Ford Motor Co v. Michigan State Tax Commission

• Court: Michigan Supreme Court
• Decided: July 30, 2008
• Docket: 133402
• Status: Published

Opinion

Michigan Supreme Court Lansing, Michigan Chief Justice: Justices:

Opinion Clifford W. Taylor Michael F. Cavanagh Elizabeth A. Weaver Marilyn Kelly Maura D. Corrigan Robert P. Young, Jr. Stephen J. Markman

FILED JULY 30, 2003

DAIMLERCHRYSLER CORPORATION,

Petitioner-Appellee,

v No. 133394

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

Respondents-Appellees,

and

CITY OF AUBURN HILLS,

Respondent-Appellant.

FORD MOTOR COMPANY,

v No. 133396

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

and CITY OF DEARBORN,

Intervening Respondent- Appellant.

v Nos. 133400-133402

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

Respondents-Appellants,

CITY OF DEARBORN,

Intervening Respondent-

Appellee.

DETROIT DIESEL CORPORATION,

Cross-Appellant,

v No. 133403

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

Cross-Appellees,

CHARTER TOWNSHIP OF REDFORD,

Intervening Respondent- Appellee.

v No. 133404

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

Respondents-Appellants.

Petitioner-Appellee, Cross-Appellant,

v No. 133405

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

TOWNSHIP OF SYLVAN,

Respondent-Appellee.

3 v No. 133406

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

BEFORE THE ENTIRE BENCH

YOUNG, J.

These consolidated appeals concern a tax exemption that aims to improve

Michigan’s environment by encouraging entities to reduce air pollution they create

in Michigan. Based on the plain language of the statute, we hold that in order to

for equipment to be exempt, it must be installed or acquired for the primary

purpose of regulating or curbing the spread of pollution in Michigan. Further, the

equipment must actually and physically limit pollution. None of the equipment

that is the subject of this appeal meets these tests. Therefore, the Court of Appeals

erred by partially overturning the decision of the Department of Environmental

Quality (DEQ) and the State Tax Commission (STC) to that effect and holding

that petitioners’ test cells qualify for the exemption. We reverse the Court of

Appeals in part and restore the DEQ and STC decisions concluding that none of

the equipment qualifies for the tax exemption.

FACTS AND PROCEDURAL HISTORY

The material facts in these consolidated appeals are undisputed. Pursuant

to federal law, before issuing a certificate allowing for sales of new vehicles, the

Environmental Protection Agency (EPA) must “test or require to be tested” new

motor vehicles or new motor vehicle engines to ensure compliance with emission

standards that the EPA promulgates.1 To that end, the agency has created a testing

regime, requiring vehicle manufacturers to submit an application with an

enormous amount of supporting data.2 Ford Motor Company, DaimlerChrysler

Corporation, and Detroit Diesel (petitioners) installed test cells. The test cells are

large buildings that can replicate many temperature conditions. They also house

equipment that allows for up to 40 different types of tests and data collection.3

Petitioners’ test cells are used in the manufacturing process to ensure compliance

with the regulations. In addition to its test cell, Detroit Diesel installed a new

engine production line to meet federal emissions regulations.

1 42 USC 7525(a)(1) and 7521. 2 See 40 CFR 86.1 et seq. 3 Narrative Statement attached to DaimlerChrysler Auburn Hills Application for Tax Exemption Certificate, July 14, 2003, pp 5-11. The Auburn Hills DaimlerChrysler test cell is similar to the test cells of the other petitioners. The individual specifications of each test cell do not control the disposition of this case. Therefore, this Auburn Hills DaimlerChrysler test cell summary can serve as a general example for purposes of analysis.

All the petitioners sought tax exemptions from the STC under part 594 of

the Natural Resources and Environmental Protection Act (NREPA)5 for their test

cells, and Detroit Diesel also petitioned for an exemption for its engine line. Part

59 provides real and personal property tax exemptions, as well as sales and use tax

exemptions for certain air pollution control facilities.6 The law requires that the

STC refer applications to the DEQ. The DEQ concluded that none of petitioners’

equipment qualified for an exemption under part 59 because their primary purpose

was not to reduce pollution, but to test products for compliance with federal

emissions standards and to manufacture engines that comply with those standards.

The DEQ also found that all the equipment actually generated some pollution

during the testing or manufacturing processes, instead of physically disposing of

air pollution or controlling it as the law requires. The STC agreed and denied all

the exemptions. Petitioners appealed to various circuit courts. Ford’s four

exemption denials were reversed, while denials for DaimlerChrysler and Detroit

Diesel were affirmed.

4 MCL 324.5901 et seq. 5 MCL 324.101 et seq. 6 Ford had previously applied for and received a tax exemption under part 59 for its Allen Park test cell facility in 2001. While the applications involved in the instant action were pending in 2004, DEQ notified Ford that it was requesting revocation of its exemption for the Allen Park facility because the facility did not meet the requirements of part 59. The STC rejected the revocation, though, concluding that an exemption certificate under part 59 cannot be revoked. That exemption dispute is not before the Court.

The Court of Appeals granted the appellate applications of all the aggrieved

parties and consolidated the cases on appeal. Its published opinion held that tax

exemptions must be issued for all petitioners’ test cells. The Court of Appeals

concluded that the primary purpose of the test cells is to reduce pollution and that

they need not physically or directly reduce pollution in order to qualify as tax-

exempt. However, the Court of Appeals affirmed the denial of an exemption for

Detroit Diesel’s engine manufacturing line on the ground that its primary purpose

was engine manufacturing, not pollution reduction. The Court also held that no

due process violation occurred during the STC’s consideration of Detroit Diesel’s

application for a tax exemption.7 This Court granted leave to appeal.8

STANDARD OF REVIEW

The Court reviews de novo motions for summary disposition.9 Issues of

statutory construction are also reviewed de novo.10

ANALYSIS

The primary issue on appeal is whether the Court of Appeals erred in its

application of the tax exemption of part 59 of NREPA. As noted, the Court of

7 We agree with the Court of Appeals that the full hearing conducted by the STC satisfied Detroit Diesel’s due process rights. 8 480 Mich 880 (2007). 9 Spiek v Dep’t of Transportation, 456 Mich 331, 337; 572 NW2d 201 (1998). 10 City of Taylor v Detroit Edison Co, 475 Mich 109, 115; 715 NW2d 28 (2006).

Appeals reached different conclusions for the petitioners’ test cells and Detroit

Diesel’s engine line. With regard to the test cells, the Court held

[I]t is plainly apparent to us that the test cells were “installed or acquired for the primary purpose of controlling or disposing of air pollution” and that the test cells were designed and are operated “primarily for the control, capture, and removal of pollutants from the air, and [are] suitable, reasonably adequate, and meet[] the intent and purposes of part 55 . . . .”[11]

However, with regard to Detroit Diesel’s engine line, the Court reached the

opposite conclusion, holding that “[c]learly, the engine line . . . is not ‘operated

primarily for the control, capture, and removal of pollutants from the air . . . .’”12

While the Court of Appeals quoted language from the proper statutory

provisions, the Court did not offer a construction of that language. Instead, the

Court held that it was plain and clear which equipment was eligible and which was

not. As will be discussed later, the statutory provisions provide no principled

basis for distinguishing between the different equipment involved in this appeal.

Under the plain language of these provisions, neither the test cells nor the engine

line qualify for the exemption.

MCL 324.5901 defines “facility,” in part, as

machinery, equipment, structures, or any part or accessories of machinery, equipment, or structures, installed or acquired for the primary purpose of controlling or disposing of air pollution that if

11 Ford Motor Co v State Tax Comm, 274 Mich App 108, 113; 732 NW2d 591 (2007) (alterations in Ford Motor). 12 Id. at 118.

released would render the air harmful or inimical to the public health or to property within this state.

An exemption for a particular “facility” requires a determination by the DEQ that

“the facility is designed and operated primarily for the control, capture, and

removal of pollutants from the air, and is suitable, reasonably adequate, and meets

the intent and purposes of part 55[13] and rules promulgated under that part.”14

Thus, the equipment must meet the requirements of both §§ 5901 and 5903

to qualify for the tax exemption. Section 5901’s definition of “facility” expressly

requires that the equipment be “installed or acquired for the primary purpose of

controlling or disposing of air pollution . . . .” “Control” means to “exercise

restraint or direction over; dominate, regulate, or command; to hold in check;

curb.”15 “Dispose of” means “a. to deal with conclusively; settle. b. to get rid of;

discard or destroy.”16

The primary purpose of this equipment is to build engines (Detroit Diesel)

or test engines (petitioners’ test cells). The ancillary effect of the equipment is the

control of pollution emitted by the engines. While the test cells help petitioners

ensure that they are producing less polluting engines, the primary purpose of this

equipment is not to regulate, curb the spread of, or destroy air pollution—and

13 MCL 324.5501 et seq. 14 MCL 324.5903 (emphasis added). 15 Webster’s Universal College Dictionary (1997). 16 Random House Webster’s College Dictionary (1997).

certainly not “pollution that if released would render the air harmful . . . to the

public health or to property within this state.”17 Instead, the primary purpose of

the equipment is to test engines to ensure that petitioners have properly designed

their engines to meet federal regulations so that they can sell them to consumers.18

Furthermore, the equipment itself does not get rid of or curb air pollution. Thus,

petitioners’ test cells are not “facilities” as defined by MCL 324.5901.

