Livingstone v. Department of Treasury

456 N.W.2d 684, 434 Mich. 771

• Court: Michigan Supreme Court
• Decided: June 12, 1990
• Docket: 83616, (Calendar No. 2)
• Status: Published

Opinions

Archer, J.

We granted leave to consider whether the statute of limitations bars the majority of the alleged use tax¹ sought to be assessed against the derivatively liable corporate officer, where there was no issuance of a notice of intent to assess against the officer and where the notice of final assessment was issued more than four years after a majority of the assessment and the taxable period.

We would hold that the use tax statute of limitation found in MCL 205.100(3); MSA 7.555(10)(3)² has no application to derivatively liable corporate officers. Consequently, the limitation period does not bar a majority of the tax debt imposed upon the officer. Further, we would hold that the Department of Treasury is not required to send individual notice of personal liability to derivatively liable officers. Accordingly, the decision of the Court of Appeals is affirmed.

FACTS

Appellant Seabourn S. Livingstone was the sole owner, chairman of the board of directors, and treasurer of the St. Clair Rubber Company, a corporation subject to the Use Tax Act.³ Pursuant to the act,⁴ the appellee, Department of Treasury, issued a notice of intent to assess St. Clair as a result of a use tax audit deficiency for the period July 1, 1978, through June 30,1981.⁵

St. Clair timely appealed the assessment to a Department of Treasury hearing referee. On July 12,1982, the referee issued a recommendation that the intent to assess be finalized for the amount of the deficiency deemed owing.

The referee’s decision was not appealed.⁶ As a result, on September 29, 1982, under the authority of MCL 205.22(2); MSA 7.657(22)(2),⁷ the department issued a notice of final assessment against St. Clair. St. Clair, nonetheless, failed to remit the taxes and interest due.

In accordance with MCL 205.96(3); MSA 7.555(6)(3),⁸ the department issued notices of personal liability, individually, against appellant, Seabourn S. Livingstone, and H. Gordon Wood, the named secretary of the corporation, for the unpaid assessment against St. Clair. In a consolidated effort, both Livingstone and Wood appealed their liability to the Michigan Tax Tribunal.

On September 23, 1986, the tribunal issued its opinion and judgment. Citing Metro GMC Truck Center, Inc v Dep’t of Treasury, 4 MTTR 54, 56 (Docket No. 74377, September 6, 1985), and Rowland v Collins, 48 Ohio St 2d 311; 358 NE2d 582 (1976), the tribunal concluded,

"[A]n unappealed final assessment becomes due and payable by operation of law. Because the corporate officer’s liability for the overdue tax is derivative in nature, the corporate officer is bound by the oscitancy of the corporation.” Petitioners, therefore can not raise the statute of limitations bar and exemption claim, nor challenge the method of computation once the assessment is final. The position of primary or secondary debtor has no [effect] on the right of the Petitioners to challenge the makeup of the assessment. The finality of the assessment is the factor which establishes a bar to such a challenge.[⁹]

On October 13, 1986, Seabourn Livingstone filed a claim of appeal, arguing that assessments against derivatively liable corporate officers were separate and distinct from those against the corporation, as was the officer’s right to assert the statute of limitations. The Court of Appeals affirmed the decision of the Tax Tribunal, holding that a corporate officer’s liability for unpaid corporate taxes was not separate and distinct from the assessment against the corporation, and thus separate notice of an unfiled return or an unpaid tax was not required when the officer, by his responsible corporate position, already knew or should have known that the tax had not been paid. Further, the Court held that the "finality” of the assessment on the corporation barred the corporate officer from contesting the amount of taxes owed.¹⁰ We subsequently granted leave to appeal.¹¹

i

A

The issue before us involves the interplay between two provisions of the Use Tax Act. MCL 205.91 et seq.; MSA 7.555(1) et seq. The specific provisions at issue provide, in pertinent part:

If a corporation licensed under this act fails for any reason to file the required returns or to pay the tax due, any of its officers having control, or supervision of, or charged with the responsibility for making the returns and payments shall be personally liable for the failure. [MCL 205.96(3); MSA 7.555(6X3).]

A deficiency, interest, or penalty shall not be assessed after the expiration of 4 years from the date set for the filing of the required return or the date the return was filed, whichever is later. [MCL 205.100(3); MSA 7.555(10X3).]

The first, and perhaps, least difficult aspect of the task before us concerns the determination of exactly when and under what circumstances a corporate officer may be held personally liable for unpaid corporate use taxes. In addressing this question, the Court of Appeals in Peterson v Treasury Dep’t, 145 Mich App 445, 450; 377 NW2d 887 (1985), held:

In order to hold a person personally liable for a corporation’s tax liability under [MCL 205.96(3); MSA 7.555(6)(3)], the Department of Treasury must first show that the person is an officer of the corporation. Then it must show either (1) that this officer has control over the making of the corporation’s tax returns and payments of taxes; or (2) that this officer supervises the making of the corporation’s tax returns and payments of taxes; or (3) that this officer is charged with the responsibility for making the corporation’s returns and payments of taxes to the state. [See also Keith v Treasury Dep’t, 165 Mich App 105, 108; 418 NW2d 691 (1987).]

We agree that personal tax liability will not attach to corporate officers who simply have significant involvement in the financial affairs of a corporation. The involvement must be tax specific.

