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Breakey v. Department of Treasury

Court of Appeals of Michigan

June 7, 2018

ANN BREAKEY, Petitioner-Appellant,
DEPARTMENT OF TREASURY, Respondent-Appellee.

          Tax Tribunal LC No. 17-000218-TT

          Before: Murray, C.J., and Servitto and Boonstra, JJ.

          Murray, C.J.

         The question presented is whether petitioner Ann Breakey, as a result of an irrevocable trust granting her the ability to remain in the marital home rent-free in order to maintain the standard of living she enjoyed prior to her husband's death, is an "owner" of the property for purposes of MCL 211.7dd(a), the personal residence exemption (PRE) under the General Property Tax Act (GPTA), MCL 211.1, et seq. The Tax Tribunal held that she was not an owner as defined by the statute, and as a result, denied her the use of the PRE. We conclude that she is an owner under MCL 211.7dd(a)(iii), reverse the decision of the tribunal, and remand for further proceedings to determine whether she is entitled to the PRE.


         The subject property is a residential property located in the city of Bath, and was originally owned by petitioner and her late husband, William Breakey. On November 11, 1994, William Breakey created the "William E. Breakey Trust No. 1." That same day, petitioner and William conveyed by quit claim deed their ownership of the Bath home to the Trust. Years later in February 2011, "[p]ursuant to the power to make amendments which [he] reserved in the Trust, " William "completely restat[ed] the Trust" in the "First Restatement of the William E. Breakey Trust No. 1, " naming himself and petitioner as co-trustees. The Trust was revocable by William, who "reserve[d] the right to amend or revoke this [Trust] Agreement, wholly or partly, by a writing signed by me or on my behalf and delivered to Trustee during my life, " and would "become irrevocable at my death."

         According to petitioner, she and William continued to reside in the Bath home until he passed away in 2012. Upon William's death, William's son, Thomas W. Breakey, was appointed successor trustee. The Trust also created a Marital Trust to provide for petitioner upon William's death. The Marital Trust clause directs the trustee to hold the Trust property for the benefit of petitioner and to use the Trust assets to "maintain the standard of living" that petitioner enjoyed prior to William's death. It also mandates that the trustee permit petitioner "to use any real estate held in the Marital Trust rent free." According to the Trust, petitioner has the right to remove any successor trustee without cause.

         On October 15, 2015, petitioner received a letter from respondent, the Department of Treasury, informing her that it was denying her the PRE for the Bath home for the years 2012, 2013, 2014, and 2015, because "[t]he parcel did not contain a dwelling owned and occupied by a person(s) as his or her principal residence." Petitioner challenged the denial and, after the Department held an informal telephone conference, the referee recommended that the PRE remain denied because petitioner "did not prove by a preponderance of the evidence that she owned the parcel at issue and that the parcel at issue was her principal residence during the years at issue." The Department adopted this recommendation and upheld the denial.

         Petitioner appealed the Department's decision to the Tax Tribunal's Small Claims Division. Before a hearing could be held, petitioner filed a motion for partial summary disposition on the legal question of whether she qualified as an "owner" within the meaning of MCL 211.7dd(a). In response, the Department maintained its position that petitioner was not an "owner" as defined by statute, and asked that summary disposition be entered in its favor. On July 3, 2017, the tribunal entered an order denying petitioner's motion for partial summary disposition and granting summary disposition in favor of the Department pursuant to MCR 2.116(I)(2) (opposing party entitled to judgment) because "Petitioner is not an owner or partial owner of the subject property."

         II. ANALYSIS

         This Court reviews the grant or denial of a motion for summary disposition de novo. Briggs Tax Serv, LLC v Detroit Pub Sch, 485 Mich. 69, 75; 780 N.W.2d 753 (2010). However, "[t]his Court's authority to review a decision of the Tax Tribunal is very limited." Inter Coop Council v Dep't of Treasury, 257 Mich.App. 219, 221; 668 N.W.2d 181 (2003) (quotation marks and citation omitted). "In the absence of an allegation of fraud, " review is restricted "to determining whether the tribunal committed an error of law or adopted a wrong legal principle." Stege v Dep't of Treasury, 252 Mich.App. 183, 187-188; 651 N.W.2d 164 (2002) (quotation marks and citations omitted).

         "Statutory interpretation is a question of law that is reviewed de novo." Inter Coop Council, 257 Mich.App. at 222. This Court's primary goal in interpreting statutes is to determine and give effect to the Legislature's intent. Briggs Tax Serv, LLC, 485 Mich. at 76. However, this Court affords some deference to the Tax Tribunal's interpretation of a tax statute. Inter Coop Council, 257 Mich.App. at 222. "Although tax laws are construed against the government, tax-exemption statutes are strictly construed in favor of the taxing unit." Id.

         As noted at the outset of this opinion, the issue before this Court is whether petitioner's interest in a residential property held in an irrevocable trust for her lifetime benefit renders her an "owner" for purposes of the PRE. We hold that petitioner qualifies as an "owner" under the plain language of MCL 211.7dd(a).

          Under the GPTA, all real property not expressly exempted is subject to taxation. MCL 211.1. One exemption under the GPTA is the PRE, [1] which exempts qualifying property from "the tax levied by a local school district for school operating purposes." MCL 211.7cc(1). In order to claim the PRE, a person must (1) own the property and (2) occupy it as his or her principal residence. MCL 211.7cc(2). A principal residence is "the 1 place where an owner of the property has his or her true, fixed, and permanent home to which, whenever absent, he or she intends to return and that shall continue as a principal residence ...

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