Even assuming that petitioners’ federally required pollution equipment and

Detroit Diesel’s engine line qualify as “facilities,” petitioners are still not entitled

to an exemption because none of the equipment qualifies under § 5903. Under

that section, the DEQ must find “that the facility is designed and operated

17 MCL 324.5901 (emphasis added). The dissent is correct that the statute does not require that the equipment “solely” control pollution in Michigan. However, this equipment does not control any pollution in Michigan. It is the engines and vehicles tested that emit less pollution. While those vehicles may be sold in Michigan and may emit less pollution than other vehicles sold in Michigan, the test cells and Detroit Diesel’s engine plant do not control any pollution in Michigan or any other state. 18 The dissent misconstrues this statement to argue that this interpretation would render any equipment required by a federal regulation ineligible for the exemption. Regardless of whether the federal government requires the installation of the pollution testing equipment, it is not a “facility” under this statute unless its primary purpose is pollution control or disposal. For example, in Covert Twp v State Tax Comm, 407 Mich 561; 287 NW2d 895 (1980), federal law required that the petitioner install a containment device at its nuclear facility. That equipment still qualified under the statute at issue because its primary purpose was to control pollution at the site in the case of an accident at the nuclear facility. The primary purpose of the test cells and Detroit Diesel’s engine plant is not control or disposal of pollution. Therefore, regardless of whether federal law or “philanthropy” motivated petitioners to install the test cells or the engine plant, they do not qualify for the exemption.

primarily for the control, capture, and removal of pollutants from the air.” There

are a number of terms in this provision that need to be defined to properly construe

it. The focus of the section is on the “design” and the “operation” of the facility.

“Design” means “to intend for a definite purpose,” while “operate” means “to

work, perform, or function, as a machine does . . . to bring about, effect, or

produce, as by action or the exertion of force or influence.”19 Thus, the facility

must be intended to and bring about “the control, capture, and removal of

pollutants from the air.” “Control” has already been defined. “Capture” means

“to gain control of or exert influence over,” and “remove” means “to move or shift

from a place or position; to eliminate; do away with or put an end to.”20 Because

the Legislature used the conjunction “and,” a qualifying facility must do all three

things: curb, control, and eliminate pollution. Furthermore, the words suggest that

the facility must actually and physically limit pollution. They do not stand for the

proposition that the facility itself may contribute to the creation of a product that

pollutes less than a similar product, which is what the equipment in this case does.

Because the statutory language requires the facility to do the removing,

controlling, and capturing of pollution, this equipment does not qualify.

The Court of Appeals held that the test cells qualified under § 5903

“because without the test cells, [petitioners] would not be able to ensure that their

19 Random House Webster’s College Dictionary (1997).

20 Id.

products are adequately controlling, capturing, and removing pollutants from the

air as compared to earlier versions of their vehicles and engines.”21 This

observation misses the mark. The fact that the federal government may require

such pollution control testing equipment has nothing to do with its eligibility for a

tax exemption under Michigan law. The dissent makes a similar analytic mistake,

asserting that the test cells qualify because they “control” pollution “by regulating

the emissions output” and “by curbing the levels of pollutants released into the air

in the first place”; they “capture” pollution by “ensur[ing] that pollutants that

would otherwise have been released into the atmosphere are never produced in the

first place”; and they “remove” pollution “by preventing the pollutants from being

created in the first place.”22 The problem with both of these analyses is that the

test cells, much like Detroit Diesel’s engine line, are not the source of the removal,

control, or capture of pollution as required by the exemption. The testing process

both produces and releases pollution contrary to the requirements of the statute.

The design of the engine, and the engine alone once put into manufacture and sold

in a vehicle, accomplishes the removal, control, and capture of pollution because

such an engine produces less pollution than other models. Without the changes to

the design of the engine, the test cells would accomplish nothing. Because the

statutory language requires the facility to do the removing, controlling, and

21 Ford Motor, supra at 114 (emphasis added).

22 Post at 18.

capturing, and the test cells and the pollution testing equipment in the engine plant

do not remove, control, or capture pollutants, this equipment does not qualify for

the tax exemption. Furthermore, none of the pollution control created by

redesigned engines tested by petitioners is intended to improve the quality of

Michigan’s air. This fact does not trouble the Court of Appeals or the dissent,

which must presume that our Legislature intended a gift from Michigan taxpayers

to the nation by advancing national, rather than local, air quality goals.

Moreover, the Court of Appeals opinion does not directly address the

requirement that a facility must “meet[] the intent and purposes of part 55” of

NREPA.23 A review of the other provisions in part 55 leaves little question that

part 55 regulates the construction and operation of sources of air pollution, and

23 The dissent asserts that the purpose of that part is the prevention and abatement of air pollution. In addition to being overly simplistic, this interpretation, when applied to MCL 324.5903, violates the rule of statutory construction that the Court should not interpret a statute in a way that renders part of it nugatory or mere surplusage. Grimes v Dep’t of Transportation, 475 Mich 72, 89; 715 NW2d 275 (2006). MCL 324.5903 provides: “If the department finds that the facility is designed and operated primarily for the control, capture, and removal of pollutants from the air, and is suitable, reasonably adequate, and meets the intent and purposes of part 55 and rules promulgated under that part, the department shall notify the state tax commission, which shall issue a certificate.” Thus, the statute requires that the “facility” control, capture, and remove pollutants and meet the intent and purposes of part 55. If the dissent is correct that the “intent and purposes” of part 55 are simply the reduction of pollution, then that requirement adds nothing to the first requirement. However, our interpretation that the “intent and purposes” of part 55 are the reduction of pollution at stationary sources adds something to the first requirement, namely a specific source of pollution that is to be targeted.

part 55 itself defines “source” as “a stationary source.”24 The dissent attempts to

overcome this fact by focusing on the definition of “air pollution control

equipment,” MCL 324.5501(c), arguing that because that definition is arguably

broad enough to encompass petitioners’ test cells, the test cells must fall within the

“intent and purposes of part 55.” The dissent’s analysis of the definition of “air

pollution control equipment” must occur in a vacuum to reach its conclusion.25

24 MCL 324.5501(t). The dissent decries our effort to ascertain the intent and purposes of part 55 by considering the whole of part 55. The dissent would prefer to look at one sentence of § 5540 of part 55 that supports the dissent’s result to ascertain the intent and purposes of part 55. The entirety of § 5540 is: It is the purpose of this part to provide additional and cumulative remedies to prevent and abate air pollution. This part does not abridge or alter rights of action or remedies now or hereafter existing. This part or anything done by virtue of this part shall not be construed as estopping persons from the exercise of their respective rights to suppress nuisances or to prevent or abate air pollution. [MCL 324.5540.] The clear import of this section is that part 55 provides additional remedies to the existing remedies for the prevention or control of air pollution, namely private nuisance suits or citizen suits under MCL 324.1701. This section does not stand for the idea that the intent and purposes of part 55 are to control air pollution in all its forms and from any source, as the dissent asserts. The dissent misconstrues the import of this discussion of § 5540. Unlike the dissent, we do not believe that the “intent and purposes” of part 55 are contained solely in § 5540. Instead, as noted, we believe that the entirety of part 55 should be considered to determine its “intent and purposes.” Therefore, we think it is unnecessary “to explain how pollution-control facilities other than the test cells can provide ‘additional remedies’ that the test cells cannot.” Post at 21. 25 Similarly, the dissent has chosen the one subsection of MCL 324.5512(1) that references “mode[s] of transportation” to bolster its conclusion that the test cells meet the intent and purposes of part 55. Unfortunately, most of the subsections of MCL 324.5512(1) deal with “stationary sources” in accordance (continued…)

The air pollution control equipment is only relevant to the control of pollution at

“sources” and in “processes.” A “process” is defined as “an action, operation, or a

series of actions or operations at a source that emits or has the potential to emit an

air contaminant.” MCL 324.5501(p) (emphasis added). Therefore, the fact that,

as the dissent argues, a test cell theoretically qualifies as “air pollution control

equipment” is wholly irrelevant for purposes of part 55 because the test cell has no

effect on air pollution at any source or in any process.

Part 55 provides for permitting, monitoring to ensure compliance,

reporting, and imposing sanctions for violations. Notably, emissions from vessels

and motor vehicles are covered in parts 61, 63, and 65. The inescapable

conclusion is that part 55 serves to regulate air pollution from stationary sources,

while air pollution from mobile sources is covered by other parts of NREPA.

Nothing about the test cells affects air pollution from a stationary source; in fact,

as stated, a test cell itself adds contaminants to the air in its location. If reduction

of vehicle emissions qualifies as meeting the purpose of part 55, then the vehicles

themselves would also qualify. Likewise, any auto repair shop could claim as

(…continued) with the “intent and purposes” of part 55. We are uncertain why the Legislature decided to confer rulemaking authority with regard to modes of transportation in part 55; however, we do not believe that this one subsection alters the fact that the “intent and purposes of part 55 and rules promulgated under that part” are to regulate air pollution from stationary sources. See Mich Admin Code, R 336.1101 et seq.

exempt any equipment it installed to test motor vehicle exhaust for excess

pollution.