In this case, the appellant’s "responsibility for making the returns and payments” of taxes pursuant to MCL 205.96(3); MSA 7.555(6X3) is uncontested.¹² It was further conceded at oral argument that the statute renders the appellant "derivatively” liable. On that account, the appellant cites the factually similar, Bloom v United States, 272 F2d 215, 221 (CA 9, 1959), in which the Court of Appeals for the Ninth Circuit espoused the following supposition regarding derivatively liable parties:

In our view, [the applicable statutory section] imposes a separate and distinct liability upon the officer of the corporation who has the duty or is responsible for the collection and payment of the tax and who willfully fails either to collect the tax or to pay it over. While this liability is denominated "penalty” it is "to be assessed and collected in the same manner as taxes are assessed and collected.” While it might be said that the assessment made on appellant is derivative of the assessments made on the corporation, in that they both relate to taxes collected or withheld by the corporation, the liability imposed upon appellant by [the applicable statute] is statutory and in such cases the statutory limitations are controlling.

The conclusory nature¹³ of the Bloom court’s characterization and application of the terms "derivative,” "solely of derivative character,” and "separate and distinct,” unfortunately diminishes their effect here. Hence, we believe that as a preliminary matter the term "derivative liability,” as it pertains to corporate officers, in this context, ought to be clearly defined and effectively applied to the facts at bar.

The Random House Dictionary of the English Language (2d ed, unabridged), defines the term "derivative,” as "not original; secondary.” Black’s Law Dictionary (5th ed) offers, "Coming from another; taken from something preceding; secondary. That which has not its origin in itself, but owes its existence to something foregoing. Anything obtained or deduced from another.”

Our application of the preceding to the present facts leads us to the conclusion that the liability imposed upon the appellant was, indeed, strictly and solely derivative for several reasons. First, in 1923, St. Clair Rubber Company established itself as an incorporated entity under the laws of our state. Arguably, one of the most attractive features of modern incorporation is the opportunity for individuals to avail themselves of limited liability. See Henn & Alexander, Law of Corporations (3d ed), § 79, p 148. When a business person, such as the appellant, cognitively makes the decision to incorporate, we believe, he also cognitively enjoys the benefit of having shielded himself, in however limited a Sense, from the direct or primary responsibility to answer, legally, in his own name.

Second, the tax liability imposed under MCL 205.96(1); MSA 7.555(6)(1), was created by St. Clair Rubber Company, the corporate entity, by its "storage, use, or consumption of ” tangible personal property or services. See MCL 205.91 et seq.; MSA 7.555(1) et seq. The ensuing corporate taxation was not based on or directed at the activities of Seabourn Livingstone, the individual. The responsibility for the tax originated from acts "solely” attributed to the entity, St. Clair Rubber Company. St. Clair, and not Mr. Livingstone, was the principal tax actor and, hence, the taxpayer.

Finally, MCL 205.96(3); MSA 7.555(6)(3) expressly provides: "any of its officers . . . shall be personally liable for the failure.” (Emphasis added.) The statute does not say "shall be personally liable for the taxes,” so as to create the arguable "separate and distinct” liability, suggested in Bloom, supra. The phrase "liable for the failure” plainly carries with it the notion that failure is the condition necessary to be fulfilled in order for the provision to be activated. Thus, in this case, it is the fact of St. Clair Rubber Company’s failure¹⁴ to pay its requisite taxes, that provides the fabric from which the appellant’s liability derives._

B

Moving to the more difficult issues presented by this case, we next address whether the four-year limitation period for the assessment of use taxes is applicable to a corporate officer who has been held personally liable for use taxes his corporation failed to pay, and whether the department is required to send individual notice of personal tax liability to corporate officers.

The appellant argues that the language "shall not be assessed after the expiration of 4 years,” found in MCL 205.100(3); MSA 7.555(10)(3), should be interpreted to preclude assessment against derivatively liable corporate officers. (Empahsis added.) The appellant also believes that the department should be required to send individual notice of personal tax liability to corporate officers held so liable. To the contrary, the department asserts that because the original assessment against St. Clair Rubber Company became "final” on September 29, 1982, the appellant cannot collaterally attack the amount due for any reason, including the statute of limitations. The department further asserts that because the appellant personally received notice of his corporation’s tax deficiency, the necessity for sending individual notice of liability was obviated.

As noted by the Tax Tribunal and the Court of Appeals, this case poses an issue of first impression in this state. Therefore, our consideration encompasses a discussion of the rules regarding the interpretation and applicability of statutes of limitations, the direction taken by our sister courts in addressing statutes of limitations and the requirement of individual notice, as well as the policy implications any decision by this Court may have concerning this issue of great public significance.

II

STATUTES OF LIMITATION

The limitation provision at issue was enacted to govern the time in which the Department of Treasury could assess use taxes. With specific regard to the construction of statutes of limitation, this Court in McKisson v Davenport, 83 Mich 211; 47 NW 100 (1890), reasoned that statutes of limitation should be construed in a manner that best effectuates the policies the Legislature intended to promote. Furthermore, whenever dismissal of an action filed beyond a statute of limitations would not further the Legislature’s objectives in proscribing the limitation period, a plaintiff should be given an opportunity to assert his claim. 54 CJS, Limitation of Actions, §3, pp 17-18, n 19, citing Platoro Ltd, Inc v Unidentified Remains of a Vessel, 614 F2d 1051 (CA 5, 1980).

In Lenawee Co v Nutten, 234 Mich 391, 396; 208 NW 613 (1926), we further acknowledged that "[i]n placing a construction upon the language of [a statute of limitation], we should . . . have in mind the purpose of such statutes.” In Sproat v Hall, 189 Mich 28, 32; 155 NW 361 (1915), we determined that the "whole chapter” in which a statute of limitation was contained, was "to be read as one act, with its several parts and clauses mutually acting on each other as their sense requires.”

