Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
The Sometimes Dubious Efficacy of Michigan Department of Treasury
“Rules,” “Revenue Administrative Bulletins,” “Letter Rulings,” “Questions
and Answers,” and Other Publications
Samuel J. McKim, III*
* Senior Principal, Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan; University of Michigan B.A., 1961; University of Michigan Law School, J.D., 1964; Adjunct Professor, State and Local Tax, Wayne State University Law School; Fellow, American College of Tax Counsel.
The Michigan Department of Treasury (Department) speaks with many voices. Sometimes the taxpayer is required to listen, other times he is only cautioned to hear, sometimes the taxpayer can rely on what he hears, other times not, and sometimes hearing may be deceiving. Unfortunately, there have been numerous instances when the Michigan courts and tribunals fail to recognize the distinction between a promulgated Departmental legislative pronouncement which has the force of law, a promulgated pronouncement which may appear to have the force of law but does not, a non-promulgated pronouncement which binds the Department, one which states that it binds the Department but does not, and pronouncements which the Department may, and those which it may not, retroactively disavow. Unfortunately as well, many taxpayers and their advocates fail to recognize the critical distinctions between types of Departmental pronouncements and, accordingly, may err not only in advising but in briefing tax issues for decision. Such errors percolate through the decided cases and the precedential appellate decisions. An understanding of how this came about, and what it means to Michigan taxpayers, should prove helpful to the serious taxpayer and taxpayer advocate. Hopefully, identifying the problems will prove to be the first step toward their considered resolution.
The issue of which pronouncements of the executive branch are binding and which are not, and which can be relied upon and which cannot, has long been recognized as critical. This issue gave rise on the federal level to the enactment and continuing refinement of the federal Administrative Procedure Act (federal APA) and, on the state level, in approximately 42 states, to similar but frequently quite different administrative procedures acts. Indeed, chapters two and three of the Michigan Administrative Procedures Act (MAPA) were enacted and updated to, among other things, clarify and deal with this issue.
While the Department is an “agency” subject to the MAPA, the MAPA definition of a “rule” required to be promulgated excludes many Department-published pronouncements. The Department has nevertheless promulgated announcements which were specifically excluded from the MAPA “rules” definition. Further, the Michigan courts have held that the legislature has separately authorized many of the Department’s pronouncements exculpating them from the promulgation provisions of the Michigan APA. To make matters more confusing, in 1989 the Department published a non-promulgated announcement stating that taxpayers can rely upon certain of its non-promulgated publications, indeed that some will be deemed to be “precedentially binding” until revoked or contradicted by precedential opinions, legislation, or promulgated rules. The Michigan courts, however, have refused to acknowledge this assurance, indeed in some cases have ordered the retroactive assessment of taxes which would not have been due under the Department “precedential” directive upon which taxpayers were told they could rely. Further, these courts have recently concluded that taxpayer reliance upon such Departmental published assurances will not estop the courts or even the Department from later retroactively ignoring them.
In interpreting ambiguous tax legislation the Michigan courts have, however, frequently stated they will accord “due deference,” “great weight,” or “respectful consideration” to longstanding non-promulgated Department published statutory constructions, but only if the court determines they are not “clearly wrong,” and do not “unfairly broaden scope” or contradict “a logical reading of the statute.” Even tax related promulgated rules, however, are not infrequently found to be nonbinding for a variety of reasons, such as the judicial conclusion that they are “wrong.”
To further compound the confusion, the Department, although directed to do so by the legislature, has not promulgated rules with respect to critical and complex tax legislation, such as the unique, first-of-its-kind, value-added Single Business Tax (SBT). Additionally, the Department has not always been diligent in rescinding or correcting its promulgated tax rules, many of which date back to the 1940s and 1950s, after they have been rendered obsolete in whole or in part, likewise with the Department’s Revenue Administrative Bulletin (RAB) and “Letter Ruling” publications.
Additional confusion is attributable to the Michigan Tax Tribunal (Tribunal) shares exclusive original jurisdiction in non-property tax matters with the Michigan Court of Claims (Court of Claims). The Tribunal rules do not require that advocates be attorneys or that they pass a test to confirm their qualifications to act as such, as in the United States Tax Court. The majority of the appointed tax Tribunal members sitting as “judges” are also not required to be trained in the law, including in statutory interpretation. While there is an appeal of right from the tax Tribunal to the court of appeals, some published precedential court of appeals opinions mistakenly accord deference to tax Tribunal statutory interpretations, and the majority of such appeals are resolved by non-published, non-precedential, per curium opinions. If these circumstances were not enough to spawn confusion, the courts have concluded that the tax Tribunal, as a quasi-judicial administrative agency, cannot deal with issues involving equitable remedies or assertions that tax statutes are unconstitutional.In 2005, the legislature amended the Revenue Act, which now empowers the Department, again bypassing the MAPA, to legislatively assure taxpayers that they will not be penalized for relying on certain types of Department publications after September 30, 2006, leaving the efficacy of the hundreds of extant prior publications which are republished each year in The Official Michigan Tax Guide still in limbo. Even with respect to those covered Department publications after September 30, 2006, the legislature has only assured that a taxpayer properly relying will not be “penalized,” without establishing whether this applies only to tax penalties or also to the assessment of taxes and interest. This legislation in some respects could elevate certain Department publications which have not undergone any of the notice or oversight requirements the MAPA requires of promulgated rules, or even of “guidelines,” to the status of “law,” even more so in some respects than the Department’s promulgated legislative rules, the former arguably permitting reliance even if they are “wrong.” On the other hand, if the reference to “penalized” refers only to statutory penalties, then the reliance assurance is deceptive and even the Department’s letter rulings issued to specific taxpayers may have lost most of their efficacy. Had Lewis Carroll’s Alice been required to deal with this variety of Michigan Department administrative pronouncements she would have found this a very strange world indeed.