The Court of Appeals and the dissent simply fail to give meaning to part

55. In so doing, they have broadly construed this tax statute, contrary to the rule

of construction that exemptions be narrowly construed against the taxpayer;26

distorted the purpose of this tax statute; and awarded taxpayer money to business

entities who fail to abate pollution in this state. In fact, the dissent actively

conflates part 55 with the other parts of NREPA by concluding, “[a]s long as

petitioners sell engines and vehicles in Michigan, thereby reducing harmful

pollution in Michigan, the fact that they also sell engines and vehicles in other

states, thereby reducing pollution in those states as well, does not prevent them

from qualifying for the instant tax exemption.”27

The two published opinions interpreting this part of NREPA support the

conclusion that the exemption does not apply to petitioners’ equipment. In Meijer,

Inc v State Tax Comm,28 the Court of Appeals held that a trash compactor and

baler, which Meijer installed to replace an incinerator that polluted the air when

burning trash from Meijer’s grocery stores, was eligible for the tax exemption

under MCL 336.1 (the predecessor to MCL 324.5901). In the second case, Covert

26 See Wexford Medical Group v City of Cadillac, 474 Mich 192, 207; 713 NW2d 734 (2006), and post at 10-11. 27 Post at 16 n 15. 28 66 Mich App 280; 238 NW2d 582 (1975).

Twp Assessor v State Tax Comm,29 this Court upheld the STC’s grant of a tax

exemption to Consumers Power Company for a nuclear containment building at its

nuclear power plant. Both of these cases concerned sources of pollution that

would have been subject to the regulatory statutes of part 55.

This Court’s decision in Covert interpreted “primary purpose” to mean “the

primary purpose served by the facility for which [the] exemption is sought.”30

While the equipment in Covert was installed pursuant to federal law, this Court

stated that the “purpose served” need not “align with the motivation of” those

installing the facilities.31 Nonetheless, the statute requires that the primary

purpose be the control or disposal of air pollution. The equipment in Covert was

installed to prevent the release of hazardous materials in the event of an accident at

the petitioner’s nuclear facility in this state. Therefore, the primary purpose was

the control of air pollution in the event of an accident. That primary purpose

qualified the equipment for the tax exemption.

Similarly, the “facility” in Meijer, a compactor and baler, actually served

the primary purpose of controlling pollution in Michigan. The Meijer petitioner

installed the compactor and baler to replace its incinerator because the incinerator

produced pollution in excess of the amount allowed under the law. The compactor

29 407 Mich 561; 287 NW2d 895 (1980). 30 Id. at 580. 31 Id. at 580-581.

and baler accomplished the same task as the incinerator but by producing less

pollution.32

Contrary to the Court of Appeals conclusion, the test cells are not

analogous to the compactor and baler because the test cells did not replace a more

polluting testing process. As noted by the Meijer panel, “had no pollution

problem existed, and appellee simply chose the method of waste disposal by

compacting and baling in order to dispose of waste, it would be ineligible for tax

exemption because the necessary element—primary pollution control purposes—

would be lacking.”33 The facilities in the instant case were installed for the

primary purpose of testing engines, which will theoretically produce less pollution

than other engines once put into production. However, petitioners simply chose a

method of testing. They did not install the test cells to replace a process that

accomplishes the same task with more pollution. Thus, the Court of Appeals and

the dissent erroneously relied on Meijer to conclude that ancillary equipment

32 The dissent argues that under our interpretation of MCL 324.5901, the compactor and baler would not qualify as a facility because the equipment simply compresses or bales material. This argument misconstrues both our interpretation and the facts of Meijer. The Meijer petitioner had been disposing of its refuse with an incinerator that produced an abundance of pollution. As noted, the petitioner installed the compactor and baler for the primary purpose of controlling the air pollution produced by its refuse disposal system. Furthermore, when the compactor and baler were operated they actually “controlled, captured, and removed” pollutants at that site. The test cells simply do not perform these functions. Any reduction of pollution that is connected to the test cells is entirely contingent on the redesign and manufacture of the engines and vehicles that may be introduced for future sales across the country. 33 Meijer, supra at 285.

installed primarily for the purpose of testing other equipment also qualifies for the

exemption.

The clear import of these cases and the statute is that the “facility” must

reduce the air pollution caused by the operation of the petitioner’s Michigan site

to qualify for the tax exemption. However, the dissent argues that the reduction of

air pollution caused by the petitioner’s engine products—well after those products

have left the petitioner’s control—can qualify the testing equipment used to

manufacture those products for the exemption. This interpretation expands the

exemption statute far beyond its plain meaning and contrary to any rationale that

our Legislature entertained for affecting this state’s environment.

CONCLUSION

In denying DaimlerChrysler’s application for its Auburn Hills test cell, the

DEQ listed the following “Non-Air Pollution Function(s) of Equipment”: “The

testing of vehicles is one of the manufacturing steps that the applicant takes in

researching, designing, manufacturing, testing, marketing and selling vehicles.”34

In the “comments” section, the DEQ states:

Testing vehicles at the Chrysler Technical Center actually generates and emits air contaminants. None of the requested equipment controls, capture [sic] or removes pollutants generated by the vehicle testing equipment. The applicant has not satisfied its burden of establishing that its described machinery, equipment, structures, or related accessories were installed or acquired and

34 DEQ Tax Exemption Review, December 15, 2003. The DEQ reached the same conclusion with regard to the other petitioners’ test cells.

designed and operated to physically control, dispose, capture, and/or remove air pollutants from the air, that if released would render the air harmful, pursuant to the intent of Sections 5901 and 5903 of Part 59, as separate and distinct from apparent other purposes of measuring, recording and assessing data to determine if a product is fit for continued production or commercial sales, or for other research, manufacturing, marketing or sales purposes. The Department finds that the applicant has not established a primary purpose qualifying for a tax exemption under Part 59.[35]

The DEQ properly applied §§ 5901 and 5903 and concluded that the test cells do

not qualify for a tax exemption. Therefore, we reverse the Court of Appeals and

reinstate the STC’s decision denying petitioners’ request for tax exemptions for

their test cells. However, we affirm the Court of Appeals holding that the Detroit

Diesel Equinox Line was not entitled to a tax exemption and that Detroit Diesel

received due process.

Robert P. Young, Jr. Clifford W. Taylor Michael F. Cavanagh

35 Id.

STATE OF MICHIGAN

SUPREME COURT

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

Appellant.

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

v No. 133406

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

KELLY, J. (concurring in the result).

Justice Young and Justice Weaver disagree about whether the test cells at

Ford Motor Company, DaimlerChrysler Corporation, and Detroit Diesel

Corporation are entitled to tax-exemption certificates. The justices reasonably

apply the statutory language, but reach opposite conclusions. In this situation,

judicial construction should be brought to bear to resolve the issue. When the

applicable canon of interpretation is applied, it becomes apparent that the test cells

are not entitled to tax-exemption certificates. Thus, although I disagree with some

of his reasoning, I concur in the result of Justice Young’s opinion.

In addition, I agree with both Justice Weaver and Justice Young that the

Detroit Diesel Corporation engine production equipment is not entitled to a tax-

exemption certificate. Finally, I agree that the corporation received a full hearing

before the STC that satisfied its due process rights.

THE TWO-PART TEST OF NREPA

The issue that divides Justice Young and Justice Weaver is whether the test

cells qualify for tax-exemption certificates under part 59 of the Natural Resources

and Environmental Protection Act (NREPA).1 For purposes of this case, the key

provisions of part 59 are §§ 5901 and 5903. Section 5901 sets forth the definition

of “facility.” It provides in relevant part:

As used in this part, “facility” means machinery, equipment, structures, or any part or accessories of machinery, equipment, or structures, installed or acquired for the primary purpose of controlling or disposing of air pollution that if released would render the air harmful or inimical to the public health or to property within this state. . . .

Section 5903 explains when a “facility” is entitled to a tax-exemption

certificate. It states:

If the department finds that the facility is designed and operated primarily for the control, capture, and removal of pollutants from the air, and is suitable, reasonably adequate, and meets the intent and purposes of part 55 and rules promulgated under that part, the department shall notify the state tax commission, which shall issue a certificate. The effective date of the certificate is the date on which the certificate is issued.

Using these statutes, a two-part test must be applied to determine whether

the test cells are entitled to tax-exemption certificates. First, the test cells must

qualify as a “facility” under § 5901. Second, the “facility” must meet the

additional requirements set forth in § 5903.

SECTION 5901

With respect to the first consideration, the test cells are facilities if they are

(1) machinery, equipment, structures, or any part or accessories of machinery,

equipment, or structures and (2) installed or acquired for the primary purpose of

1 MCL 324.5901 et seq.

controlling or disposing of air pollution (3) that if released would render the air

harmful or inimical to the public health or to property within this state. It is

uncontested that the test cells are machinery, equipment, or structures. The

dispute is over the other two statutory requirements.

Respondents argue that the test cells were not installed or acquired for the

primary purpose of controlling or disposing of air pollution. I disagree.

Petitioners installed the test cells solely to comply with pollution laws. The test

cells have no other purpose. Were it not for pollution laws, petitioners could build

their products without the need for test cells. In fact, it would be cheaper for them

to do so. Thus, it seems clear to me that the primary purpose of installing test cells

was to control air pollution.

