Chesapeake & Ohio Railway Co. v. Department of Treasury

105 Mich. App. 467

• Court: Michigan Court of Appeals
• Decided: April 21, 1981
• Docket: Docket Nos. 77-3652 through 77-3657
• Status: Published

Opinion

After Remand

Before: D. F. Walsh, P.J., and T. M. Burns and D. E. Holbrook, Jr., JJ.

D. F. Walsh, P.J.

Plaintiff petitioned for a redetermination of franchise fees and a refund. Defendant appeals an order of the Corporation Tax Appeal Board granting plaintiffs petition. In our opinion issued on January 3, 1979, we remanded this matter on the following basis:

"Although we affirm the board’s ruling that the 'weighted average’ formula does not comply with the plain language of § 5b, we remand for consideration of the possible applicability of §5e. If the board determines that defendant devised and published an alternative formula in compliance with the provisions of § 5e of the act, that alternative formula is to be applied to all years in question, being the years 1969 through 1974. If the board decides that defendant did not devise and publish an alternative formula in compliance with the provisions of § 5e, the formula provided for in § 5b of the act is to be applied, as interpreted by the board in its opinion, to the years 1969 through 1974.” 87 Mich App 740, 750-751.

After a hearing on June 18, 1979, the Tax Tribunal rendered its opinion on November 2, 1979. The tribunal stated that in 1954, Ann Sawasky, the Director of the Franchise Fee Division, sent a written communication to all railroads concerning the "weighted average” formula for determining franchise fees. The tribunal went on to state:

"In 1954, the Legislature enacted § 5b. Shortly thereafter, the Director of the Franchise Fee Division, Ann Sawasky, in written communication to all railroads related the Division’s position setting forth a 'weighted average’ formula. At that time it was the position of the Division that the 'weighted average’ formula was in compliance with § 5b of the act rather than under the alternate formula provisions of § 5e.

"The 'weighted average’ formula was used by the Petitioner and other railroads from 1954 to 1975. There is no indication in the record that indicates, subsequent to 1954, a request by the Petitioner for an alternate formula.

"It is the opinion of the Tribunal that the presentation of the 'weighted average’ formula by the Respondent to all parties, its application and use, uncontested from 1954 to 1975, by the Petitioner and other railroads constitutes effective compliance with the provisions of § 5e.”

Plaintiff claims that the Tax Tribunal erred in ruling that defendant had complied fully with the provisions of MCL 450.305e; MSA 21.208(5). We agree.

MCL 450.305e; MSA 21.208(5) (hereinafter § 5e), provides:

"If it shall appear on the application of the taxpayer or otherwise that an allocation factor determined pursuant to this act does not properly reflect the activity, business, receipts and capital of a taxpayer reasonably attributable to the state, the commission shall adjust it by:

"(1) Excluding 1 or more of the factors of any component thereof;

"(2) Including 1 or more other factors, such as expenses, purchases, contract values (minus subcontract values);

"(3) Excluding proportionately 1 or more asset items in computing entire paid-up capital and surplus; or

"(4) Apply any other similar method calculated to effect a fair and proper allocation according to the receipts, activity, business and capital reasonably attributable to this state.

"The commission shall promptly publish its rulings with respect to any application of the provisions of this section. Such rulings shall be promulgated in conjunction with the state department of revenue.

MCL 450.305b; MSA 21.208(2) (hereinafter § 5b) made specific provision as to the allocation formula to be used in determining the annual franchise fee payable to the State of Michigan by a railroad company. In our judgment, if the commission (now Franchise Fee Division) intended to adopt a rule, by virtue of the authority granted to it under § 5e, which amended the § 5b allocation formula and made the amended version applicable to all railroad companies, it was required by § 5e to "publish” and "promulgate” that rule in accordance with the statutory provisions relating to the adoption, amendment, or repeal of rules and regulations by a state agency. MCL 24.71 et seq.; MSA 3.560(7) et seq. No evidence was produced at the remand hearing indicating that the commission made any effort whatsoever to comply with these statutory requirements.

We reject the conclusion of the Tax Tribunal that the written notification by the commission that the "weighted average” formula would be used together with the uncontested use of that formula from 1954 to 1975 constituted effective compliance with the statutory requirements for "publishing” and "promulgation”. Other provisions of the fees, taxes, and charges act specifically mandate "notification” by the commission. See MCL 450.309; MSA 21.210, and MCL 450.310; MSA 21.210(1). Therefore, had the Legislature intended the commission merely to notify the railroads about § 5e alternative formulas, language other than "promptly publish” and "promulgate” could have been used.

However, even if we were to accept the tribunal’s conclusion that the written notice sent to the parties amounted to a "publication” under the statute, we would still find noncompliance with § 5e. The statute requires prompt publication "with respect to any application of the provisions of this section”. The written notification to plaintiff did not contain any reference to § 5e. To the contrary, the letter indicated that the "weighted average” was in full compliance with §5b. Since the written communication by defendant failed to notify plaintiff that an alternative § 5e allocation formula was being utilized, the letter did not sufficiently comply with the statute.

We conclude that the Tax Tribunal erred in its decision, and we hereby reverse. The case is remanded to the tribunal to apply the formula provided in § 5b of the act.

Reversed and remanded.