Correspondingly, Sands advises, "whenever the legislature enacts a provision it has in mind previous statutes relating to the same subject matter,” and "legislation is never written on a clean slate, nor is it ever read in isolation or applied in a vacuum.” 2A Sands, Sutherland Statutory Construction (4th ed), §§ 51.02, 53.01, pp 453, 549.

It has been universally held that statutes of limitation sought to be applied to bar rights of the government must receive a strict construction in favor of the government. See Badarroco v Comm’r of Internal Revenue, 464 US 386, 391-392; 104 S Ct 756; 78 L Ed 2d 549 (1983) (When a taxpayer files a fraudulent return, taxes may be assessed "at any time” regardless of whether the limitations period has run). Furthermore, the United States Court of Appeals for the Fifth Circuit, observed that "limitation statutes barring the collection of taxes otherwise due and unpaid are strictly construed in favor of the government.” Lucia v United States, 474 F2d 565, 570 (CA 5, 1973) (A statute of limitations for excise wagering tax was held to be inapplicable because the extent to which assessments are barred is exclusively controlled by Congress; there is no fundamental right to have taxes assessed and collected within any period of limitations). See also McDonald v United States, 315 F2d 796, 801 (CA 6, 1963) (A statute of limitations did not bar assessment of excise taxes where no return was filed; a limitation barring collection of taxes must receive strict construction in favor of the government). Pacific Coast Steel Co v McLaughlin, 61 F2d 73, 75 (CA 9, 1932) (Statutes of limitation barring the collection of income and excess profit taxes that are justly due and unpaid must receive a strict construction in favor of the government). Loewer Realty Co v Anderson, 31 F2d 268, 269 (CA 2, 1929) (Statutes of limitation barring the collection of income taxes must receive a strict construction in favor of the government such that collection after the expiration of the limitation period is not barred).

B

The appellant’s contention that the limitation period should be deemed applicable to any person "assessed” thereunder, is based, primarily, on the belief that the sentence containing the four-year period makes no internal reference to whom it should apply, i.e., the sentence itself contains no limiting words like "against the taxpayer.”¹⁵ However, viewing the limitation statute in the light most favorable to the Department of Treasury, we find significant the fact that succeeding sentences in the provision do expressly refer to "the taxpayer” and the "person subject to tax under this act.” MCL 205.100(3); MSA 7.555(10X3). (Emphasis added.) These specific references throughout the whole of the provision dissuade us from believing that their absence from the seminal sentence prescribe, exclusively, to whom the provision should apply. Furthermore, we believe their inclusion is indicative of the Legislature’s intent that the dictates found therein be directed, not at "any person” but at "the taxpayer

The dissent believes that derivatively liable corporate officers are "taxpayers” under the statutory scheme in operation here. In principal support for this assertion, the dissent contends that it is the officer’s status as a "taxpayer” that provides the right of appeal in this Court. The dissent further believes that corporate officers are "assessed” when their tax liability arises under MCL 205.96(3); MSA 7.555(6)(3). We disagree with both propositions.

We have concluded that because § 10(3) refers to "the taxpayer” and the "person subject to tax,” the Legislature intended § 10(3) to apply solely to principle tax actors. (Emphasis added.) Accordingly, a person who becomes liable either primarily or derivatively can be termed, in the most literal sense, a "taxpayer,” i.e., one who pays taxes. However, this does not diminish or effect the plain truth that Mr. Livingstone, in his status as a derivatively liable corporate officer under §6(3), did not engage in the taxable acts out of which the principle or primary tax liability in this case was born. The appellant simply cannot occupy the same taxpayer status as St. Clair Rubber Company. Therefore, the limitations period in § 10(3) was drafted with the intent that it apply narrowly to the events surrounding the taxable activity from which the principle assessment against St. Clair was rendered. Thus, contrary to the dissent, our conclusion that the appellant is not a "taxpayer” does not rest feebly and trivially upon hollow word usage or placement, but on a substantively sound and well-founded premise.

Accordingly, St. Clair, the tax actor, was "assessed” in accordance with MCL 205.21(1); MSA 7.657(21)(1); St. Clair was sent notice of the department’s intent to levy; St. Clair requested and received an informal conference at which the hearing officer affirmed the assessment in accordance with MCL 205.21(2); MSA 7.657(21)(2); St. Clair refused or failed to appeal the department’s final determination as provided in MCL 205.22; MSA 7.657(22), etc. The procedures accorded the appellant here were the department’s notification to him that his personal liability had been triggered and his right of appeal to the Tax Tribunal, the Court of Appeals, and finally here, in accordance with MCL 205.22(1); MSA 7.657(22)(1).¹⁶ Thus, we disagree with the dissent’s blanket assertion that "the responsible officer in this case was accorded procedures applicable to 'taxpayers’ throughout the whole assessment and collection process.” See post, p 824, n 22. (Emphasis added.)

Moreover, the word "assess,” as used in the phrase "shall not be assessed,” encompasses a great deal more than presentment and collection¹⁷ of a tax bill. As a practical matter, in order for a party to be "assessed,” the department must: identify the taxable party, categorize the taxable activity, estimate the tax value associated with the activity, measure the quantity of activity, and fix the amount of taxes due and payable to the state.¹⁸

Accordingly, the word "assessed,” as used in the instant provision, refers to a process which has its anchor in the tax activities of "the taxpayer,” while presentment and collection represent only ministerial steps in the procedure. In the present case, the Department of Treasury properly "assessed” a tax deficiency against St. Clair Rubber Company within the constraints of MCL 205.100(3); MSA 7.555(10X3). However, upon the happening of the condition, i.e., nonpayment of the taxes due, the department sought to enforce and collect the debt created by St. Clair’s default in accordance with MCL 205.96(3); MSA 7.555(6)(3).¹⁹

C

Any interpretation or construction of the use tax limitation period must be done with comprehensive and simultaneous examination of statutes with which it must function. Hence, our task here is not to construe and interpret the limitation period in isolation. See Hall, supra at 32. Our consideration necessarily includes the statute under which the tax assessment liability was imposed, which, in this case, is § 6(3). See 2A Sands, Sutherland Statutory Construction (4th ed), §§51.02, 53.01, pp 453, 549. Because both provisions are contained in the Use Tax Act, they are to be construed as mutually acting toward the fulfillment of the purpose envisioned by the Legislature in enacting them. See Nutten, supra at 396.