Respondents also argue that the test cells do not qualify as facilities because

their primary purpose is not to control or dispose of pollution within Michigan. I

reject this argument because the statute does not require that the primary purpose

of the equipment be to improve air quality in Michigan. Instead, the statutory

command is satisfied if the pollution that the equipment is concerned with

controlling or disposing of, if released, would “render the air harmful or inimical

to the public health or to property within this state.” The command is satisfied

here. If the pollutants that the test cells are concerned with controlling were

released into the air, they would be harmful to the public health and property

within the state.

Finally, respondents argue that the test cells are not facilities because they

create a small amount of pollution. This fact is irrelevant. The test cells are

facilities if their primary purpose is controlling or disposing of pollutants that, if

released, would be harmful to the public health and property within this state.

These requirements are satisfied.

SECTION 5903

The next step of the inquiry is to determine if the test-cell facilities meet the

requirements of § 5903. A facility is entitled to a tax-exemption certificate under

this section if it is (1) designed and operated primarily for the control, capture, and

removal of pollutants from the air, (2) suitable, reasonably adequate, and (3) meets

the intent and purposes of part 55 of the act.

Notably, § 5903 requires the “facility” to be “designed and operated

primarily for the control, capture, and removal of pollutants from the air.” This

differs from § 5901, which requires the test cells to be “installed or acquired for

the primary purpose of controlling or disposing of air pollution.” It must be

assumed that this difference in wording is purposeful. As a result, § 5903 imposes

a more stringent requirement than § 5901. Accordingly, it does not follow from

the fact that the test cells qualify as “facilities” that they are “designed and

operated primarily for the control, capture, and removal of pollutants from the

air.”

The test cells do not actually remove pollution that is already in the air.

Instead, they are part of a process that reduces the amount of pollution in the air by

preventing the creation of pollutants. Because the test cells are not concerned with

pollutants that are already in the air, it can be argued that the test cells are not

“designed and operated primarily for the control, capture, and removal of

pollutants from the air.” There is some merit to this argument. Accordingly, I

believe that it is reasonable to decide that the test cells do not qualify for tax-

exemption certificates. This is the result reached by Justice Young.

On the other hand, the test cells are operated solely in an effort to comply

with federal pollution standards. By complying with these standards, the quantity

of pollutants in the air is reduced. Considering that the test cells are part of a

process that eliminates the creation of pollutants, they remove pollutants that

would otherwise be in the air. The statute does not explicitly require the facility to

remove pollutants that are already in the air. Hence, I believe that it is also

reasonable to decide that the facilities are entitled to tax-exemption certificates.

Justice Weaver reaches this conclusion.

Because I believe that both Justice Young’s and Justice Weaver’s

constructions of the statute are reasonable, I conclude that the correct application

of the statute to the facts of this case is uncertain. As a consequence, the statute is

ambiguous.2 The remaining provisions of NREPA do not clarify this ambiguity.

2 A statute is ambiguous when its application to the facts of the case is uncertain. Elias Bros Restaurants, Inc v Treasury Dep’t, 452 Mich 144, 150; 549 NW2d 837 (1996).

Accordingly, I conclude that it is appropriate to turn to sources outside the

statutory language to resolve the case.

THE EFFECT OF DEQ RULINGS AND CASELAW

Both sides claim that the rule that deference is owed to administrative

interpretations supports their position. The Department of Environmental Quality

(DEQ), which is authorized to determine eligibility for part 59 tax exemptions,

decided that the test cells at issue are not entitled to tax-exemption certificates.

However, this decision is inconsistent with at least one recent DEQ decision that

granted a tax-exemption certificate to a test-cell facility. Accordingly, because the

DEQ’s current interpretation is inconsistent with another of its recent

interpretations, it does not weigh heavily in favor of either position.

The parties also identify prior published court opinions interpreting part 59

as supporting their positions. But these opinions do not resolve the present case.

In Covert Twp Assessor v State Tax Comm,3 the facilities at issue controlled,

captured, and removed discharges resulting from a nuclear accident.4

Accordingly, the facilities’ primary concern was with pollutants that had already

been created. This differs from the test cells involved here that have a goal of

preventing pollutants from ever being created. Thus, that case is not on point

because the facts were materially different. The other case, Meijer, Inc v State Tax

3 Covert Twp Assessor v State Tax Comm, 407 Mich 561; 287 NW2d 895 (1980). 4 Id. at 580.

Comm,5 is also not directly on point. Furthermore, it is a Court of Appeals

decision. As such, it is not binding on this Court.

Finally, we are directed to decisions of other states interpreting their tax-

exemption statutes. Given that these cases involve statutes that differ from

Michigan’s statutes, I find them of little assistance in determing the proper

interpretation of the Michigan statute.

THE CANONS OF STATUTORY CONSTRUCTION

Because I cannot resolve the issue using the statute’s language alone and

the other sources I have mentioned do not point in either direction, I turn to the

canons of construction. Most applicable is the well-established canon that tax

exemptions are to be strictly construed.6 When this canon is applied, test-cell

facilities are exempt from taxation only if the statutory language does not allow

another construction. But another construction is not only possible, but

reasonable. As a result, I conclude that the test cells are not entitled to tax-

exemption certificates.

I conclude that the test cells qualify as facilities under § 5901, but that the

correct application of § 5903 is unclear. DEQ rulings and existing caselaw are not

5 Meijer, Inc v State Tax Comm, 66 Mich App 280; 238 NW2d 582 (1975). 6 See, e.g., East Saginaw Mfg Co v East Saginaw, 19 Mich 259, 279 (1869); Michigan United Conservation Clubs v Lansing Twp, 423 Mich 661, 664; 378 NW2d 737 (1985).

dispositive of the issue. As a result, I engage in judicial construction to determine

whether the facilities are entitled to tax-exemption certificates.

The appropriate canon of construction is that tax exemptions are to be

strictly construed. By strictly construing the exemption in question, I conclude

that the test-cell facilities are not entitled to tax-exemption certificates. As a

consequence, I concur with Justice Young’s resolution of this issue. I also agree

that Detroit Diesel’s engine line is not eligible for the tax exemption. Therefore, I

agree with Justice Young that the Court of Appeals decision should be partially

affirmed and partially reversed.

Marilyn Kelly

DAIMLERCHRYSLER CORP,

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

Respondents-Appellees, and

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

v No. 133400-02

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

Respondents-Appellants, and

Petitioner-Appellee/Cross-

Appellant,

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

Respondents-Appellants/Cross- Appellees, and

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY

Respondent-Appellants,

DAIMLERCHRYSLER CORPORATION, Petitioner-Appellee/Cross- Appellant,

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

DAIMLERCHRYSLER CORPORATION, Petitioner-Appellee,

STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY,

WEAVER, J. (concurring in part and dissenting in part).

I concur with the lead opinion’s holding that Detroit Diesel’s Equinox Line

does not qualify for tax exemptions under part 59 of the Natural Resources and

Environmental Protection Act (NREPA)1 because the Equinox Line was not

installed for the primary purpose of controlling or disposing of air pollution, but

was instead installed for the primary purpose of producing a new type of vehicle

engine for sale. However, I dissent from the lead opinion’s holding that

petitioners’ test-cell facilities do not qualify for tax exemption under part 59. I

would affirm the Court of Appeals and hold that petitioners’ test-cell facilities

qualify for tax exemptions under part 59 because they meet the definition of

“facility” in MCL 324.5901 and, under MCL 324.5903, are “designed and

operated primarily for the control, capture, and removal of pollutants from the

air,” are “suitable” or “reasonably adequate” at abating air pollution, and “meet the

intent and purposes of part 55” of NREPA, MCL 324.5501 et seq., which

regulates air pollution.

I. FACTS AND PROCEEDINGS

The material facts in these seven consolidated cases are undisputed.

Petitioners, Ford Motor Company, DaimlerChrysler, and Detroit Diesel,

manufacture motor vehicles and engines. Petitioners’ vehicles and engines are

subject to federal air-quality regulations promulgated by the Environmental

Protection Agency (EPA).2 The vehicles and engines must pass EPA-mandated

emissions tests before the vehicles and engines can be mass-produced and sold to

consumers. Each of the petitioners established “test cell” facilities designed to test

vehicle and engine emissions to ensure compliance with EPA regulations. In the

test cells, vehicles and engines are placed in a closed room or a bay with a hose

attached to the exhaust pipe. While the vehicle or engine is emitting exhaust,

samples of the exhaust are sent through devices that measure the emissions and

determine whether those emissions comply with federal regulations. The test cells

then release the tested emissions into the air.

In addition to a test-cell facility, Detroit Diesel built its Equinox Line

facility after its existing Series 60 diesel engine failed to meet the newly enacted

EPA emission standards. The Equinox Line facility was designed to manufacture

new diesel engines that meet the newest federal pollution-control standards. In

October 2002, after Detroit Diesel made significant design changes to the original

2 See 42 USC 7401 et seq.

Series 60 engine, Detroit Diesel’s new Equinox Line of diesel engines obtained

EPA certification.

