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D'Agostini Land Company LLC v. Department of Treasury

Court of Appeals of Michigan

January 9, 2018

D'AGOSTINI LAND COMPANY LLC, Plaintiff-Appellant,
v.
DEPARTMENT OF TREASURY, Defendant-Appellee.

          No. 336599 Tax Tribunal LC No. 16-000174-TT

          Before: O'Connell, P.J., and Hoekstra and Swartzle, JJ.

          Swartzle, J.

         This Court is asked again to determine the character of a rather protean actor under Michigan tax law, the "unitary business group." The group has no independent existence outside of tax law, unlike, for example, a partnership or corporation. It is a recent creation of tax law, and its definition has changed markedly since inception.

         In this appeal, petitioner D'Agostini Land Company, LLC, as the representative member of a unitary business group, claims that it should be treated as a unified taxpayer for purposes of the Michigan Business Tax Act's small business alternative credit. Because "unitary business group" is not listed as a type of taxpayer subject to certain disqualifications, the group should be able to claim the credit notwithstanding the fact that one of its members would otherwise trigger one of the disqualifications. Respondent Department of Treasury disagrees and points to its published guidance that explains that each member of the unitary business group is subject to the disqualifying provisions. To grasp how to apply the credit and its disqualifying provisions to a unitary business group, the plain, ordinary meaning of the statutory text is sufficient, although our conclusion is strengthened by applying a common canon of statutory construction. As explained here, we agree with petitioner and reverse.

         I. BACKGROUND

         Central to this appeal is how the Michigan Business Tax Act's (MBT) small business alternative credit applies to a specific type of taxpayer-unitary business group. It will be helpful, therefore, to review the credit's history under Michigan tax law, as well the state's relatively recent adoption and modification of the unitary-business-group concept.

         A. THE SMALL BUSINESS ALTERNATIVE CREDIT UNDER MICHIGAN TAX LAW

          Given the importance of small businesses to the state's economy, Michigan has historically provided tax credits for qualifying small businesses. Beginning in the late 1970s, Michigan offered a form of the following credit under the state's Single Business Tax Act (SBT):

(2) The credit provided in this section shall be taken before any other credit under this act, and is available to any person whose gross receipts do not exceed . . . $10, 000, 000.00 for tax years commencing after 1991, and whose adjusted business income minus the loss adjustment does not exceed $475, 000.00 for tax years commencing on or after January 1, 1985, subject to the following:
(a)An individual, a partnership, or a subchapter S corporation is disqualified if the individual, any 1 partner of the partnership, or any 1 shareholder of the subchapter S corporation receives more than . . . $115, 000.00 for tax years commencing after December 31, 1997 as a distributive share of the adjusted business income minus the loss adjustment of the individual, the partnership, or the subchapter S corporation.
(b) A corporation other than a subchapter S corporation is disqualified if either of the following occur for the respective tax year: [various adjustments not relevant here] [MCL 208.36 (repealed by 2011 PA 39) (emphasis added).]

         Effective January 2008, Michigan repealed the SBT and replaced it with the MBT. The MBT also included a small business alternative credit in substantially the same form as the prior one, though it was updated, among other ways, to include limited liability companies among those taxpayers which may be disqualified from taking the credit:

(1) The credit provided in this section shall be taken after the credits under sections 403 and 405 and before any other credit under this act and is available to any taxpayer with gross receipts that do not exceed $20, 000, 000.00 and with adjusted business income minus the loss adjustment that does not exceed $1, 300, 000.00 as adjusted annually for inflation using the Detroit consumer price index and subject to the following:
(a)An individual, a partnership, a limited liability company, or a subchapter S corporation is disqualified if the individual, any 1 partner of the partnership, any 1 member of the limited liability company, or any 1 shareholder of the subchapter S corporation receives more than $180, 000.00 as a distributive share of the adjusted business income minus the loss adjustment of the ...

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