Hudsonville Creamery & Ice Cream Co. v. Department of Treasury

STATE OF MICHIGAN
COURT OF APPEALS
HUDSONVILLE CREAMERY AND ICE FOR PUBLICATION
CREAM COMPANY, L.L.C., March 29, 2016
9:05 a.m.
Petitioner-Appellant,
v No. 322968
Tax Tribunal
DEPARTMENT OF TREASURY, LC No. 00-450134
Respondent-Appellee.
Before: METER, P.J., and BORRELLO and BECKERING, JJ.
BECKERING, J.
Petitioner, Hudsonville Creamery & Ice Cream Company, LLC, appeals as of right the
decision of the Michigan Tax Tribunal (MTT) granting summary disposition to respondent,
Department of Treasury, and denying petitioner’s motion for the same. At issue in this case is
whether certain brownfield tax credits issued to petitioner under the former Michigan Single
Business Tax Act (SBTA) are eligible for a refund under MCL 208.1437(18) of the now-
repealed Michigan Business Tax Act (MBTA). Because the common understanding of the term
“credit,” as it is used in MCL 208.1437(18) encompasses a carryforward, and because the statute
at issue permits an 85% refund for credits, without limitation, we hold that petitioner was entitled
to a refund of 85% of its brownfield credits in the 2008 tax year. Accordingly, we reverse and
remand.
I. PERTINENT FACTS AND PROCEDURAL HISTORY
In 2005, petitioner invested over $8 million in an approved brownfield redevelopment
project under MCL 208.38g(2). Respondent issued petitioner a certificate of completion
indicating that petitioner, a “qualified taxpayer” under the SBTA, was eligible to claim a
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brownfield redevelopment credit under MCL 208.38g. Accordingly, petitioner received
$800,0001 in brownfield redevelopment credits under the now-repealed SBTA.
Petitioner did not have any tax liability on its 2005, 2006, or 2007 SBTA returns, and as
such, did not have any tax liability against which to apply its brownfield redevelopment credits.
Having no SBTA tax liability for 2005-2007, petitioner carried forward its SBTA credits
pursuant to former MCL 208.38g(15).2 Thereafter, the Legislature repealed the SBTA and
implemented the MBTA for tax years beginning after December 31, 2007. See 2006 PA 325.3
This case involves MCL 208.1437(18) of the MBTA. As originally enacted, the statute
permitted a qualified taxpayer to carry forward brownfield credits earned under the SBTA, but
did not permit a refund of those credits. However, the Legislature subsequently amended the act
and allowed for a refund in certain situations. MCL 208.1437(18) provides:
Except as otherwise provided under this subsection, if the credit allowed under
this section for the tax year and any unused carryforward of the credit allowed
under this section exceed the qualified taxpayer’s or assignee’s tax liability for the
tax year, that portion that exceeds the tax liability for the tax year shall not be
refunded but may be carried forward to offset tax liability in subsequent tax years
for 10 years or until used up, whichever occurs first. Except as otherwise
provided in this subsection, the maximum time allowed under the carryforward
provisions under this subsection begins with the tax year in which the certificate
of completion is issued to the qualified taxpayer. If the qualified taxpayer assigns
all or any portion of its credit approved under this section, the maximum time
allowed under the carryforward provisions for an assignee begins to run with the
tax year in which the assignment is made and the assignee first claims a credit,
which shall be the same tax year. The maximum time allowed under the
carryforward provisions for an annual credit amount for a credit allowed under
subsection (4) begins to run in the tax year for which the annual credit amount is
designated on the certificate of completion issued under this section. A credit
carryforward available under section 38g of former 1975 PA 228 that is unused at
the end of the last tax year may be claimed against the tax imposed under this act
for the years the carryforward would have been available under former 1975 PA
1Of the $800,000, $562,685 was issued to Hudsonville Creamery & Ice Cream Company, LLC,
and the remaining $237,315 was issued to Landmark Center, LLC. Although the relationship
between petitioner and Landmark LLC is unclear from the record, it appears undisputed that
petitioner has standing to pursue litigation with regard to the total amount of credits.
2
Although MCL 208.38g(15) allowed for unused credits to be carried forward, it did not permit
a refund of those unused credits.
3
In 2011 PA 39, the Legislature enacted legislation to repeal the MBTA and replaced the act
with the Corporate Income Tax. It appears disputed that if petitioner’s refund claim is denied,
any unused SBTA brownfield credit carryforwards will be lost for tax years beginning after
2011.