The dissent has proposed that the repeal of MCL 205.100(3); MSA 7.555(10)(3) was intentionally preceded by the 1986 addition of MCL 205.27a(2), (5); MSA 7.657(27a)(2), (5) to the Revenue Division of the Department of Treasury.²⁰

The dissent contends that the near duplicity of the language found in the now repealed § 10(3) and § 27a(2) necessarily presumes that the legislative intent of the drafters of § 10(3), as well as of §6(3), can be gleaned from or evidenced by an analysis of subsections 27a(2) and (5). We disagree with this presumption.

Certainly, the Legislature compiled Michigan’s tax statutes with the intent of enacting specific provisions directed to particular types and kinds of liabilities. We do not believe the Legislature intended or intimated that subsections 27a(2) and (5) or any provision of the Revenue Division be applied or adopted in the place of provisions specifically enacted under other self-contained tax acts. Our decision in this case is governed by an analysis of the interrelationship between §§ 6(3) and 10(3) as they read at the time the appellant was aggrieved.

Furthermore, the language appearing in subsections 27a(2) and (5) is not identical to that contained in the provisions of the Use Tax Act. Accordingly, in our view those entities bound by the Use Tax Act should be bound and guided narrowly by the specific provisions of the act itself. We do not believe that it was the Legislature’s intent to adopt subsections 2 and 5 in the place of provisions specifically enacted within other self-contained tax acts. Hence, we do not agree that the case at bar was affected in any way by the aforementioned 1986 amendments of the Revenue Division.

The limitation period at issue, now MCL 205.100(3); MSA 7.555(10)(3), was first introduced into the Use Tax Act in 1949. Apparently, rejecting the application of a general civil limitation period to tax assessments, the Legislature felt it necessary to enact a provision specifically designed for tax assessment.

MCL 205.96(3); MSA 7.555(6X3), the statute imposing corporate tax liability in this case, originally contained no provision for derivative liability. However, in 1971, subsection c, now subsection 3, was enacted. Thus, we may consider that in enacting this provision, the Legislature had in mind matters of monetary recourse and the establishment of derivative resources for tax debt payment.

Construing the statutes together, we conclude that the limitation provision applies only to those "persons,” hence, private corporations, see MCL 205.92(a); MSA 7.555(2)(a),²¹ who store, use, or consume tangible personal property or services. As we noted previously, the corporate officer, although "charged with the responsibility for making returns and payments” of corporate taxes, is nonetheless not the taxable actor and cannot, therefore, be "assessed.” The transposition of a tax debt onto a derivatively liable party, irrespective of the terminology used,²² is an ancillary, ministerial step in the collection process, created, apparently in light of the Legislature’s recognition of the need to insure the payment, collection or satisfaction of tax deficiencies "assessed” against corporate tax actors. Thus, commensurate with what we deem to be a reasonable interpretive analysis of legislative intent and purpose, we conclude that operation of the use tax limitation period is restricted to the corporate entity "subject to the tax,” which, in this case, is St. Clair Rubber Company.²³

D

Statutes of limitation serve several purposes in jurisprudence. As arbitrary enactments,²⁴ they are designed to accord and limit a reasonable time within which an action may be brought. As a general rule, the limitation period begins to run at the time when a complete cause of action or right of action accrues or arises or when there is a demand capable of present enforcement. See 54 CJS, Limitation of Actions, §81, p 117. See also Howard v General Motors Corp, 427 Mich 358, 384-385; 399 NW2d 10 (1986).

Statutes of limitation are, in essence, intended to exact diligence in the prosecution of a litigant’s claim. Accordingly, "[l]imitation statutes are not enacted for the sake of defeating legal claims, but only to require notice of such claims within a reasonable time and thus guard against the unfair handicaps of defending against unfounded and belated suits.” Lynch v American Motorists Ins Co, 101 F Supp 946, 949 (ND Tex, 1951).

In the present case, the appellant believes that the limitation period found in § 10(3) applies to corporate officers on the basis of the assumption that corporate officer liability is "separate and distinct.” Accordingly, the appellant contends that because he received the first notice of personal liability three years after such notice was sent to St. Clair, he should only be responsible for paying a portion of the taxes owed to the state. However, because we do not believe corporate officer liability to be "separate and distinct,” or that § 10(3) applies to such officers, we also do not believe notice, other than that sent by the department in this case, is required to be sent to officers liable under §6(3).