In 2001, Ford Motor Company filed for tax exemptions for test cells and

equipment under part 59 of NREPA,3 which permits tax exemptions for certain

facilities that reduce air pollution. This application was granted by the State Tax

Commission (STC) after review and approval by the Michigan Department of

Environmental Quality (DEQ). In 2003 and 2004, Ford, DaimlerChrysler, and

Detroit Diesel filed for multiple exemptions under part 59 for similar test-cell

facilities located around the state. Additionally, in 2003 Detroit Diesel applied for

tax exemptions for its Equinox Line facility. The STC referred the exemption

requests to the DEQ, which concluded that the test-cell facilities and the Equinox

Line facility did not meet the requirements for a part 59 tax exemption.

The DEQ concluded that the primary purpose of the test cells was to enable

petitioners to sell their vehicles by complying with federal law, not to reduce

pollution. The DEQ explained that the test cells did not qualify for the exemption

because they did not physically remove or control pollution, but rather actually

created pollution during the testing process. In regard to Detroit Diesel’s Equinox

Line, the DEQ determined that it was not a qualifying facility under part 59

because its primary purpose was “to manufacture diesel engines for sale by Detroit

Diesel.” The DEQ determined that because the air emissions from the Equinox

3 MCL 324.5901 et seq.

Line manufacturing facility were not significantly different from those emitted by

the Series 60 facility, the Equinox Line did not qualify as a “process change”

under part 59 that met the goal of reducing pollution. As a result, the STC rejected

the tax exemption requests for the test-cell facilities and the Equinox Line facility.

In separate lawsuits, petitioners appealed to various circuit courts. In

Ford’s suits, the Wayne Circuit Court reversed the STC’s denials of the tax-

exemption applications, ruling that the court was constrained by Meijer, Inc v

State Tax Comm, 66 Mich App 280; 238 NW2d 582 (1975), to conclude that the

test-cell facilities met the part 59 requirements because they were ancillary

equipment for the control of pollution. The city of Dearborn, an intervening

respondent, filed four separate applications in the Court of Appeals, arguing that

the circuit court had improperly overturned fact-finding of the administrative

agency.

In Detroit Diesel’s suit, the Wayne Circuit Court affirmed the STC’s

decision because there was competent, material, and substantial evidence

supporting the STC’s conclusion that the test cells and the Equinox Line do not

actually remove pollution, but rather operate for the primary purpose of producing

engines for sale. Detroit Diesel applied for leave to appeal in the Court of

Appeals.

In DaimlerChrysler’s suits, the Oakland Circuit Court affirmed the STC’s

decisions, holding that there was competent, material, and substantial evidence for

the STC’s conclusion that the test cells do not actually remove pollution and that

the primary purpose for the test cells was to ensure that DaimlerChrysler’s

vehicles were sellable. DaimlerChrysler applied for leave to appeal in the Court of

The Court of Appeals issued an order consolidating all the appeals. The

Court of Appeals, in a published opinion, held that all the test-cell facilities met

the requirements of the part 59 tax exemption as a matter of law, but that Detroit

Diesel’s Equinox Line facility did not.4 The panel concluded that the test cells

qualified for tax-exemption certificates because petitioners installed the test cells

solely to ensure compliance with EPA emission standards. Thus, the test cells

were installed for the primary purpose of controlling or disposing of air pollution

and were designed and operated primarily for the control, capture, and removal of

pollutants from the air. The panel held that Detroit Diesel’s Equinox Line did not

meet the requirements of part 59 because it was operated primarily for production

of a new type of engine for sale, not for the control, capture, or removal of

pollutants in the air. The Court of Appeals also rejected Detroit Diesel’s claims

that the STC’s hearing process violated the Administrative Procedures Act (APA),

MCL 24.201 et seq., and due-process principles.

The DEQ and the STC filed separate applications for leave to appeal in

each case. Detroit Diesel cross-appealed. The city of Auburn Hills appealed the

4 Ford Motor Co v State Tax Comm, 274 Mich App 108; 732 NW2d 591 (2007).

decision regarding DaimlerChrysler’s Auburn Hills test cell, and the city of

Dearborn appealed the decision involving Ford’s Dearborn test cell. This Court

granted all the applications for leave to appeal or cross-appeal.5

II. STANDARD OF REVIEW

This case involves the interpretation of part 59 of NREPA. This Court

reviews questions of statutory interpretation de novo.6 Clear and unambiguous

statutory language is given its plain meaning and is enforced as written.7

Further, this case involves review of the STC and DEQ’s interpretation and

application of part 59. This Court reviews final decisions from administrative

agencies by determining whether they are authorized by law and whether they are

supported by competent, material, and substantial evidence on the whole record.8

Although this Court affords respectful consideration to the construction of

statutory provisions by any particular department of the government, the

department’s interpretation is not binding on this Court and cannot be used to

5 DaimlerChrysler Corp v State Tax Comm, 480 Mich 880 (2007). 6 Ayar v Foodland Distributors, 472 Mich 713, 715; 698 NW2d 875 (2005). 7 Id. at 716. 8 Reed v Hurley Medical Ctr, 153 Mich App 71, 75; 395 NW2d 12 (1986); MCL 24.306.

overcome the statute’s unambiguous meaning.9 Furthermore, this Court owes no

deference to an agency determination when an agency issues contradictory rulings

on the same issue and changes its policy mid-course, as the DEQ has in this case.

“‘Substantial evidence’ is evidence that a reasonable person would accept as

sufficient to support a conclusion. While this requires more than a scintilla of

evidence, it may be substantially less than a preponderance.”10

III. PART 59 TAX EXEMPTIONS

Part 59 of NREPA provides real property, personal property, sales, and use

tax exemptions for certain facilities designed to reduce air pollutants. Tax

9 Catalina Marketing Sales Corp v Dep’t of Treasury, 470 Mich 13, 23-24; 678 NW2d 619 (2004). 10 Dep’t of Community Health v Risch, 274 Mich App 365, 372-373; 733 NW2d 403 (2007) (citation and quotation marks omitted). The city of Dearborn argues in its application that the STC’s decision to deny Ford’s application for a tax exemption was supported by competent, material, and substantial evidence on the record and should therefore not be disturbed on appeal. We reject this argument because it is based on the incorrect assumption that the circuit court reversed the STC on a purely factual basis, instead of a legal one. On appeal, the Court of Appeals did not consider whether the STC’s decision to deny Ford’s application for a tax exemption was unsupported by factual evidence. Rather, the Court of Appeals held that the STC’s legal rulings were erroneous as a matter of law. Under MCL 24.306 of the APA, a reviewing court can set aside the STC’s decision on a legal basis or on a factual basis if the facts are not supported by competent, material, and substantial evidence. Therefore, the Court of Appeals was free to rule that the STC’s decision was legally erroneous, even if it was supported by competent, material, and substantial evidence.

exemptions are strictly construed against the taxpayer.11 However, the Court

interprets the statutory language creating the tax exemption according to common

and approved usage.12 In order to qualify for the tax exemptions under part 59, the

property in question must first meet the definition of “facility” in part 59. Part 59

defines “facility” as follows:

[M]achinery, equipment, structures, or any part or accessories of machinery, equipment, or structures, installed or acquired for the primary purpose of controlling or disposing of air pollution that if released would render the air harmful or inimical to the public health or to property within this state. Facility includes an incinerator equipped with a pollution abatement device in effective operation. Facility does not include an air conditioner, dust collector, fan, or other similar facility for the benefit of personnel or of a business. Facility also means the following, if the installation was completed on or after July 23, 1965: (a) Conversion or modification of a fuel burning system to effect air pollution control. The fuel burner portion only of the system is eligible for tax exemption. (b) Installation of a new fuel burning system to effect air pollution control. The fuel burner portion only of the system is eligible for tax exemption. (c) A process change involving production equipment made to satisfy the requirements of part 55 and rules promulgated under that part. The maximum cost allowed shall be 25% of the cost of the new process unit but shall not exceed the cost of the conventional control equipment applied on the basis of the new process production rate on the preexisting process. [MCL 324.5901 (emphasis added).]

11 Elias Bros Restaurants, Inc v Dep’t of Treasury, 452 Mich 144, 150; 549 NW2d 837 (1996). 12 Id.

After property has been designated as a facility under MCL 324.5901, the

facility must meet the following further requirements in order to qualify for tax

exemptions:

If the department finds that the facility is designed and operated primarily for the control, capture, and removal of pollutants from the air, and is suitable, reasonably adequate, and meets the intent and purposes of part 55 and rules promulgated under that part, the department shall notify the state tax commission, which shall issue a certificate. . . . [MCL 324.5903.] Therefore, property must meet the definition of “facility” under MCL 324.5901,

and, under MCL 324.5903, (1) be “designed and operated primarily for the

control, capture, and removal of pollutants from the air,” (2) be “suitable,

reasonably adequate,” and (3) “meet the intent and purposes of part 55” in order to

qualify for tax exemptions under part 59.

A. TEST-CELL FACILITIES

I dissent from the lead opinion, and would hold that the petitioners’ test-cell

facilities qualify for tax exemptions under part 59. In order to determine whether

the petitioners’ test-cell facilities qualify for tax exemptions, it is necessary to first

determine whether the test-cell facilities are “facilities” under MCL 324.5901.