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228. Beginning on and after April 8, 2008, if the credit allowed under this section
for the tax year exceeds the qualified taxpayer’s tax liability for the tax year, the
qualified taxpayer may elect to have the excess refunded at a rate equal to 85% of
that portion of the credit that exceeds the tax liability of the qualified taxpayer for
the tax year and forgo the remaining 15% of the credit and any carryforward.
[Emphasis added.4]
When petitioner filed its 2008 MBTA tax return, it claimed a credit of $71,306 against its
MBTA liability and, pursuant to MCL 208.1437(18), elected a refund of 85% of its remaining
SBTA credits. At the time, petitioner sought a refund of $619,3905 on its 2008 MBTA tax return
for its brownfield redevelopment credits.6
In December 2011, respondent informed petitioner that it was denying petitioner’s
request for a refund of $619,390 for the brownfield redevelopment credits earned under the
SBTA. Respondent took the position that the credit was non-refundable and could only be
carried forward. According to respondent, a qualified taxpayer could only elect a refund for the
tax year in which a certificate of completion was received. On petition to the MTT, the MTT
drew a distinction between credits and credit carryforwards under MCL 208.1437(18) and ruled
that refunds are only available for credits, and not a carryforward of a credit earned under the
SBTA, thereby denying the petition. The MTT granted respondent’s motion for summary
disposition and denied petitioner’s motion for summary disposition. This appeal followed.
II. ANALYSIS
A. STANDARD OF REVIEW
The critical issue in this case is whether a carryforward of a credit earned under the
SBTA is refundable as a “credit” under MCL 208.1437(18) of the MBTA.
4
The refund provision was added by 2008 PA 89, which contained the version of the statute that
was in effect at the time petitioner filed its 2008 MBTA tax return. The Legislature has since
made minor modifications to the statute in 2008 PA 578—adding the date of the amendatory
act—and in 2009 PA 241—fixing an apparent typographical error. For ease of reference, and
because the most recent version of the statute does not contain any substantive differences from
the version that was in effect at the time petitioner filed its 2008 tax return, this opinion will refer
to the most recent version of the statute, unless otherwise noted.
5
This amount represents the total carryforward credit of $800,000, minus the claimed credit of
$71,306, for a remaining carryforward credit of $728,694. Eighty-five percent of $728,694 is
$619,390.
6
Subsequently, and with the idea that its refund request might not be granted, petitioner made
what it termed “protective elections” in the amount of $125,698 on its MBTA returns for the
2009-2011 tax years, seeking to use its SBTA credit carryforwards to offset its MBTA liability
for those years.
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“Where fraud is not claimed, we review the [MTT’s] decision for misapplication of the
law or adoption of a wrong principle.” Spartan Stores, Inc v Grand Rapids, 307 Mich App 565,
568; 861 NW2d 347 (2014) (citation and quotation marks omitted). When statutory
interpretation is involved, as it is in the instant case, our review is de novo. Id. See also Briggs
Tax Serv, LLC v Detroit Public Sch, 485 Mich 69, 75; 780 NW2d 753 (2010).
“The primary goal of statutory interpretation is to give effect to the intent of the
Legislature.” Briggs Tax Serv, 485 Mich at 76. The first step in such analysis is to examine the
plain language of the statute at issue. Id. “When construing statutory language, [the court] must
read the statute as a whole and in its grammatical context, giving each and every word its plain
and ordinary meaning unless otherwise defined.” Midamerican Energy Co v Dep’t of Treasury,
308 Mich App 362, 370; 863 NW2d 387 (2014) (citations and quotation marks omitted). In
addition, this Court should avoid a construction that would render any part of the statute
surplusage or nugatory. Midamerican Energy Co, 308 Mich App at 370. “If the language of the
statute is unambiguous, the Legislature must have intended the meaning clearly expressed, and
the statute must be enforced as written.” Id. at 369-370.
