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Total Armored Car Service, Inc. v. Department of Treasury

Court of Appeals of Michigan

July 24, 2018

TOTAL ARMORED CAR SERVICE, INC., Plaintiff-Appellant,
v.
DEPARTMENT OF TREASURY, Defendant-Appellee.

          Michigan Tax Tribunal LC No. 16-003017-TT

          Before: Ronayne Krause, P.J., and Gleicher and Letica, JJ.

          PER CURIAM.

         Following an audit, the Department of Treasury determined that Total Armored Car Services, Inc. (TACS) had underpaid its taxes in three tax years. TACS filed a petition in the Michigan Tax Tribunal (MTT), challenging the department's disallowance of certain deductions and credits, and later adding a claim that it should be treated as a lone tax unit rather than as a collective taxpayer. The MTT summarily dismissed the petition. We discern no error in the MTT's judgment and affirm.

         I. BACKGROUND

         In November 2012, the department conducted an audit of TACS's business tax returns for 2008 through 2011 and determined that TACS had underpaid by $144, 924 for tax years 2009, 2010 and 2011. Part of this underpayment arose from the misclassification of items as materials and supplies for deduction under MCL 208.1113(6)(c) and part was due to miscalculation of the employee compensation credit provided in MCL 208.1403(2). TACS challenged the auditor's conclusions to no avail. It then filed a petition with the MTT. In addition to the objections raised directly to the audit, TACS noted before the MTT hearing that it had filed its taxes as part of a unitary business group (UBG) with seven sister corporations but that it actually counted as a single tax entity pursuant to LaBelle Mgmt, Inc v Michigan Dep't of Treasury, 315 Mich.App. 23; 888 N.W.2d 260 (2016). Accordingly, TACS generally asserted that its tax liability was no longer accurately calculated.

         The MTT ultimately granted summary disposition in the department's favor and ordered TACS to pay its tax liability with interest. TACS now appeals.

         II. STANDARD OF REVIEW

         We review de novo the MTT's decision on a motion for summary disposition. Moshier v Whitewater Twp, 277 Mich.App. 403, 407; 745 N.W.2d 523 (2007). We also review de novo the MTT's interpretation of statutory provisions. Id. However, generally, our review is "limited to determining whether the tribunal erred in applying the law or adopted a wrong principle." Id. The MTT's "factual findings are conclusive if supported by competent, material, and substantial evidence on the whole record." Klooster v City of Charlevoix, 488 Mich. 289, 295; 795 N.W.2d 578, 583 (2011) (quotation marks and citation omitted).

         III. MATERIALS AND SUPPLIES DEDUCTION

         In tax year 2010, TACS deducted from its gross receipts $12, 712, 186 in materials and supplies and $24, 567, 291 for tax year 2011.[1] According to the audit report, these deductions included the cost of "repairs and maintenance, gas and oil, parts, rental equipment, lease contract, outside courier services, contract labor and purchased transportation." The department determined that costs "related to operating leases, contract labor, purchased transportation, and outside courier services" were improperly included in this category and adjusted the deductions for 2010 and 2011 accordingly.

         TACS contends that the disallowed items are "materials and supplies" deductible from gross receipts under MCL 208.1113(6). The Business Tax Act (BTA) imposes a business income tax and a modified gross receipts tax against taxpayers with business activity in Michigan. MCL 208.1201; MCL 208.1203. A business's modified gross receipts tax base may be reduced by certain credits and deductions. One deduction is for "purchases from other firms," MCL 208.1113(6), which includes:

(a) Inventory acquired during the tax year, including freight, shipping, delivery, or engineering charges included in the original contract price for that inventory.
(b) Assets, including the costs of fabrication and installation, acquired during the tax year of a type that are, or under the internal revenue code will become, eligible for depreciation, amortization, or accelerated ...

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