The courts below in their analyses of the notice prong of this action relied principally on three cases: Van Orman v Indiana, 416 NE2d 1301 (Ind App, 1981), Keith v Dep’t of Treasury, supra, and Ball v Indiana Dep’t of Revenue, 525 NE2d 356 (Ind Tax Ct, 1988). Van Orman, the first decided of these, involved, as in the case at bar, the State of Indiana’s suit against a corporate president to recover unpaid corporate sales and use taxes. F. Harold Van Orman, the President of Van Orman Enterprises, Inc., complained that no notice of the department’s intent to hold him personally liable for Van Orman Enterprises’ unpaid taxes was given within the three-year corporate tax period of limitation, and, for that reason, the state should have been barred from collecting the tax debt. The court, disagreeing with Mr. Van Orman, reasoned,

[I]t would not be unreasonable to conclude [that] Van Orman, as president and general manager of Van Orman Enterprises, Inc., was obviously aware that the corporation had failed to pay the sales and use tax during the period in question. He not only signed the protest to the State’s assessment, but he participated in the hearing on the assessment. To say that Van Orman was unaware of the corporation’s failure to pay the tax or to contend that he was unaware of his personal liability, in the face of [the statute outlining conditions for personal liability of corporate officers], is ludicrous. All persons are charged with the knowledge of the rights and remedies prescribed by statute. . . . The clear pronouncement of the statute is, ipso facto, sufficient notice that a duty exists to remit the tax fund held in trust. No personal notice of the assessment is required. [Id. at 1306. Citations omitted.]

Although devoid of a statute of limitations discussion, the per curiam decision in Keith v Dep’t of Treasury, supra, nonetheless provided the lower courts in this case with much of the substantive reasoning on which their decisions were based. The facts in Keith similarly involved the personal liability of corporate officers for unpaid corporate use taxes. The issue there, however, was whether proper notice of the corporate officer’s liability for payment of the corporate sales tax was given pursuant to MCL 205.24(1); MSA 7.657(24)(1).²⁵ Holding that notice to the corporate officer was not necessary, the Court opined:

Statutory notice provisions are designed to provide due process of law, the purpose being to provide the taxpayer with notice that a deficiency assessment has been levied for certain taxes and to afford the taxpayer an opportunity to contest it. A defect in formal notice does not violate due process if notice was in fact given. . . . The due process test concerning notice is whether the means chosen to serve notice are reasonably calculated to reach the party, and not whether notice is actually received. [Id. at 109. Citations omitted.]

Despite semantic distinctions between the statute considered at bar and the Indiana sales and withholding tax statute analyzed in Ball v Indiana Dep’t of Revenue, supra, the lower courts in this case found its reasoning persuasive. In Ball, which, likewise, dealt with whether notice of a tax deficiency sent and received by a corporation provided sufficient notice to the responsible officer, the Indiana Tax Court held:

When notice to the corporation is notice to the officer, the officer is apprised of the amount assessed against the corporation. Because [the corporate officer’s] personal liability for the tax is purely derivative, he is also effectively apprised of his potential personal liability for the amount assessed against the corporation. Notice to the corporation is therefore reasonably calculated to apprise the responsible officer of his personal liability for corporate tax.

Since the responsible officer’s personal liability for the tax is purely derivative, the application of a separate statute of limitations to the responsible officer’s assessment makes no sense.[²⁶] [Id. at 358-359. See also Rowland v Collins, supra.]

E

We reject the appellant’s assertion that derivatively liable officers should receive individual notice of the Treasury’s intention to seek personal collection. We believe that a corporate officer who is liable under MCL 205.96(3); MSA 7.555(6X3) must have necessarily been intimately involved in the corporation’s failure to pay taxes and consequently does not need formal notice of such liability to be able to defend in a subsequent action. See United States v Hunter Engineers & Constructors, Inc, 789 F2d 1436 (CA 9, 1986). The service of notice to derivatively liable corporate officers would simply add an additional formalistic requirement upon which parties liable under MCL 205.96(3); MSA 7.555(6)(3) could rely for the purpose of thwarting the Legislature’s intent to recover the unpaid use taxes from such person. We believe a conclusion by this Court that the appellant, Mr. Livingstone, who, on his own admission, consciously failed to pay the taxes owed by a corporation he individually owned, and whose activities he personally oversaw, is not now responsible to remit the same, in its entirety, would be absurd.

Officers who are made personally aware of corporate tax deficiencies and who, through neglect or intent, fail to make provisions for the satisfaction of the corporate tax debt when due, simply cannot be allowed to take advantage of their own omissions.²⁷ To say that the appellant was unaware of his imminent personal liability in the face of MCL 205.96(3); MSA 7.555(6)(3), would be unrealistic. The clear pronouncement of the statute is, we agree, ipso facto sufficient notice that a duty exists to ultimately remit the tax liability to the state. See Van Orman, 416 NE2d 1306.²⁸

CONCLUSION

In light of the foregoing, we conclude that the use tax statute of limitation found in MCL 205.100(3); MSA 7.555(10)(3), has no application to derivatively liable corporate officers. Consequently, the statute of limitation here should not bar a majority of the use tax imposed upon the appellant. We further would hold that the Department of Treasury is not required to provide individual notice of personal liability to derivatively liable officers. Accordingly, the decision of the Court of Appeals should be affirmed.

Cavanagh, J., concurred with Archer, J.

1 The phrase "majority of the alleged use tax” can be summed up as follows:

St. Clair Rubber Company, as a corporate entity, was assessed for use taxes on December 10, 1981, for the three year period beginning July 1, 1978, through June 30, 1981. The appellant believes that because he received the first notice of personal liability on July 27, 1984, that under the four-year statute of limitations found in MCL 205.100(3); MSA 7.555(10)(3) he should only be liable for the taxes owing from July of 1980, thus extinguishing his obligation to pay the taxes owing for years 1978 and 1979. Accordingly, the appellant asserts that if the statute of limitations is found to be applicable to derivatively liable corporate officers, that "a majority” of his tax liability should be barred. Thus, contrary to the belief of the dissent, Mr. Livingstone’s attempted application of the corporate limitations period to corporate officers is, as a practical matter, an attack on challenge to the "amount” of the assessment against St. Clair, for which, of course, Livingstone became liable upon St. Clair’s failure to pay. See MCL 205.96(3); MSA 7.555(6)(3).

