J., dissenting, stated that the determination of the Tax Tribunal should be affirmed. The monetary transfer by PM One from the central depository account was not merely a funneling of funds from the client to a third-party vendor for goods and services received solely for the benefit of the client. The monetary transfer evidenced payment for goods and services for the client‘s interest that also discharged PM One‘s obligations under its management agreements. It is not clear from the record that none of the goods and services constituted PM One‘s inventory or stock in trade.
- TAXATION — SINGLE BUSINESS TAX — WORDS AND PHRASES — SALE.
A “sale,” for purposes of the Single Business Tax Act, is comprised of gross receipts arising from a transaction in which gross receipts constitute consideration for one of the following three conditions: one, the transfer of title to, or possession of, property that is stock in trade or other property of a kind that would be properly included in the inventory of the taxpayer or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business; two, the performance of services that constitute business activities other than those included in the first condition; three, any combination of the first and second condition (MCL 208.7[1] ;MSA 7.558[7][1] ).
TAXATION — SINGLE BUSINESS TAX — GROSS RECEIPTS — AGENCY EXCLUSION.
“Gross receipts,” for purposes of the Single Business Tax Act, do not include the amounts received in an agency or other representative capacity solely on behalf of another or others; an exception to the agency exclusion from gross receipts applies to amounts received by persons having the power or authority to expend or otherwise appropriate such amounts in payment for or in consideration of sales or services made or rendered by themselves or by others acting under their direction and control or by such fiduciaries as guardians, executors, administrators, receivers, conservators, or trustees other than trustees of tаxes received or collected from others under the direction of the laws of the federal government or of any state or local governments (MCL 208.7[3] ;MSA 7.558[7][3] ).
Howard & Howard Attorneys, P.C. (by Michele L. Halloran and Donna M. Donovan), for P.M. One, Ltd.
Jennifer M. Granholm, Attorney General, Thomas L. Casey, Solicitor General, and Jack Van Coevering, Assistant Attorney General, for the Department of Treasury.
Before: SAWYER, P.J., and HOOD and WHITBECK, JJ.
WHITBECK, J. Petitioner P.M. One, Ltd. (PM One), appeals as of right from a decision of the Michigan Tax Tribunal, which held that certain amounts PM One collected constituted “gross receipts” under § 7 of the Single Business Tax Act (SBTA),
I. BASIC FACTS AND PROCEDURAL HISTORY
PM One is a corporation engaged in the management of real estate developments. PM One‘s clients are property owners who hire petitioner to operate their properties. PM One‘s responsibilities include leasing properties, maintenance of the properties, purchase of goods and services, disbursements, document preparation, and coordination of activities with governmental housing agencies. In exchange for the performance of these functions, PM Onе receives a management fee, which is generally determined as a percentage of the rents collected.1 In order to carry out its management agreement, PM One provides on-site staff members to collect rent, lease properties, order supplies, and coordinate services to occupants
The Department of Treasury (the department) audited PM One for the taxable period covering January 1, 1990, through December 31, 1992. The department concluded that there were deficiencies for tax years 1990 and 1992, when PM One employed the gross-receipts method in computing its business tax liability. While PM One had included its management fees and reimbursed compensation expenses for employees as gross receipts, it did not include payments made from the CDA to third-party vendors
II. THE SINGLE BUSINESS TAX ACT
The SBTA imposes “a specific tax of 2.35%...upon the adjusted tax base of every person with business activity in this state which is allocated or apportioned” to Michigan.
the sum of sales, as defined in subsection (1), and rental or lease receipts. Gross receipts does not include the amounts received in an agency or other representative capacity, solely on behalf of another or others but not including amounts received by persons having the power or authority to expend or otherwise appropriate such amounts in payment for or in consideration of sales or services made or rendered by themselves or by others acting under their
direction and control or by such fiduciaries as guardians, executors, administrators, receivers, conservators, or trustees other than trustees of taxes received or collected from others under direction of the laws of the federal government or of any state or local governments. [
MCL 208.7(3) ;MSA 7.558(7)(3) .]
Given this somewhat circular definition, what constitutes gross receipts depends largely on the meaning of “sales” in the SBTA.