B. MCL 208.1437(18)
At issue in this case is the interpretation of MCL 208.1437(18), which provides:
Except as otherwise provided under this subsection, if the credit allowed under
this section for the tax year and any unused carryforward of the credit allowed
under this section exceed the qualified taxpayer’s or assignee’s tax liability for the
tax year, that portion that exceeds the tax liability for the tax year shall not be
refunded but may be carried forward to offset tax liability in subsequent tax years
for 10 years or until used up, whichever occurs first. Except as otherwise
provided in this subsection, the maximum time allowed under the carryforward
provisions under this subsection begins with the tax year in which the certificate
of completion is issued to the qualified taxpayer. If the qualified taxpayer assigns
all or any portion of its credit approved under this section, the maximum time
allowed under the carryforward provisions for an assignee begins to run with the
tax year in which the assignment is made and the assignee first claims a credit,
which shall be the same tax year. The maximum time allowed under the
carryforward provisions for an annual credit amount for a credit allowed under
subsection (4) begins to run in the tax year for which the annual credit amount is
designated on the certificate of completion issued under this section. A credit
carryforward available under section 38g of former 1975 PA 228 that is unused at
the end of the last tax year may be claimed against the tax imposed under this act
for the years the carryforward would have been available under former 1975 PA
228. Beginning on and after April 8, 2008, if the credit allowed under this section
for the tax year exceeds the qualified taxpayer’s tax liability for the tax year, the
qualified taxpayer may elect to have the excess refunded at a rate equal to 85% of
that portion of the credit that exceeds the tax liability of the qualified taxpayer for
the tax year and forgo the remaining 15% of the credit and any carryforward.
[Emphasis added.]
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The refund provision at issue appears in the last sentence of § 1437(18). That sentence
provides that in the event “the credit allowed under this section for the tax year exceeds the
qualified taxpayer’s tax liability for the tax year,” that qualified taxpayer “may elect to have the
excess refunded . . .” at a rate of 85%, in exchange for forgoing the remaining percentage of the
credit and any carryforward. The pertinent inquiry in determining whether a refund can be
obtained is whether that which is sought to be refunded—comprised of a carryforward of credit
that originated under the SBTA—qualifies as a “credit allowed under this section.”
C. WHAT CONSTITUTES A “CREDIT ALLOWED UNDER THIS SECTION”?
To determine what constitutes a “credit allowed under this section,”—and whether that
includes a credit carryforward—the meaning of the words “credit” and “carryforward” are of
critical importance. Neither word is defined by the MBTA. MCL 208.1103 provides that when
a term is not defined in the MBTA, that term “shall have the same meaning as when used in
comparable context in the laws of the United States relating to federal income taxes in effect for
the tax year unless a different meaning is clearly required.” Turning to the internal revenue code,
26 USC 38 describes what constitutes a “general business credit”; business credits are at issue in
this case. Notably, 26 USC 38(a) provides that:
There shall be allowed as a credit against the tax imposed by this chapter for the
taxable year an amount equal to the sum of--
(1) the business credit carryforwards carried to such taxable year,
(2) the amount of the current year business credit, plus
(3) the business credit carrybacks carried to such taxable year. [Emphasis added.]
Thus, under the internal revenue code, it is apparent that a tax credit for a given tax year is
designed to be a broad concept that includes certain, defined components. One of those
components is unequivocally a credit carryforward. See 26 USC 38(a)(1). This understanding
borrowed from the internal revenue code demonstrates that the “credit allowed under this
section” under § 1437(18) includes credit that has been carried forward from a prior year to the
taxable year. Consequently, the common and ordinary understanding of “credit” and
“carryforward” supports the idea that a carryforward is considered a credit for a given tax year.
The idea that a credit—and thus, a “credit allowed under this act”—is an encompassing
term that includes carryforwards of credits is buttressed by this Court’s opinion in Ashley
Capital, LLC v Dep’t of Treasury, __ Mich App __; __ NW2d __ (2015) (Docket No. 322386),
slip op at 1. That case, which admittedly did not involve the precise statutes at issue in this case,
dealt with the order in which credits are to be applied under the MBTA. The respondent in that
case—the Department of Treasury—argued that “credits” under the MBTA did “not include the
brownfield rehabilitation credits and the carryforward credits that originated under the SBTA.”
Id. at 2. (Emphasis added). In particular, the respondent argued that “the Legislature intended a
textual distinction between a ‘carryforward’ from the SBTA and a ‘credit’ under the [M]BTA
such that credits carried forward from the SBTA cannot be considered a ‘credit’ for purposes of
the [M]BTA.” Id. at 4. In other words, the respondent took a position very similar to the one it
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takes on this appeal: a carryforward of a brownfield credit earned under the SBTA should not be
considered a credit under the MBTA.