2 MCL 205.100(3); MSA 7.555(10)(3) provided:

A deficiency, interest, or penalty shall not be assessed after the expiration of 4 years from the date set for the filing of the required return or the date the return was filed, whichever is later. The taxpayer shall not claim refund of any amount paid to the department after the expiration of 4 years from the date of payment. A taxpayer shall not assign a claim against the state to any other person. If a person subject to tax under this act shall fraudulently conceal liability for the tax or a part of the tax, the revenue commissioner, upon discovery of the fraud and within 2 years thereafter, shall proceed to assess the tax with penalties and interest as provided, computed from the date on which the tax liability originally accrued and the tax, penalties, and interest shall become due and payable after notice and hearing as provided.

We recognize that as of December 21, 1988, MCL 205.100(3); MSA 7.555(10)(3) was amended, apparently, eliminating the four-year limitation period. However, in order to address the issues appealed, we have based our analysis on the provision as it existed when the notice of intent to assess St. Clair Rubber Company was originally rendered, that being December 10,1981. The provision presently provides:

Claims for refund pursuant to the 1988 amendatory act amending section 2 shall be filed not later than March 31, 1989. The approved refunds shall be paid without interest. The department shall not pay refunds totaling more than $1,000,000.00 in any 1 fiscal year, unless the single business tax act, Act No. 228 of the Public Acts of 1975, being sections 208.1 to 208.145 of the Michigan Compiled Laws, is amended to impose a 1-year surcharge on the business activity of contract construction to recover the cost of the refunds.

3 The Use Tax Act is found in MCL 205.91 et seq.; MSA 7.555(1) et seq. St. Clair was subject to this act as a result of its use of electrical power and its consumption of gas.

4 MCL 205.21(1); MSA 7.657(21X1) provides:

If a person fails or refuses to make a return as required, in whole or in part, or if the department has reason to believe that a return made does not supply sufficient information for an accurate determination of the amount of tax due, the department may obtain information on which to base an assessment of the tax. The department, by its duly authorized agents, may examine the books, records, and papers and audit the accounts of a person or any other records pertaining to the tax. As soon as possible after procuring information, the department shall assess the tax determined to be due and shall notify the taxpayer of the assessed amount and the specific reasons for the assessment.

5 The amount of the tax assessment was $9,053.18, while the interest accrued at that time, amounted to $1,736.82, totaling $10,790. At the time of the application to this Court, the accrued interest had increased to $3,161.22, thus adjusting the amount due to $12,214.40.

6 MCL 205.22(1); MSA 7.657(22)(1) provides, in pertinent part:

A person aggrieved by an assessment, decision, or order of the department may appeal the contested portion of an assessment, decision, or order to the tax tribunal within 30 days, or to the court of claims within 90 days after the assessment, decision, or order.

7 MCL 205.22(2); MSA 7.657(22)(2) provides:

The assessment, decision, or order of the department, if not appealed in accordance with this section, shall be final and shall not be reviewable in any court by mandamus, appeal, or other method of direct or collateral attack.

8 MCL 205.96(3); MSA 7.555(6)(3) provides:

If a corporation licensed under this act fails for any reason to file the required returns or to pay the tax due, any of its officers having control, or supervision of, or charged with the responsibility for making the returns and payments shall be personally liable for the failure. The dissolution of a corporation shall not discharge an officer’s liability for a prior failure of the corporation to make a return or remit the tax due. The sum due for such a liability may be assessed and collected as provided in section 17.

9 The tribunal, further, extinguished the liability of secretary H. Gordon Wood for St. Clair’s delinquent taxes, on the basis of the lack of evidence of Wood’s control or supervision of St. Clair’s tax payment activities.

10 Livingstone v Dep’t of Treasury, 169 Mich App 209; 426 NW2d 184 (1989).

11 Livingstone v Dep’t of Treasury, 432 Mich 891 (1989).

12 See Michigan Tax Tribunal Opinion and Judgment at 5. The appellant did not contest the tribunal’s finding in the Court of Appeals or in this Court.

13 The linchpin of the Bloom court’s belief that corporate officer liability is not "solely of derivative character,” appears to be the fact that the liability imposed is "statutory.” However, because the court failed to cite any authority or to provide any explanatory support for its conclusions, we find its statement unhelpful.

14 The dissent expresses the view that the term "failure” to pay the requisite taxes refers to each time a corporation fails to file a return or pay taxes "on or before the fifteenth day of each calendar month.” MCL 205.96(1); MSA 7.555(6)(1). Accordingly, the dissent believes § 6(3) derivative liability is triggered each time a corporation fails to so file or pay. We disagree. It is our belief that the Legislature intended § 6(3) derivative liability to be activated following the allotment of a full and fair opportunity for a corporation to file and pay taxes, either voluntarily, as per MCL 205.96(1); MSA 7.555(6)(1) or following MCL 205.21(1) and (2); MSA 7.657(21X1) and (2), assessment and levy. We believe adoption of the literal reading urged by the dissent, i.e., the random, monthly activation of § 6(3) liability, so as to create responsibility for tax payment in the corporation one month, and in the derivatively liable officer the next, etc., would mock the purpose of the provision itself. For we agree that "[w]hile the intention of the legislature must be ascertained from the words used to express it, the manifest reason and obvious purpose of the law should not be sacrificed to a literal interpretation of such words.” 2A Sands, Sutherland Statutory Construction (4th ed), § 46.07, p 110.