The SBTA,
“Sale” or “sales” means the gross receipts arising from a transaction or transactions in which gross receipts constitute consideration: (a) for the transfer of title to, or possession of, property that is stock in trade or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the tax period or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, or (b) for the performance of services, which constitute business activities other than those included in (a), or from any combinatiоn of (a) or (b). [Emphasis supplied.]
For the sake of analysis, we can break this lengthy formulation into a diagram with the following components:
A “sale” is comprised of
(1) “gross receipts”
(2) arising from a “transaction” in which gross receipts constitute “consideration” for one of the following described in (a), (b), or (c):
(a) transfer of title to, or possession of, property that is
(i) stock in trade; or
(ii) other property of a kind that would be properly included in the inventory of the taxpayer; or
(b) “performance” of “services,” that constitute “business activities”4 other than those included in (a);
(c) any combination of (a) or (b).
Accordingly, we determine whether PM One owes SBT on the challenged transactions first in light of the definition of “sales” as defined in
III. CONSIDERATION FOR TRANSFERS OF PROPERTY
Office supplies, telephone service, plumbing supplies, appliances for apartment units, electrical supрlies, light fixtures, lawn maintenance, snow removal, painting services, and asphalt sealing for parking lots
IV. CONSIDERATION FOR SERVICES THAT CONSTITUTE BUSINESS ACTIVITIES
A. THE DEPOSITORY ACCOUNTS AND THE CDA
Whether, by issuing checks for the goods and services in question, PM One engaged in the “performance” of “services” constituting “business activities,” part 2(b) of the above diagram, is a more difficult
According to PM One, its personnel collected rents for its clients at each client‘s separate property or properties. PM One then deposited the rents it collected into a separate depository account maintained for each client in each client‘s name. To pay for goods and services with client funds, PM One engaged in a two-step process. First, it transferred money out of an individual client‘s depository account and into the CDA. Next, it drew money from the CDA in the form of checks made payable to the relevant third-party vendor. PM One claims that when it wrote checks from the CDA, the checks were for the precise amount necessary to pay for the goods and services, exaсtly equal to the amount it transfers from the individual client‘s depository accounts into the CDA. The CDA was, therefore, a “zero balance account,” meaning that all funds that flowed into the account immediately flowed out, so no money remained in it and no interest accrued.
Generally speaking, PM One used the CDA to make three separate types of payments: (1) payments from the CDA to PM One for its management fees, (2) payments from the CDA to PM One as reimbursement for the costs of PM One‘s personnel, such as site managers, leasing agents, or maintenance staff assigned to its clients’ properties, and (3) payments from the CDA to third-party vendors who provide goods and services to each client‘s property. It is the third category that is critical; the department did not challenge PM One‘s claim that it included its management fees, cat
As noted above, to pay third-party vendors, PM One used a two-step process of transferring money into and out of the CDA. Despite the Michigan Tax Tribunal‘s conclusion that the money flowing through the CDA to third-party vendors constituted consideration to PM One in the form of reimbursement, the record commands a contrary inference. In short, as discussed in more detail below, these transactions cannot be considered PM One‘s “sales,”
B. THE FLOW OF FUNDS INTO THE CDA
Focusing on the first step, transferring money into the CDA, the record does not make clear that this money belonged to PM One either in the individual client‘s depository account from which it originated or while in the CDA for that brief and almost theoretical moment before being transferred to a third party.
PM One‘s president also stated that none of the funds in the CDA belonged to PM One. That none of PM One‘s clients had access to the CDA, which PM One exclusively managed, does not undermine the notion that the funds in the CDA belonged to the client. As a zero-balance account, there would have been no practical way for clients to manage or even access the money in the CDA because the payments to third-party vendors out of the account were practically instantaneous, virtually coinciding with the moment of a deposit into the CDA. Further, funds released into the CDA had been designated to pay for certain goods and services, suggesting that the clients would have no reason to attempt to manage funds in the CDA as if it were a standard depository account, even if it were possible to do so.
Critically, although they resided only very briefly in the CDA, from which PM One has authority to draw checks, the funds continued to belong to the client at this stage. PM One did not have any access to the money in the sense that it could use the funds in the CDA in a manner it chose or to benefit itself as a business might ordinarily use the consideration it earned from conducting business. See
C. THE FLOW OF FUNDS OUT OF THE CDA
There is even less evidence that funds flowing out of the CDA constituted consideration to or from PM One for “the performance of services.”