MCL 324.5901 unambiguously defines a facility as including “machinery,

equipment, structures, or any part or accessories of machinery, equipment, or

structures, installed or acquired for the primary purpose of controlling or

disposing of air pollution that if released would render the air harmful or inimical

to the public health or to property within this state.” (Emphasis added.)

Accordingly, it is necessary to determine whether the test cells were

installed or acquired for the primary purpose of controlling or disposing of air

pollution in Michigan. An ordinary meaning of “control” means to “exercise

restraint or direction over; dominate, regulate, or command; to hold in check;

curb.”13 It is undisputed that petitioners installed and operated the test cells for the

sole purpose of regulating emissions to meet federal standards and curb emissions

output in the engines and vehicles produced. Regulating and curbing emissions is

thus a method of controlling emissions.

The STC and the DEQ argue that petitioners did not install the test cells

with the primary motive of controlling emissions because the test cells were

installed to create vehicles conforming to EPA regulations. However, the

petitioners’ motive behind installing the test cells is not determinative of the

primary purpose of the test cells. It is immaterial that the test cells were created so

that the petitioners’ engine and vehicle emissions would satisfy federal emissions

regulations:

The use of the words “primary purpose” in § 1 [now MCL 324.5901], and “operated primarily for” in § 3 [now MCL 324.5903] of the Air Exemption Act [now part 59] evidences a legislative concern with the primary purpose served by the facility for which exemption is sought. This purpose need not, necessarily, align with

13 Webster’s Universal College Dictionary (1997).

the motivation of the persons installing, acquiring or operating the facilities.[14] The test cells primarily operate to regulate and reduce air pollutants; for tax-

exemption purposes, it does not matter why the test cells were implemented.

The STC and the DEQ additionally argue that the test-cell facilities are not

“facilities” under MCL 324.5901 because the test-cell facilities actually create a

small amount of pollution through the testing process. This creation of a small

amount of pollution does not, however, alter the primary purpose of the test cells,

which is to control pollution through prevention. As petitioners point out, many

pollution-control machines also create pollution. For example, mechanical balers

and compactors, such as those in Meijer, supra, release some exhaust during

recycling operations.

The STC and the DEQ also argue that the clause “within this state” in MCL

324.5901 bars tax exemption for petitioners because the exhaust emissions that the

test cells reduce are released primarily outside Michigan. This argument is

unpersuasive. First, the STC and the DEQ did not preserve this issue for appeal

because they did not raise and argue it before the Court of Appeals. Furthermore,

the phrase “within this state” modifies the conjoined phrases “to the public health

or to property,” not “the primary purpose of controlling air pollution.” In other

words, the statute merely requires that the “primary purpose” of the machinery

14 Covert Twp Assessor v State Tax Comm, 407 Mich 561, 580-581; 287 NW2d 895 (1980).

installed be to “control . . . air pollution,” not to specifically control air pollution

that would be released primarily within this state, as the STC and the DEQ argue.

The statute then refines the category of “air pollution” to refer to a subcategory of

pollution “that if released would render the air harmful or inimical to the public

health or to property within this state.” This phrase indicates that if the pollution

that has been controlled were to be released, that pollution must be of the type that

would be harmful to public health or property in Michigan in order for machinery

that controls such air pollution to qualify as a “facility.” Thus, if the test cells at

issue were installed for the primary purpose of controlling air pollution, and if the

release of the controlled air pollution would render the air harmful to public health

or property within Michigan, then the test cells qualify as a “facility.” Here, the

primary purpose of the test cells is to reduce air pollution by testing the emissions

released by vehicles. Moreover, there is no question that vehicles and engines

manufactured by the petitioners are sold in Michigan, and that the pollution

controlled by the test cells is harmful to the public health. It stands to reason then

that the vehicles and engines sold in Michigan emit fewer noxious pollutants into

Michigan’s atmosphere than they would have released without the test cells.

Therefore, the test cells control air pollution that, if released, “would render the air

harmful or inimical to the public health or to property within this state.”

Accordingly, the test cells are “facilities” under MCL 324.5901.15

15 MCL 324.5901 does not require that pollution be reduced solely within (continued…)

Petitioners’ test-cell facilities were installed or acquired for the primary

purpose of controlling or disposing of air pollution in Michigan because the test

cells curb the spread of air pollution by ensuring that less pollution is released into

the atmosphere in the first place; therefore, the test-cell facilities are “facilities”

under MCL 324.5901.

The lead opinion argues that the test cells are not “facilities” because their

primary purpose is to “test engines to ensure that petitioners have properly

designed their engines to meet federal regulations so that they can sell them to

consumers.” Ante at 10. However, this argument does not consider that without

the federally mandated pollution regulations, petitioners would not need or have

test cells, but would continue to operate without them. As petitioners point out,

the test cells do not benefit petitioners’ businesses because conformance with EPA

regulations increases expenses, resulting in higher vehicle and engine prices and

reduced sales. Thus, the test cells were not installed to foster sales. Further, every

business must comply with federal pollution regulations and every business is

trying to sell something. Under the lead opinion’s interpretation, it appears that

any business that complies with federal regulations is not entitled to a Michigan

tax exemption because it could always be said that the business complied with

(…continued) Michigan. As long as petitioners sell engines and vehicles in Michigan, thereby reducing harmful pollution in Michigan, the fact that they also sell engines and vehicles in other states, thereby reducing pollution in those states as well, does not prevent them from qualifying for the instant tax exemption.

federal regulations merely to sell its product to consumers. Under the lead

opinion’s interpretation, the only way a business would be entitled to a tax

exemption is by philanthropically installing pollution-control equipment.

The test cells perform a fundamental function in the air-pollution-control

process. They measure the levels of pollution emitted by engines in order to

assure compliance with air-pollution regulations. If these levels of pollution

exceed limits, the engines are not manufactured or sold, thereby curtailing

excessive air pollution. Without the test cells, petitioners would be unable to

ensure that their products are less polluting. Because testing emissions is an

essential component of “controlling or disposing of air pollution,” and because the

test cells were installed specifically to test pollution, the test cells can fairly be

characterized as having been installed for “the primary purpose of controlling or

disposing of air pollution” under MCL 324.5901. Moreover, under the lead

opinion’s analysis, even compactors or balers, which were specifically held to

qualify as “facilities” in Meijer, supra at 284, a decision with which the lead

opinion apparently agrees, ante at 17-18, would not qualify as such because their

“primary purpose” is to compress or bale material, rather than to “control”

Next, in order to qualify for tax exemptions under part 59, petitioners’ test-

cell facilities must meet the requirements of MCL 324.5903. First, the test cells

must be designed and operated primarily for the control, capture, and removal of

pollutants from the air. In this case, the test cells were created for the sole purpose

of reducing air pollutants emitted by the petitioners’ vehicles and engines, so that

is the cells’ primary purpose.

As discussed earlier, the test cells control air pollutants directly by

regulating the emissions output, and indirectly by curbing the levels of pollutants

released into the air in the first place. The test cells also capture and remove

pollutants from the atmosphere. An ordinary meaning of “capture” is “to gain

control of or exert influence over.”16 Again, by regulating and curbing emissions,

the test cells ensure that pollutants that would otherwise have been released into

the atmosphere are never produced in the first place and thus control pollutants.

An ordinary meaning of “remove” is “to move or shift from a place or position; to

eliminate; do away with or put an end to.”17 The test cells “eliminate” or “put an

end to” air pollutants by preventing the pollutants from being created in the first

place; were it not for the test cells, the abated pollutants would be in the

atmosphere. Thus, the test cells operate primarily for the control, capture, and

removal of air pollutants from the air.

Next, the test cells must be suitable and reasonably adequate for the

purpose of reducing air pollutants and must also meet the intent and purposes of

part 55 of NREPA to qualify for tax exemptions. “The suitability and

16 Random House Webster’s College Dictionary (1997).

17 Id.

adequacy . . . can be, and are, measured and tested through non-empirical studies

based on accepted scientific principles and sound analysis. . . . [T]he resolution of

this question is particularly well-suited to the expertise of the administrative

agencies charged with assessing the technical suitability and adequacy of facilities

for which exemption is sought.”18 It is undisputed that the test cells function to

help petitioners reduce and regulate the air pollutants that their vehicles and

engines ultimately emit in order to meet federal standards. As a result, the test

cells are suitable and reasonably adequate for the purpose of reducing noxious air

pollutants.

The purpose of part 55, by its own terms, is “to provide additional and

cumulative remedies to prevent and abate air pollution.” The test cells, by

ensuring that vehicle and engine emissions are clean enough to pass federal

emissions standards, are designed to prevent and abate air pollution. Although the

test cells were installed to ensure compliance with federal emissions regulations,

they nonetheless accomplish the purpose of part 55—to prevent and abate air

pollution. The test cells meet the intent and purposes of part 55 of NREPA

because the test cells function to prevent and abate noxious air pollutants.19

18 Covert Twp, 407 Mich at 582. 19 Covert Twp agreed with the STC’s holding that the intent and purposes of the predecessor to part 55 “‘are served by pollution control facilities constructed within the State of Michigan whether required by reason of federal or state regulation. . . . It is the fact that pollution control is provided that is important and (continued…)

Petitioners’ test-cell facilities qualify for tax exemptions under part 59

because they meet the definition of “facility” in MCL 324.5901 and, under MCL

324.5903, are “designed and operated primarily for the control, capture, and

removal of pollutants from the air,” are “suitable” or “reasonably adequate” at

abating air pollution, and “meet the intent and purposes of part 55.”

