The Michigan Supreme Court has affirmed that the limited 35-day period for a taxpayer to appeal a final tax assessment begins only after the Michigan Department of Treasury issues copies of the final assessment to both the taxpayer and any designated representative.1

Background

Two unrelated Michigan corporate taxpayers, which operated multiple convenience stores in Michigan, executed power of attorney forms each authorizing a designated representative to act on their behalf with respect to sales and use tax matters. These forms were filed with the Department in a timely fashion.2

The taxpayers were each audited for sales tax by the Department and disallowed a food deduction. Upon completion of their respective audits, the taxpayers and their representatives were issued preliminary decisions and orders of determination. Though the Department claimed to have sent each of the taxpayers a copy of their final assessment via certified mail, the taxpayers denied having received this correspondence. The designated representatives of the taxpayers were not initially contacted by the Department regarding the final assessments. Only after inquiring about the status of the assessments to the Department were the taxpayers' representatives provided copies of the final assessments. The final assessments were received by the taxpayers' representatives only after the 35-day statutory period within which to appeal the assessments to the Michigan Tax Tribunal had expired. The taxpayers filed appeals with the Tax Tribunal disputing the final assessments within a week of their receipt by their respective representatives.

In response to the appeals, the Department argued that the Tax Tribunal lacked jurisdiction because the appeals were not filed within 35 days after the dates of issuance of the final assessments. The taxpayers contended that because statutory notice had not been given to their appointed representatives, the appeals period had not been triggered upon initial issuance of the final assessments and their appeals had been filed in a timely manner.

The Tax Tribunal denied the Department's motion for summary disposition in both cases, holding that notice to the taxpayer alone was not sufficient to initiate the 35-day period, but notice to the taxpayer's designated representative was also required.3 Based on the merits of each case, the Tax Tribunal cancelled the tax assessments.

The Department appealed this decision by right to the Court of Appeals, again arguing that the 35-day appeal period began on the original issuance date of the final assessment, which need only be sent to the taxpayer itself. The Court of Appeals affirmed both Tax Tribunal decisions,4 and the Department appealed to the Michigan Supreme Court.

Analysis of Statutory Notice Requirements

Sales tax deficiency assessments are administered in Michigan pursuant to the General Sales Tax Act.5 Pursuant to the revenue collection act governing administration of the sales tax, the Department has certain notification requirements which it must follow when issuing final assessments upon completion of a sales tax audit. Specifically, the Department must provide notice to a taxpayer of the final assessment either by personal service or by certified mail addressed to the last known address of the taxpayer.6 Additionally, if a taxpayer files with the Department a written request that copies of letters and notices regarding a dispute with that taxpayer be sent to the taxpayer's official representative, a copy of each letter or notice sent to that taxpayer must be sent to the designated representative.7

Despite the Department's argument that the requirement to send a copy of the correspondence to the taxpayer's designated representative was a nonbinding obligation, the Court determined both statutes to be of equal weight. The Court noted that "reading the notice statutes in pari materia with MCL 205.22 confirms the notice statutes' parity. Statutes that relate to the same subject matter or share a common purpose must be read together as constituting one law, even if they contain no reference to one another and were enacted on different dates."8 Thus, the Court concluded that in order to toll the statutory appeals period, copies of the assessment needed to be provided to both the taxpayers and their designated representatives. The appeals made by the taxpayers were, as a result, filed timely and the Tax Tribunal retained jurisdiction to address the substantive issues in the case. Therefore, the Court affirmed the rulings by the Court of Appeals, with one exception. To the extent that the Court of Appeals held that the taxpayers' appeals were valid because they filed an appeal within 35 days after their representatives received notice from the Department, such finding was erroneous. Rather, the 35-day period began on the date that the Department complied with the Michigan statutes by giving the taxpayers notice of the final assessment and by sending a copy of the notice of such assessment to their respective representatives' addresses.

Commentary

This watershed decision provides additional protection for taxpayers imbued in tax controversy in Michigan. The clear requirement for the Department to ensure that designated taxpayer representatives receive copies of final assessments related to tax controversies should serve to prevent any inadvertent exclusion of these representatives from the controversy resolution process. As some taxpayers – especially those with limited tax controversy experience or knowledge – choose to rely solely on designated representatives to handle tax matters on their behalf, the importance of this protection cannot be overstated.

While the facts in this case deal solely with sales tax assessments, the statutes at issue are included in the revenue collection act, which includes all taxes administered by the Department.9 Therefore, the beneficial notice requirements are applicable to controversies involving all Michigan taxes that are administered by the revenue collection act.

Footnotes

1 Fradco, Inc. v. Dep't. of Treasury; SMK, LLC v. Dep't. of Treasury, Michigan Supreme Court, Nos. 146333 and 146335, Apr. 1, 2014.

2 The Department took issue with the validity of the powers of attorney, arguing that one taxpayer did not clearly identify a specific dispute, while the other taxpayer had multiple powers of attorney on file. These issues were not preserved at the Michigan Court of Appeals.

3 Fradco Inc. v. Dep't. of Treasury, Michigan Tax Tribunal, Docket No. 409506, Jan. 20, 2011; SMK ,LLC v. Dep't. of Treasury, Michigan Tax Tribunal, Docket No. 409504, Jan. 20, 2011.

4 Fradco, Inc. v. Dep't. of Treasury, 826 N.W. 2d 181 (Mich. Ct. App. 2012); SMK, LLC v. Dep't. of Treasury, 826 N.W.2d 186 (Mich. Ct. App. 2012).

5 MICH. COMP. LAWS § 205.22. The General Sales Tax Act dictates that the Department follow the revenue collection act, MICH. COMP. LAWS §§ 205.1-205.31, in administering the statute.

6 MICH. COMP. LAWS § 205.28.

7 MICH. COMP. LAWS § 205.8.

8 Citing Jennings v. Southwood, 521 N.W. 2d 230 (Mich. Ct. App. 1994); Crawford Co. v. Sec'y of State, 408 N.W. 2d 112 (Mich. Ct. App. 1987).

9 MICH. COMP. LAWS §§ 205.1; 205.20.

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