V. GROSS RECEIPTS
A. STATUTORY PROVISIONS
As noted above, gross receipts are “the sum of sales” and “rental or lease receipts.”
B. THE AGENCY EXCLUSION AND REIMBURSEMENT
Gross receipts do not “include the amounts received in an agency or other representative capacity, solely on behalf of another or others....”
amounts received by persons having the power or authority to expend or otherwise appropriate such amounts in payment for or in consideration of sales or services made or rendered by themselves or by others acting under their direction and control or by such fiduciaries as guardians, executors, administrators, receivers, conservators, or trustees other than trustees of taxes received or collected from others under the direction of the laws of the federal government or of any state or local governments.” [Id. (emphasis supplied).]
As a result, the plain language of
Despitе the clear language, the Michigan Tax Tribunal stated that the agency
exclusion . . . does not apply to the amounts at issue because Petitioner [PM One] does not receive such amounts solely on behalf of another; instead, Petitioner has the power or authority to expend or otherwise appropriate such amounts in payment for or in consideration of sales or services made or rendered by it or by others acting under its direction or control. [Emphasis supplied.]
However, as we discussed in the context of “sales,” the evidence on the record strongly supports the conclusion that to the extent that PM One might ever have “received” money that flowed into the CDA, it did so solely on behalf of its clients because of an express agency relationship. Accordingly, we conclude that the agency exclusion applies in this case.
However, there is an exception to the agency exclusion, and the only reason that the agency exclusion would not apply to the challenged transactions is if that exception operated here. As
“It is not so much the actual exercise of control which is regarded, as the right to exercise such control. To escape liability the original master must resign full control of the servant for the time being, it not being sufficient that the servant is partially under control of a third person. Subject to these rules the original master is not liable for injuries resulting from acts of the servant while under the control оf a third person.” [Hoffman, supra at 469.]
Similarly, in the worker‘s compensation context, the courts must determine if a plaintiff was an “employee” before determining if the plaintiff was improperly denied benefits. See Oxley v Dep‘t of Military Affairs, 460 Mich 536, 549; 597 NW2d 89 (1999). To do so, courts apply the economic-reality test, which examines a number of criteria to determine whether the employer had control over the employee, including whether the employer paid the employee‘s wages, hired, fired, or had the capacity to discipline the employee, and whether the employer and employee had a common purpose. The factors are viewed together in their entirety under a totality of the circumstances test. Id., citing Kidder v Miller-Davis Co, 455 Mich 25, 34; 564 NW2d 872 (1997).
True,
With these examples in mind, it is difficult to conceive of, for example, a representative of the telephone company being under PM One‘s “direction and control” when fulfilling a request to activate telephone service to an apartment unit. Similarly, it is unlikely that the employees of separate businesses who perform landscaping services, snow removal, or paint an apartment building were under PM One‘s “direction and control.” PM One could not hire, fire, or discipline any of these individuals. Nor did any of these individuals fully relinquish their position of employee for the third-party vendor when performing work for PM One‘s clients. Further, there is no evidence whatsoever that PM One rendered the services corresponding to the challenged transactions through the CDA “itself” by using its own personnel to perform services or by selling its own stock, inventory, or property. Therefore, there was no factual basis for the Michigan Tax Tribunal‘s cоnclusion that the exception to the agency exclusion applies in this case.