The lead opinion argues that the test cells do not meet the requirements of

MCL 324.5903 because they do not actually remove, control, and capture

pollution caused by the operation of petitioners’ businesses. Ante at 11-13. I

disagree. The statute does not require that the exempt equipment itself physically

remove air pollutants; rather, it merely requires that it be intended and operated

primarily for that purpose. Moreover, the statute does not require that the

pollution removed by the exempt equipment be that created by the operation of

petitioners’ businesses; rather, the statute only refers to air pollution generally,

without specifying any particular source of pollution. As explained earlier, the test

cells here were intended primarily for, and functioned as, integral parts of a

pollution-control process designed to regulate and curb air pollution produced by

petitioners’ engines and vehicles. Therefore, the test cells were “designed and

operated primarily for the control, capture, and removal of pollutants from the

(…continued)

not whether that pollution control is provided in response to state or federal

regulation.’” Id. at 579 (emphasis in original).

The lead opinion also sua sponte injects the argument that in order for a

facility to meet the intent and purposes of part 55, it must regulate a “source” of

pollution as defined by MCL 324.5501(t). Ante at 13-14. The lead opinion

attempts to extrapolate the intent and purposes of “the whole of part 55,” ante at

13 n 23, by putting together bits and pieces of part 55. This method is flawed.

MCL 324.5540 clearly and unambiguously states the purpose of part 55:

It is the purpose of this part to provide additional and cumulative remedies to prevent and abate air pollution. This part does not abridge or alter rights of action or remedies now or hereafter existing. This part or anything done by virtue of this part shall not be construed as estopping persons from the exercise of their respective rights to suppress nuisances or to prevent or abate air pollution.

We give this language its plain meaning and enforce it as written. Ayar v

Foodland Distributors, 472 Mich 713, 715; 698 NW2d 875 (2005). The title and

declared purpose of part 55 refer to air-pollution control generally. The lead

opinion wrongly argues that the intent and purposes of part 55 are not to prevent

and abate air pollution generally, but instead to provide remedies in addition to

private or citizen suits related to pollution control. Under the lead opinion’s faulty

interpretation of the intent of part 55, only facilities that provide “additional

remedies” would be eligible for a tax exemption under MCL 324.5903. The lead

opinion fails to explain how pollution-control facilities other than the test cells can

provide “additional remedies” that the test cells cannot.

Moreover, although part 55 mainly deals with stationary sources, this fact is

not dispositive because part 55 also refers to nonstationary sources used for

transportation.20 The lead opinion discusses part 55’s definition of “source” in a

vacuum, while ignoring the other defined terms in part 55. For example, part 55

also governs “process equipment,” which it defines as “all equipment, devices, and

auxiliary components, including air pollution control equipment, stacks, and other

emission points, used in a process.” MCL 324.5501(q) (emphasis added). Part 55

defines “air pollution control equipment” as “any method, process, or equipment

that removes, reduces, or renders less noxious air contaminants discharged into the

atmosphere.” MCL 324.5501(c). Test cells arguably qualify as “air pollution

control equipment” because they ensure that vehicles and engines do not exceed

federal emissions standards, thus reducing air contaminants discharged into the

atmosphere. The important point, however, is that the lead opinion identifies no

language from part 55 or elsewhere stating that the “intent and purposes” of part

55 are to regulate pollution exclusively from “sources.”

20 See, e.g., MCL 324.5501(b) (“With respect to any mode of transportation, nothing in this part or in the rules promulgated under this part shall be inconsistent with the federal regulations, emission limits . . . .”); MCL 324.5513 (“Notwithstanding any other provision of this part or the rules promulgated under this part, car ferries having the capacity to carry more than 110 motor vehicles and coal-fueled trains used in connection with tourism or an historical museum or carrying works of art or items of historical interest are not subject to regulation under this part.”); MCL 324.5512(1) (“The department shall promulgate rules for purposes of doing all of the following: . . . (c) Controlling any mode of transportation that is capable of causing or contributing to air pollution.”

Even if the lead opinion were correct that part 55 exclusively governs

“sources,” this would not preclude the test cells from meeting the intent and

purposes of part 55. The lead opinion neglects to quote the following part of the

definition of “source” in part 55: “A source includes all the processes and process

equipment under common control that are located within a contiguous area, or a

smaller group of processes and process equipment as requested by the owner or

operator of the source, if in accordance with the clean air act.” MCL 324.5501(t)

(emphasis added). As discussed earlier, because a test cell qualifies as “air

pollution control equipment,” it also qualifies as “process equipment,” and

accordingly as a “source” as defined by part 55.

The lead opinion’s argument that part 55 is not intended to reduce motor-

vehicle emissions because those emissions are covered by parts 61, 63, and 65 is

misplaced. Ante at 15. Part 61 is not applicable because it merely prohibits

marine vessels from blowing flues under certain conditions. Parts 63 and 65

include procedures for requiring certain motor vehicles in west and southeast

Michigan that are more than one year old to be periodically inspected for

emissions and obtain a certificate of compliance that would be necessary for

registration renewal. Parts 63 and 65 do not include emissions standards for

motor-vehicle engines during the design, manufacture, and sale stages, but only

ensure that certain vehicles, which satisfy emissions standards when initially

purchased, maintain a minimum level of emissions after one year on the road.

Further, parts 63 and 65 do not currently even regulate motor-vehicle emissions in

west and southeast Michigan because those parts of the state have apparently

attained the national ambient air quality standards for ozone. See MCL

324.6306(2); MCL 324.6507(2). In sum, parts 61, 63, and 65 in no way detract

from the intent and purposes of part 55, which are to generally prevent and abate

air pollution, including by reducing that air pollution from motor-vehicle engines

by regulating their design and manufacture before sale.

The lead opinion also ignores the provision that a facility qualifies for a tax

exemption only if it “meets the intent and purposes of part 55 and rules

promulgated under that part . . . .” MCL 324.5903 (emphasis added). Reading

the “intent and purposes” language in context with the “rules promulgated”

language21 makes it clear that one of the intents and purposes of part 55 is to

reduce pollution from motor vehicles. Part 55 expressly provides that “[t]he

department shall promulgate rules for the purpose of doing all of the

following: . . . (c) Controlling any mode of transportation that is capable of

causing or contributing to air pollution.” MCL 324.5512(1)(c) (emphasis added).

This provision supports the conclusion that the intent of part 55 is not confined to

the reduction of pollution from stationary sources. Thus, the test cells both meet

21 This Court must consider “both the plain meaning of the critical word or phrase as well as ‘its placement and purpose in the statutory scheme.’” Sun Valley Foods Co v Ward, 460 Mich 230, 237; 596 NW2d 119 (1999), quoting Bailey v United States, 516 US 137, 145; 116 S Ct 501; 133 L Ed 2d 472 (1995).

the intent and purposes of part 55 and comply with the rules promulgated under

part 55 governing pollution created by motor vehicles.

Moreover, the lead opinion errs by stating that our interpretation renders

part of MCL 324.5903 “nugatory or mere surplusage.” Ante at 13 n 23. MCL

324.5903 requires that the “facility” be “designed and operated primarily for the

control, capture, and removal of pollutants from the air, and [be] suitable,

reasonably adequate, and meet[] the intent and purposes of part 55,” which are “to

prevent and abate air pollution,” MCL 324.5540. The lead opinion argues that if

“the ‘intent and purposes’ of part 55 are simply the reduction of air pollution, then

[the second requirement of MCL 324.5903, that the facility meet this purpose,]

adds nothing to the first requirement [of MCL 324.5903, that the facility control,

capture, and remove pollutants from the air].” Ante at 13 n 23. I respectfully

disagree. The second requirement indicates the purpose of the “facility,” i.e., “to

prevent and abate air pollution,” while the first requirement describes the means

by which this purpose is to be achieved, i.e., by “control[ing], captur[ing], and

remov[ing] pollutants from the air.” Thus, this interpretation does not render any

part of this statute “nugatory or mere surplusage.”

B. DETROIT DIESEL’S EQUINOX LINE FACILITY

I concur with the lead opinion’s holding that Detroit Diesel’s Equinox Line

facility does not qualify for tax exemptions under part 59 because the primary

purpose of the Equinox Line is to produce engines, not to control or dispose of air

pollution. In order to qualify for the tax exemption, the Equinox Line must meet

the definition of “facility” under MCL 324.5901. MCL 324.5901 defines

“facility,” in pertinent part, as follows:

[M]achinery, equipment, structures, or any part or accessories of machinery, equipment, or structures, installed or acquired for the primary purpose of controlling or disposing of air pollution that if released would render the air harmful or inimical to the public health or to property within this state. Facility includes an incinerator equipped with a pollution abatement device in effective operation. Facility does not include an air conditioner, dust collector, fan, or other similar facility for the benefit of personnel or of a business. Facility also means the following, if the installation was completed on or after July 23, 1965:

***

(c) A process change involving production equipment made to satisfy the requirements of part 55 and rules promulgated under that part. The maximum cost allowed shall be 25% of the cost of the new process unit but shall not exceed the cost of the conventional control equipment applied on the basis of the new process production rate on the preexisting process. [MCL 324.5901 (emphasis added).]

