P.J. HOSPITALITY, INC., Petitioner-Appellant,
DEPARTMENT OF TREASURY, Respondent-Appellee
Approved for Publication August 21, 2014.
Tax Tribunal. LC No. 418352.
For PJ HOSPITALITY INC, Petitioner-Appellant: JERRY R ABRAHAM, FARMINGTON HILLS, MI.
For MICHIGAN DEPARTMENT OF TREASURY, Respondent-Appellee: MATTHEW B HODGES, LANSING, MI.
Before: DONOFRIO, P.J., and GLEICHER and M.J. KELLY, JJ.
[306 Mich.App. 480] Per Curiam.
Petitioner appeals as of right fro the Tax Tribunal's opinion and judgment, which adopted the findings of fact and conclusions of law of a hearing referee, who in turn upheld respondent's assessment of successor liability to petitioner. Because the tribunal did not commit an error of law or adopt a wrong legal principle and its factual findings were supported by competent, material, and substantial evidence, we affirm.
I. BASIC FACTS
Before 2007, the entity Soulful Concepts, Inc., owned the restaurant in Southfield, Michigan called Beans & Cornbread. Patrick Coleman, in turn owned Soulful Concepts. In 2007, petitioner, also owned by Coleman, purchased all of Soulful Concepts's business, including all of its assets for $50,000, and continued to operate the Beans & Cornbread restaurant. Coleman testified that he thought the value of all the assets was between $30,000 and $40,000. Coleman stated that this transaction was done because Soulful Concepts had " some debt issues" and " needed to get a fresh start." Part of those debt issues involved large tax liabilities owed to both the federal government and the State of Michigan. [306 Mich.App. 481] Specifically, at the time of the referee hearing, the amounts owed to the federal government were approximately $150,000, and the amounts owed to the State of Michigan, not including some interest calculations, were approximately $57,000.
Respondent assessed petitioner with Soulful Concepts's Michigan tax liability on the basis of it being a successor entity under MCL 205.27a(1). Petitioner objected to the assessment and filed the instant petition. Petitioner argued at the hearing that pursuant to the statute, its liability was limited by the fair market value of the assets acquired minus any senior, outstanding liabilities, such as the amount owed to the IRS. As a result, petitioner claimed that, with the value of the assets not exceeding $40,000, the outstanding $150,000 owed to the IRS " eviscerate[d] any sort of liability" to respondent.
After holding a hearing, the referee disagreed and concluded that respondent's assessment was proper. First, the referee did not accept Coleman's lay opinion on the evaluation of the assets because it " cannot be accepted as credible or accurate." The referee explained:
[Coleman] did not make any effort to describe the property with the specificity that would be needed to determine its fair market value. There is no evidence regarding the value of the liquor license or goodwill. Petitioner executed the documents of sale on behalf of both the seller and the purchaser, which indicates that this was not an arm's-length transaction and the stated purchase price cannot be accepted as fair market value. There is no market evidence whatsoever to support an appraisal of the value of the assets of the business.
The referee also concluded that if any federal tax liens existed, there was no evidence that they were ever [306 Mich.App. 482] perfected by being recorded in the Oakland County Register of Deeds. Furthermore, the referee concluded that the statute only allows for liability to be limited by the fair market value of the business acquired minus any proceeds of the sale that were ...