C. CASES INTERPRETING REIMBURSEMENT IN THE GROSS RECEIPT CONTEXT
Not only does the plain language of
(1) STRATTON-CHEESEMAN
In Stratton-Cheeseman Management Co v Dep‘t of Treasury, 159 Mich App 719, 721; 407 NW2d 398 (1987), the plaintiff corporation managed the Michigan Physicians Mutual Liability Company pursuant to a written agreement, which required Stratton-Cheeseman to issue policies, collect premiums, administer claims, and do a variety of other tasks. In return for discharging these responsibilities, the plaintiff corporation received a flat fee calculated in relation to the number of policyholders. Id. at 722. Under the terms of this agreement, the plaintiff corporation would also pay for certain expenses on behalf of the insurance company, which the insurance company would repay to the plaintiff corporation. Id. The plaintiff corporation claimed that it was liable for SBT only with regard to the flat fee it received and not this second type of income that came from reimbursements for its cost of doing business. Id. Asked to determine whether the reimbursement arrangement fit within the agency exclusion in
[W]e are of the opinion that when plaintiff received and deposited into bank accounts designated by the insurance company premiums and other monies it was acting as an agent; these funds were intended by the Legislature to be excluded from the meaning of gross receipts in § 7(3) of the SBTA. However, the payments received by plaintiff as reimbursement for costs incurred in managing the insurance company‘s business clearly were not. Plaintiff did not receive this money from the insurance company as a repre-
sentative of the insurance company. Instead, the substance of the reimbursement payments for tax purposes was to compensate plaintiff for services provided in managing the insurance company‘s business. The fact that the insurance company reserved the right to approve costs prior to making payments and required plaintiff to operate within an approved budget does not alter this conclusion. In this regard, the insurance company‘s right to approve the amount of reasonable costs subject to reimbursement must be distinguished from plaintiff‘s right to authorize the actual expenditures. Plaintiff‘s contention that the insurance company “retained control” over costs fails to make this distinction.
As the department correctly contends, to accept plaintiff‘s theory would result in only the monthly fees received by plaintiff, which are computed based on a fixed rate per policyholder, being subject to the tax. Since the monthly fees essentially represent gross profits above and beyond plaintiff‘s costs, the purpose of the SBTA to impose a tax on the value of business activity, and not its income, would be defeated. [Stratton-Cheeseman, supra at 727-728.]
In this case we address a problem inverse to the one that Stratton-Cheeseman describes. PM One is not attempting to avoid paying SBT on the money that passes through the CDA to reimburse it for the expenses it pays for with its own money or for its personnel expenses. Stratton-Cheeseman clearly requires PM One to incorporate those gross receipts when calculating its SBT, and it does so. Rather, the transactions that the department is attempting to tax are analogous to the transactions this Court protected from the SBT in Stratton-Cheeseman under the agency relationship between the plaintiff corporation and the Michigan Physicians Mutual Liability Company. Quite clearly, in Stratton-Cheeseman this Court concluded that managing and transferring money on behalf of a client could fit within the agency exclusion as long as
Furthermore, PM One was not attempting merely to pay SBT on its gross profits instead of the value of the business it conducted. Id. at 728. Unlike the plaintiff corporation in Stratton-Cheeseman, PM One‘s agreements with its clients included payments for both costs and profit. Thus, we conclude that allowing PM One to avoid paying SBT on these transactions through the CDA in which the third-party vendors actually receive payment is not tantamount to allowing PM One to evade paying its fair share under the SBTA.
(2) APCOA
This Court again addressed the agency exclusion to gross receipts in APCOA, Inc v Dep‘t of Treasury, 212 Mich App 114; 536 NW2d 785 (1995). APCOA operated parking structures at the Detroit Metropolitan Airport and in the city of Flint. Id. at 115. Just as with the plaintiff corporation in Stratton-Cheeseman,
Here, APCOA does not support the Michigan Tax Tribunal‘s decision because the challenged consideration flowing through the CDA was not for services PM One rendered for its clients, nor did it ultimately go to PM One. Unlike the arrangement between APCOA and its municipal clients, PM One incorporated most of its expenses into a single fee agreement or reimbursement arrangements for which it voluntarily paid the SBT. Evidently, the very purpose of PM One‘s arrangement with its clients was to avoid expending its own money on behalf of the client and then being forced to wait for reimbursement. Using the CDA to track and disburse client funds was a way to put that arrangement into action with minimal paperwork and effort. That this arrangement avoids the tax liability imposed on the very dissimilar reimbursement system in APCOA and Stratton-Cheeseman clearly is not sufficient reason alone to impose the SBT.