The panel in Ashley Capital rejected this argument, explaining:
This argument from the treasury department draws a distinction without a
difference. Under the [M]BTA, the carryforward credits, brownfield
rehabilitation credits, investment credits, and compensation credits are all
available to offset taxpayer liability under the [M]BTA. The mere fact that some
credits were carried forward by the Legislature from the SBTA does not obviate
the clear fact that such carryforwards are nonetheless credits which, like other
credits, may be used under the [M]BTA to offset liability arising under the
[M]BTA. Indeed, MCL 208.1403(1) refers broadly to “any other credit under this
act,” and it makes no distinction between those credits carried forward from the
SBTA and those originating under the [M]BTA. We decline to read such
language into the statute. [Id. at 4-5. (Emphasis added).]
Thus, the panel in Ashley Capital expressly rejected the idea that a “carryforward” should not be
encompassed within the term “credit.” Although the case at bar involves a different section of
the MBTA, the decision in Ashley Capital is nevertheless instructive because it touches on the
heart of the dispute in this case. That is, it weighs in on the issue of whether a credit, as the term
is commonly understood in the MBTA, encompasses a carryforward of a credit earned under the
SBTA.
In addition to the idea that a carryforward is a credit, it is apparent from the plain
language of MCL 208.1437(18) that the particular carryforward at issue in this case qualifies as a
“credit allowed under this section.” The fifth sentence of § 1437(18) addresses the type of
carryforward at issue in this case, providing that “[a] credit carryforward available under section
38g of former 1975 PA 228[7] that is unused at the end of the last tax year may be claimed
against the tax imposed under this act for the years the carryforward would have been available
under former 1975 PA 228.” (Emphasis added). The key phrase in this sentence is that such a
credit carryforward “may be claimed against the tax imposed under this act.” That the credit
carryforward may be claimed against the tax imposed under the act, i.e., may be subtracted from
one’s tax liability, makes it apparent that the particular carryforward at issue in this case is
intended to function as a credit against liability imposed under the MBTA. In other words, a
credit earned under the SBTA and subsequently carried forward and claimed against MBTA
liability is, according to the plain language of § 1437(18), a “credit allowed under this section.”
Furthermore, it is apparent from the plain language of the statute that the carryforward at
issue was a “credit allowed under this section for the tax year . . . .” As noted, 26 USC 38(a)(1)
describes a carryforward as a credit for purposes of “the taxable year . . . .” And, on the subject
of what constitutes the “tax year,” the MBTA defines “tax year” to mean “the calendar year, or
7
This is a reference to MCL 208.38g of the former SBTA, under which the credits at issue in
this case were earned.
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the fiscal year ending during the calendar year, upon the basis of which the tax base of a taxpayer
is computed under this act.” MCL 208.1117(4). A carryforward of a credit is available for use
in a given tax year, meaning that it can appropriately be considered in calculating tax liability in
“the tax year.” Hence, the fact that something is a credit carried forward from another tax year
does not dispel the idea that it is nevertheless a credit “allowed under this section for the tax
year.” In this sense, we disagree with the dissent’s conclusion that the phrase “for the tax year”
is rendered nugatory if it is interpreted so as to include credits carried forward from other years.
D. PETITIONER WAS ENTITLED TO THE CLAIMED REFUND
In light of the conclusion that the common and ordinary understanding of the term
“credit” includes a carryforward of a credit from another year, and in light of the express
language in § 1437(18) describing the credit carryforward at issue in this case as a credit under
the pertinent section, we conclude that petitioner was entitled to the refund it claimed. The last
sentence of MCL 208.1437(18) provides a refund for a “credit allowed under this section for the
tax year” if such credit “exceeds the qualified taxpayer’s liability for the tax year.” Put simply, a
“credit” allowed under the act encompasses a credit that has been carried forward to the taxable
year. Further, there can be no dispute that the credit carryforward at issue in this case is
considered a “credit allowed under” the appropriate section. Consequently, we hold that
petitioner was correct in its election of an 85% refund of its SBTA credit carryforwards and that
it was entitled to a refund under the last sentence of § 1437(18).