Thus, under MCL 324.5901, a “facility” may be either “machinery, equipment,

structures, or any part or accessories of machinery, equipment, or structures,

installed or acquired for the primary purpose of controlling or disposing of air

pollution that if released would render the air harmful or inimical to the public

health or to property within this state” or “[a] process change involving production

equipment made to satisfy the requirements of part 55 and rules promulgated

under that part.”

The Equinox Line does not satisfy the requirements of the tax exemption

under MCL 324.5901 for a “facility” because the Equinox Line was not designed

for the primary purpose of controlling or removing air pollutants. Unlike the test

cells, which were installed for the primary and sole purpose of testing and

controlling exhaust emissions, the Equinox Line was installed for the primary

purpose of manufacturing engines. Although the Equinox Line assists in

controlling and disposing of air pollution by manufacturing less-polluting engines

that meet EPA standards, this purpose is secondary. Instead, the primary purpose

of the line remains manufacturing engines for sale. Just because a manufacturing

facility is altered or built to assure compliance with environmental laws does not

mean that its primary purpose of manufacturing is transformed into a new primary

purpose of controlling air pollution. The latter purpose remains secondary.22

Therefore, because, unlike the test cells, the Equinox Line was not installed

primarily to control or dispose of air pollution, I concur with the lead opinion’s

22 To further illustrate, we offer the following hypothetical situation: if a manufacturing plant builds a new office building for pollution-control engineers charged with controlling and disposing of air pollution released by the plant and its products, the office building would not qualify as a “facility” under MCL 324.5901. That is so because the primary purpose of the office building is to provide offices for employees, not to control or reduce pollution. The fact that the office building provides necessary accommodations for pollution-control engineers, and, therefore, indirectly or secondarily aims at controlling air pollution, does not transform its primary purpose.

holding that Detroit Diesel’s Equinox Line is not a facility under MCL 324.5901.

As a result, the Equinox Line does not qualify for tax exemptions under part 59.23

Although the lead opinion does not address this argument, Detroit Diesel’s

argument that the Equinox Line is a “facility” because it is “[a] process[24] change

involving production equipment made to satisfy the requirements of part 55 and

rules promulgated under that part” is not valid. 25 The stated purpose of part 55 is

to prevent and abate air pollution.26 Detroit Diesel did not install the Equinox Line

specifically to meet the requirements of part 55, but rather installed the Equinox

Line to manufacture engines that comply with EPA requirements. That the

installation of the Equinox Line furthers the purpose of part 55 does not mean that

it was done to satisfy the requirements of part 55. As a result, the Equinox Line is

not a “facility” under MCL 324.5901 because it is not “[a] process change

23 Detroit Diesel also is not entitled to a tax exemption because the Equinox Line does not satisfy MCL 324.5903, which mandates that a “facility is designed and operated primarily for the control, capture, and removal of pollutants from the air” in order to qualify for a tax exemption. The Equinox Line was designed for the primary purpose of manufacturing engines for sale, not for the purpose of abating pollution. 24 Part 55 defines “process” as “an action, operation, or a series of actions or operations at a source that emits or has the potential to emit an air contaminant.” MCL 324.5501(p). Part 55 defines “process equipment” as “all equipment, devices, and auxiliary components, including air pollution control equipment, stacks, and other emission points, used in a process.” MCL 324.5501(q). 25 MCL 324.5901(c). 26 MCL 324.5540.

involving production equipment made to satisfy the requirements of part 55 and

rules promulgated under that part.”

Detroit Diesel’s Equinox Line does not qualify for tax exemptions because

the Equinox Line is neither “machinery, equipment, structures, or any part or

accessories of machinery, equipment, or structures, installed or acquired for the

primary purpose of controlling or disposing of air pollution that if released would

render the air harmful or inimical to the public health or to property within this

state” nor “[a] process change involving production equipment made to satisfy the

requirements of part 55 and rules promulgated under that part.” As a result, the

Equinox Line is not a facility under MCL 324.5901 and does not qualify for a tax

IV. DUE PROCESS

I do not find Detroit Diesel’s due-process argument persuasive. Detroit

Diesel argues that the STC’s hearing process violated due process because the

STC announced at the beginning of the hearing: “It is the position of the State Tax

Commission after consultation with legal counsel that it has neither the authority

nor the technical expertise to override a determination by the DEQ in regards to

whether particular assets qualify for an air pollution control exemption.” Detroit

Diesel argues that the STC, by abdicating its role as a true decision maker,

deprived Detroit Diesel of a meaningful hearing.

Generally, due process in civil cases requires notice of the nature of the proceedings and an opportunity to be heard in a meaningful time and manner by an impartial decisionmaker.

Because the collection of a tax constitutes a deprivation of property, a state must provide sufficient procedural safeguards to satisfy due process requirements. But states are afforded great flexibility in satisfying the requirements of due process in the field of taxation. Due process is satisfied when a taxpayer has “a fair opportunity to challenge the accuracy and legal validity of their tax obligation and a clear and certain remedy for any erroneous or unlawful tax collection to ensure that the opportunity to contest the tax is a meaningful one.[27]

Here, part 59 provides that an applicant for a tax exemption is entitled to a

hearing:

Before issuing a certificate, the state tax commission shall seek approval of the department and give notice in writing by certified mail to the department of treasury and to the assessor of the taxing unit in which the facility is located or to be located, and shall afford to the applicant and the assessor an opportunity for a hearing.[28]

Under MCL 324.5902(1), a petitioner sends an application for a tax-

exemption certificate to the STC. MCL 324.5902(2) requires the STC to both

allow the applicant an opportunity for a hearing and forward the application to the

DEQ for approval. If the hearing concludes before the DEQ makes a

determination, the STC must then refer the matter to the DEQ for consideration of

factual developments at the hearing and to seek approval of the tax certificate. If

the hearing concludes after the DEQ makes a determination, as in the instant case,

27 By Lo Oil Co v Dep’t of Treasury, 267 Mich App 19, 29; 703 NW2d 822 (2005) (internal citations and quotations omitted). 28 MCL 324.5902(2) (emphasis added).

the STC may grant or deny the certificate on the basis of the original DEQ

determination and the developments at the hearing, or refer the matter again to the

DEQ for consideration of any new information developed at the hearing. The

DEQ, not the STC, has the authority and expertise to determine whether the

facility is entitled to a tax exemption under part 59.

MCL 324.5903 provides, in pertinent part:

If the department finds that the facility is designed and operated primarily for the control, capture, and removal of pollutants from the air, and is suitable, reasonably adequate, and meets the intent and purposes of part 55 and rules promulgated under that part, the department shall notify the state tax commission, which shall issue a certificate. [Emphasis added.]

MCL 324.5908 provides that although the STC may adopt rules considered

necessary for administration of part 59 of NREPA, “[t]hese rules shall not abridge

the authority of the department to determine whether or not air pollution control

exists within the meaning of this part.” Thus, although the STC is the agency that

actually issues the tax-exemption certificate, it must defer to the DEQ’s

determination whether a petitioner is entitled to a tax exemption under part 59.

Further, even assuming that the STC can grant a tax-exemption certificate

without the DEQ’s approval, the hearing conducted by the STC in this case

complied with due process. As required by MCL 324.5902(2), the STC forwarded

Detroit Diesel’s application for tax-exemption certificates to the DEQ for

approval. After receiving the DEQ’s determination that Detroit Diesel was not

entitled to the tax exemptions, the STC afforded Detroit Diesel an opportunity for

a hearing. The hearing at the STC was not meaningless. The STC gave Detroit

Diesel a full hearing in which it was allowed to present evidence and argue that

the STC was not bound by the DEQ findings. Detroit Diesel identifies no

evidence or legal argument that it was prevented from submitting. Although the

STC stated at the outset of the hearing that it lacked the authority to override a

DEQ determination regarding an air-pollution-control tax exemption, the STC did

not conduct the hearing merely to rubber-stamp the DEQ’s earlier decision.

Rather, the STC conducted the hearing to gather additional information and

forward this information to the DEQ for further consideration and another

determination. Unfortunately for Detroit Diesel, the DEQ again decided that

Detroit Diesel was not entitled to the tax exemptions. But because the DEQ

considered the information developed at the hearing to determine whether to

change its determination, the hearing was not meaningless. Thus, Detroit Diesel

was afforded due process during the STC proceedings.

V. CONCLUSION

In conclusion, I dissent from the lead opinion and would affirm the Court of

Appeals. I would hold that petitioners’ test-cell facilities qualify for tax

exemptions under part 59 because they meet the definition of “facility” in MCL

324.5901 and, under MCL 324.5903, are “designed and operated primarily for the

control, capture, and removal of pollutants from the air,” are “suitable” or

“reasonably adequate” at abating air pollution, and “meet the intent and purposes

of part 55.” I concur with the lead opinion’s holding that Detroit Diesel’s Equinox

Line does not qualify for tax exemptions under part 59 because the Equinox Line

is not a “facility” under MCL 324.5901. Lastly, I would hold that Detroit Diesel

was not deprived of due process during the STC proceedings.

Elizabeth A. Weaver Maura D. Corrigan Stephen J. Markman