In the present case, St. Clair failed to file and pay "on or before the fifteenth day of each calendar month,” for three years. Accordingly, the department assessed St. Clair for the three years it had been tax deficient. MCL 205.21(1); MSA 7.657(21X1). The taxpayer, St. Clair, clearly availed itself of the procedural avenues for review and evaluation in accordance with MCL 205.21(2); MSA 7.657(21X2) and following a final determination of the taxes due, St. Clair, indeed, still failed to file, pay, or even appeal further. It was not until the assessment amount was deemed "final” that the appellant received notice of his personal, derivative liability. We believe the procedure followed by the department reflected a reasonable interpretation of the legislative scheme in operation here. Accordingly, we do not believe corporations and corporate officers can be "assessed” at the same time because § 6(3) liability cannot attach to a corporate officer until the provisions found in MCL 205.21(1) and (2); MSA 7.657(21X1) and (2) have been fairly and fully availed and any assessments made thereunder, deemed final.

15 The dissent, further, cites Allan v United States, 386 F Supp 499 (ND Tex, 1975), in support of the notion that a derivatively liable corporate officer is a taxpayer. However, we distinguish Allan on the basis of several facts. Allan concerned facts governed by 26 USC 6672, a federal tax statute, very different from MCL 205.96(3); MSA 7.555(6)(3) and MCL 205.22; MSA 7.657(22), i.e., the right to appeal under the federal scheme, apparently, must be limited to those deemed "taxpayers.” Furthermore, the court in Allan specifically limited its reasoning to a "§ 6672 setting.” Id. at 504. Likewise, Williams v United States, unpublished memorandum opinion of the United States District Court for the Northern District of Illinois, decided October 6, 1983 (Docket No. 82 C 3505), and Holcomb v United States, 622 F2d 937 (CA 7, 1980), each cited by the dissent, as well, analyze and construe the federal tax scheme as it relates to waiver forms. Finally, in Calderone v United States, 799 F2d 254 (CA 6, 1986), the court reasoned that corporate officers and corporate entities can be assessed at the same time on the basis of a "separate and distinct” liability analysis. The case at bar does not involve waiver forms or "separate and distinct” liability. We, therefore, find the federal dicta cited by the dissent neither binding nor persuasive. See also n 26.

16 In terms of a corporate officer’s right to be before this Court, we note that MCL 205.22; MSA 7.657(22) explicitly begins, "A person aggrieved by an assessment, decision, or order of the department . . . .” (Emphasis added.) We do not believe the provision either states or implies that the aggrieving "assessment” is one necessarily made as against the person appealing.

We believe St. Clair and the appellant both find their rights to appeal in § 22. In light of the Legislature’s decision to incorporate the term "person aggrieved” into the appeal provision, as opposed to uniformly utilizing the term "taxpayer,” we likewise do not believe the Legislature intended to allow appeals by "persons aggrieved” only to the Tax Tribunal or the Court of Claims, while affording "taxpayers” with appeals to the Court of Appeals and this Court. Indeed, the ability to appeal from a final determination of the Tax Tribunal is limited only by its own self-contained statutory framework. See MCL 205.753(2); MSA 7.650(53)(2). Accordingly, the appellant, Mr. Livingstone, is appropriately before this Court as a person aggrieved by an “assessment” made against St. Clair.

17 Importantly, the use tax limitation period contains the phrase "shall not be assessed” and not "shall not be collected.”

18 Our reasoning that appellant Livingstone could not be "assessed” was deduced principally from our determination that the liability imposed upon him was unequivocally derived from that which was first imposed upon St. Clair. The dissent wishes to render the term "derivative liability” a nullity when it asserts that a corporate officer’s liability may be labeled "derivative” but that the officer is to be "assessed” a "separate and distinct” indebtedness. To the contrary, we believe application of the term "derivative liability” to corporate officers under MCL 205.96(3); MSA 7.555(6)(3), directs that every facet of an officer’s resultant financial responsibility, including being "assessed,” derives not from the officer’s acts, but from the corporation’s taxable business functioning.

19 The dissent curiously believes that the Legislature "intended to refer to MCL 205.100; MSA 7.555(10),” or §10, instead of MCL 205.107; MSA 7.555(17), or § 17, when it drafted the sentence, "The sum due for such a liability may be assessed and collected as provided in section 17,” found in §6(3). It is upon this creative premise of "legislative mistake” that the dissent hinges its assertion that derivatively liable officers are "assessed” for taxes in the same manner as principal corporate taxpayers. It is our belief, however, that this assertion cannot be proved or disproved by this Court, as such matters can only be appropriately resolved by the Legislature.

However, we note that § 17 has been repealed. Moreover, before its revocation, the provision read as follows:

Any person who fails or refuses to make any return required under this act or who makes any false or fraudulent return or false statement in any return, with intent to defraud the state or evade payment of the tax or any part thereof imposed by this act, or who aids or abets another in any attempt to evade the payment of the tax or any part thereof as imposed by this act, or any person or president, vice-president, secretary or treasurer of any company or association who makes or permits to be made for any person, company or association any false return or any false statement in any return required in this act, with the intent to evade or assist in evading the payment of any tax hereunder, shall be deemed guilty of a misdemeanor and upon conviction thereof, shall be fined not less than $500.00 nor more than $5,000.00 or imprisoned in the county jail not more than 1 year, or by both such fine and imprisonment in the discretion of the court. In addition to the foregoing penalties, any person who shall knowingly swear to or verify any false or fraudulent return, or any return containing any false or fraudulent statement, with the intent to defraud or to aid, abet or assist in defrauding the state, shall be guilty of the offense of perjury, and, on conviction thereof, shall be punished in the same manner provided by law. [Emphasis added.]