In concluding that petitioner is not entitled to a refund under § 1437(18), the dissent
juxtaposes the first sentence of § 1437(18)—which expressly mentions carryforwards—and
concludes that the Legislature did not intend for the type of credit carryforward claimed by
petitioner in this case to be refunded. In this regard, the dissent notes that the first sentence of
the statute refers to both credits and carryforwards: “if the credit allowed under this section for
the tax year and any unused carryforward of the credit allowed under this section exceed the
qualified taxpayer’s or assignee’s tax liability for the tax year . . . .” In contrast, the sixth
sentence—the sentence providing a refund option—refers only to “the credit allowed under this
section for the tax year . . .” and makes no mention of carryforwards. The dissent concludes that
the omission of the word “carryforward” from the sixth sentence was intentional, and signals the
Legislature’s intent not to permit refunds of credit in the form of carryforwards.
We do not find the use of the words “credit” and “carryforward” in a different sentence of
§ 1437(18) to be compelling in the interpretation of the word “credit” in the last sentence of that
subsection. Again, tax credits in a given year are commonly understood to include
carryforwards. See discussion supra. Moreover, it is apparent that the particular credit at
issue—one that is carried forward from the SBTA—is expressly treated as a “credit under this
section.” Therefore, it is apparent that the carryforward sought to be refunded in this case is,
without limitation, a credit. The dissent’s interpretation essentially requires the conclusion that it
is a credit for certain purposes, but at the same time, is not a credit for other purposes, based on a
different sentence in the same statute. Such an interpretation is not supported by the plain
language of the statute.
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Furthermore, we find the history of the legislation at issue to be pertinent and instructive
on this point. As originally enacted, MCL 208.1437(18) lacked a refund option. The subsection
provided that:
If the credit allowed under this section for the tax year and any unused
carryforward of the credit allowed under this section exceed the qualified
taxpayer's or assignee's tax liability for the tax year, that portion that exceeds the
tax liability for the tax year shall not be refunded but may be carried forward to
offset tax liability in subsequent tax years for 10 years or until used up, whichever
occurs first. Except as otherwise provided in this subsection, the maximum time
allowed under the carryforward provisions under this subsection begins with the
tax year in which the certificate of completion is issued to the qualified taxpayer.
If the qualified taxpayer assigns all or any portion of its credit approved under this
section, the maximum time allowed under the carryforward provisions for an
assignee begins to run with the tax year in which the assignment is made and the
assignee first claims a credit, which shall be the same tax year. The maximum
time allowed under the carryforward provisions for an annual credit amount for a
credit allowed under subsection (4) begins to run in the tax year for which the
annual credit amount is designated on the certificate of completion issued under
this section. A credit carryforward available under section 38g of former 1975
PA 228 that is unused at the end of the last tax year may be claimed against the
tax imposed under [sic] act for the years the carryforward would have been
available under former 1975 PA 228. [2007 PA 36.]
Later, in 2008 PA 89, the Legislature added the refund provision at issue in this case, as well as
the prefatory language of “[e]xcept as otherwise provided under this subsection . . . .” Hence, the
refund option, with its broad reference to “credit allowed under this section,” is a later-enacted
provision that allowed the taxpayer to elect to liquidate the taxpayer’s net excess credit (i.e., that
which “exceeds the qualified taxpayer’s tax liability for the year”) and have 85 % of the excess
amount refunded in exchange for forgoing the remaining 15 % and the option of any
carryforward. The Legislature could have expressed an intent to prohibit a refund of credit
amounts from carryforwards when it adopted this new refund provision, but it did not. Instead, it
used the broad and encompassing term of “credit” when providing an option to liquidate a
taxpayer’s “credit allowed under this section for the tax year . . . .” There is no discernable
explanation from reading the plain language of the text why there would be any reason to
differentiate and treat disparately credit amounts based on the timing they were earned. The
provision at issue expressly says that it applies to “credit allowed under this section for the tax
year”; it does not say “credit allowed under this section and earned during the tax year.” So long
as the credit in question qualifies as a “credit allowed under this section”—which the
carryforward of brownfield credits in the instant case does—the statute permits the election of an
85% refund option. We decline to read into the last sentence of § 1437(18) a prohibition on
claiming a refund of credit from carryforwards when such prohibition is not apparent from the
plain language of the statute.
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III. CONCLUSION
In light of the above analysis, we reverse the decision of the MTT and hold that petitioner
was entitled to its elected refund for the 2008 tax year. As such, we reverse and remand for
further proceedings consistent with this decision. We do not retain jurisdiction.8
/s/ Jane M. Beckering
/s/ Stephen L. Borrello
8
In light of our resolution of this issue, we find it unnecessary to address petitioner’s remaining
claims.
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