The most recent case addressing the concept of taxable reimbursement under the SBTA is Credit Acceptance Corp v Dep‘t of Treasury, 236 Mich App 478; 601 NW2d 109 (1999). Credit Acceptance Corporation acted as an agent for automobile dealerships when collecting money customers owed under installment contracts and received twenty percent of the money it collected after deducting collection costs as a “servicing fee.” Id. at 480. When a customer could not pay under the installment contract, the dealer authorized Credit Acceptance Corporation to incur reasonable expenses in repossessing the automobile, for which Credit Acceptance Corporation reimbursed itself, because the dealer then transferred the sales contract into Credit Acceptance Corporation‘s name. Id. This Court considered whether this reimbursement scheme for repossession costs constituted gross receipts under the SBTA, concluding that this arrangement constituted consideration for the performance of personal services under
Applying either the majority‘s looser formulation of the agency exclusion or Judge MARKMAN‘S more precise blueprint in Credit Acceptance leads to the same result—that the challenged transactions are not part of PM One‘s gross receipts—for two reasons. First, there was no “sale” here because the disputed transactions do not involve any “business activity” by PM One. Second, even if there were a “sale,” there is no evidence that the funds that flowed through the CDA to other vendors figured into the consideration for PM One‘s management services at all. PM One does
D. THE INDIRECT PAYMENT THEORY
The department‘s theory that the SBT should apply to the challenged transactions because they passed through the CDA and added value to its business by allowing PM One to perform its management obligations under its contracts with its clients has no appreciable merit. While it is true that PM One had a general obligation to keep the properties in good repair and that well-maintained properties often are more marketable, the individual clients compensated PM One by paying the management fees and reimbursing its personnel expenses. PM One included these two forms of compensation within its calculation of its gross receipts and paid the apрropriate SBT on them; they are not at issue here.
More importantly, every time an agent performs contractual obligations the agent is ultimately working toward earning its management fee and thus benefits from being able to carry out the terms of an agency agreement. Yet, the department‘s auditors excluded mortgage payments and property taxes clients paid through the CDA when calculating PM One‘s
Nor is there a textual basis in Credit Acceptance Corp, supra, to suggest that performing any and all duties related to a principal‘s expenditures for goods and services provided by third-party vendors brings those expenditures within the definition of gross receipts under the SBTA. To the contrary, both the majority and the concurrence in Credit Acceptance Corp required the taxed activity to generate fees or lead to reimbursement in and of itself, irrespective of any separate agreement. Managing the CDA and drawing on it to pay third-party vendors did not, in and of itself, affect PM One‘s compensation for its work as an agent in any manner, whether directly or indirectly. Accordingly, Credit Acceptance Corp does not permit taxation of these activities.
To hold otherwise in this case would completely obviate the agency exclusion to the definition of gross receipts,
VI. CONCLUSION
We conclude that the payments in question here did not constitute a “sale” by PM One within the meaning of
Reversed.
SAWYER, P.J., concurred.
HOOD, J. (dissenting). I must respectfully dissent, because I do not believe that the record supports the conclusion reached by the majority.
Petitioner contended that the central depository account merely served as the means for handling the client‘s financial affairs. Therefore contends the petitioner, the Tax Tribunal‘s determination that payments for goods and services made on behalf of its clients constituted gross receipts was an error at law. Unlike the majority, I disagree. Absent fraud, this Court‘s review of a decision by the Michigan Tax Tribunal is limited to determining whether the tribunal made an error of law or applied a wrong legal principle. Sandy Pines Wilderness Trails, Inc v Salem Twp, 232 Mich App 1, 9; 591 NW2d 658 (1998). Factual findings by the tribunal are upheld unless they are not supported by competent, material, and substantial evidence. Georgetown Place Cooperative v City of Taylor, 226 Mich App 33, 43; 572 NW2d 232 (1997). The failure of the tribunal to base its decision on competent, material, аnd substantial evidence is an error of law requiring reversal. Id. I believe that the majority opinion departs from this basic premise.
(1) “Sale” or “sales” means the gross receipts arising from a transaction or transactions in which gross receipts constitute consideration: . . . (b) for the performance of services, which constitute business activities. . . .
* * *
(3) “Gross receipts” means the sum of sales, as defined in subsection (1), and rental or lease receipts. Gross receipts does not include the amounts received in an agency or other representative capacity, solely on behalf of another or others but not including amounts received by persons having the power or authority to expend or otherwise appropriate such amounts in payment for or in consideration of sales or services made or rendered by themselves or by others acting under their direction and control. . . .