We believe the referenced sentence found in § 6(3) was drafted in order that it be made clear that corporate officers were subject to the same severe penalties as principal taxpayers for tax evasion, etc. Thus, we think the Legislature’s intent was clear. Consequently, we find the dissent’s assertions of legislative mistake unfounded.

20 (2) A deficiency, interest, or penalty shall not be assessed after the expiration of 4 years after the date set for the filing of the required return or after the date the return was filed, whichever is later. The taxpayer shall not claim a refund of any amount paid to the department after the expiration of 4 years after the date set for the filing of the original return. A person who has failed to file a return is liable for all taxes due for the entire period for which the person would be subject to the taxes. If a person subject to tax fraudulently conceals any liability for the tax or a part of the tax, or fails to notify the department of any alteration in or modification of federal tax liability, the department, within 2 years after discovery of the fraud or the failure to notify, shall proceed to assess the tax with penalties and interest as provided by this act, computed from the date on which the tax liability originally accrued. The tax, penalties, and interest shall become due and payable after notice and hearing as provided by this act.

(5) If a corporation liable for taxes administered under this act fails for any reason to file the required returns or to pay the tax due, any of its officers having control, or supervision of, or charged with the responsibility for making the returns or payments shall be personally liable for the failure. The signature of any corporate officers on returns or negotiable instruments submitted in payment of taxes shall be prima facie evidence of their responsibility for making the returns and payments. The dissolution of a corporation shall not discharge an officer’s liability for a prior failure of the corporation to make a return or remit the tax due. The sum due for a liability may be assessed and collected under the related sections of this act.

21 As used in this act:

(a) "Person” means an individual, firm, partnership, joint venture, association, social club, fraternal organization, municipal or private corporation whether or not organized for profit, company, estate, trust, receiver, trustee, syndicate, the United States, this state, county, or any other group or combination acting as a unit, and the plural as well as the singular number, unless the intention to give a more limited meaning is disclosed by the context. [MCL 205.92(a); MSA 7.555(2Xa).]

22 The appellant noted at oral argument that the Department of Treasury, in its appellate brief, described the July 27, 1984, notice of personal tax liability sent to the appellant as an "assessment.” The dissent also emphasized that the department frequently employed the term in describing the corporate officer’s indebtedness. Nonetheless, we do not believe word usage, in this instance, is dispositive. We stress that the differentiation we make between assessing corporate entities and transferring tax debts to derivatively liable corporate officers is substantive in nature.

23 The department’s argument that the "finality” of the assessment amount against the corporation under MCL 205.22(2); MSA 7.657(22X2), barred the appellant’s effort here to reduce the amount owing, is, we believe, a sound argument, and our decision to address and develop the first impression issue whether MCL 205.100(3); MSA 7.555(10)(3) can be applied to derivatively liable corporate officers was not intended to diminish or nullify its merits. We have chosen, however, to express no opinion as to its import on the facts at bar at this time. Thus, contrary to that which appears in the dissent, we express neither approval or disapproval as to the validity of this premise.

24 See In re Straight Estate, 329 Mich 319, 325; 45 NW2d 300 (1951).

25 MCL 205.24(1); MSA 7.657(24X1) provides:

If a person fails or refuses to file a return or pay a tax administered under this act within the time specified, the department, as soon as possible, shall assess the tax against the person and notify the person of the amount of the tax.

26 In its brief, the Department of Treasury sought to analogize derivative corporate tax liability to that of lender or surety corporate tax liability, as discussed in United States v Associates Commercial Corp, 721 F2d 1094 (CA 7, 1983). In Associates, the court held that the same limitation period applicable to principally taxed corporate employers should also be applicable to its lenders. The court further held that under 26 USC 6303(a),* a lender was a "person liable for the unpaid tax,” so that separate notice of liability was required to be sent to a lender within the principal taxpayer limitation period.

We decline to apply the reasoning found in Associates to the present facts for several reasons. First, the court in Associates principally addressed the tax ramifications arising out of an individual’s choice to lend funds to a corporation, a situation clearly distinguishable from the case at bar. Second, our decision today narrowly speaks with regard to derivative corporate officer liability as outlined in MCL 205.96(3); MSA 7.555(6)(3), and does not purport to supply any guidance as to corporate lenders or sureties. Third, and most important, the opinion espoused in Associates was repudiated by the United States Supreme Court in United States v Jersey Shore State Bank, 479 US 442; 107 S Ct 782; 93 L Ed 2d 800 (1987), where the Supreme Court held that the language found in 26 USC 6303(a), to the effect that "notice of [an assessment] to each person liable for the unpaid tax,” did not require the government to provide notice and a demand for payment to a lender before bringing suit to collect sums for which the lender was liable.

* Section 6303. Notice and demand for tax.

(a) General rule. — Where it is not otherwise provided by this title, the Secretary shall, as soon as practicable, and within 60 days, after the making of an assessment of a tax pursuant to section 6203, give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. Such notice shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person’s last known address.

27 In cases where a corporate tax default occurs before the officer assumes control over the respective tax activities of a corporation, the officer cannot be held personally liable for the corporation’s tax debts, because he was not "charged with the responsibility for making the corporation’s returns and payments” of the corporate taxes at the time the default occurred. See Slodov v United States, 436 US 238; 98 S Ct 1778; 56 L Ed 2d 251 (1978).

28 In view of the most recent amendment of MCL 205.100(3); MSA 7.555(10X3), see n 2, the question whether there is a need for a statute of limitation directed specifically at derivatively liable corporate officers under MCL 205.96(3); MSA 7.555(6)(3), so that the length of time in which an officer may be held liable for payment of corporate use taxes can be limited or "cut short,” is one that is appropriately addressed to the Legislature.