In Stratton-Cheeseman Management Co v Dep‘t of Treasury, 159 Mich App 719, 721; 407 NW2d 398 (1987), the plaintiff managed a medical insurance company. The plaintiff‘s responsibilities included processing insurance applications, issuing policies, collecting premiums, administering claims, and maintaining records and reports. The plaintiff was obligated to abide by the insurance company‘s operating budget and could not expend amounts in excess of a set budget unless approval was obtained from the company‘s board of directors. Id. at 721-722.
The plaintiff was compensated by a monthly fee based on the number of policyholders and was reimbursed reasonable costs incurred on the insurance company‘s behalf, including, but not limited to, the plaintiff‘s salaries, wages, outside contractual services, and allocated overhead. The plaintiff included its fee and sums received as reimbursement for expenditures as gross receipts when filing its tax returns, but later sought a refund, claiming that reim
We find no ambiguity in the meaning of gross receipts as defined by the SBTA [Single Business Tax Act]. The definition clearly excludes from gross receipts the amount received by a taxpayer solely in an agency or representative capacity, while including amounts received as consideration for the performance of personal services. . . .
We turn, then, to the question of whether plaintiff‘s reimbursement payments under the services agreement fit within the clear statutory definition of gross receipts. It is the substance of a transaction rather than the terms applied by the parties which determines how to characterize the payment for tax purposes. In a multiparty transaction, this Court should honor the allocation of rights and duties effected by the parties in an agreement, when supported by tax-independent considerations. [Id. at 725 (citations omitted).]
This Court went on to examine the nature of the agency relationship between the plaintiff and the insurance company and concluded:
Mindful of these definitions, we are of the opinion that when plaintiff received and deposited into bank accounts designated by the insurance company premiums and other monies it was acting as an agent; these funds were intended by the Legislature to be excluded from the meaning of gross receipts in § 7(3) of the SBTA. However, the payments received by plaintiff as reimbursement for costs incurred in managing the insurance company‘s business clearly were not. Plaintiff did not receive this money from the insurance company as a representative of the insurance company. Instead, the substance of the reimbursement payments for tax purposes was to compensate plaintiff for services provided in managing the insurance company‘s business. The
fact that the insurance company reserved the right to approve costs prior to making payments and required plaintiff to operate within an approved budget does not alter this conclusion. In this regard, the insurance company‘s right to approve the amount of reasonable costs subject to reimbursement must be distinguished from plaintiff‘s right to authorize the actual expenditures. Plaintiff‘s contention that the insurance company “retained control” over costs fails to make this distinction. [Id. at 727.]
Furthermore, in APCOA, Inc v Dep‘t of Treasury, 212 Mich App 114, 115-116; 536 NW2d 785 (1995), the petitioner operated parking structures on behalf of Wayne County. Wayne County retained control in the form of staff hiring, parking rates, and control systems. The petitioner received a management fee based on a percentage of the gross parking revenues and was reimbursed for all its direct operating expenses, including payroll and insurance payments. The petitioner initially included reimbursement for operating expenses in paying the single business tax, but later sought a refund for those expenses. This Court held that “monies received by a management agent as reimbursement of expenses are properly included in the calculation of the management agent‘s single business tax liability.” Id. at 118, citing Stratton-Cheeseman, supra. Finally, in Credit Acceptance Corp v Dep‘t of Treasury, 236 Mich App 478, 481-482; 601 NW2d 109 (1999), this Court concluded that reimbursement to the petitioner for the costs of repossession of automobiles constituted gross receipts for purposes of
In the present case, petitioner argues that its management agreement defined its relationship with its clients as one of agency and that it acted as an agent by merely funneling payments for goods and services received for the benefit of the client. I disagree. While petitioner did, in fact, characterize its relationship with its clients as one of agency, the substance of the parties’ transaction, not the terms employed, determines how to characterize the payment for tax purposes. Stratton-Cheeseman, supra. Furthermore, even if petitioner were deemed an agent, the costs incurred in managing the properties must be received solely on behalf of the client. Id.;
I do not find that the Michigan Tax Tribunal made an error of law or applied a wrong legal principle, or that its factual findings are not supported by competent, material, or substantial evidence. Therefore, I would affirm.