USX CORP v. TREASURY DEP'T

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Docket Number

Docket No. 111617.

Attorney(S)

Foster, Swift, Collins Smith, P.C. (by Patrick R. VanTiflin), for the plaintiff. Frank J. Kelley, Attorney General, Gay Secor Hardy, Solicitor General, and Richard R. Roesch and Terry P. Gomoll, Assistant Attorneys General, for the defendant.

Judges

PER CURIAM.

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Smart Summary

Factual and Procedural Background

Plaintiff USX Corporation initiated litigation in 1982, contesting the defendant Department of Treasury’s interpretation of the Michigan Single Business Tax Act for the calendar year 1976. Plaintiff alleged that the defendant erroneously excluded certain receipts from the tax apportionment formula, resulting in an overpayment of $791,260.21 and sought a refund and relief under § 69 of the Act (MCL 208.69; MSA 7.558(69)). After a bench trial, the trial court ruled in favor of plaintiff. The defendant appealed this judgment as of right.

Legal Issues Presented

Whether the receipts from the redemption and sale of certificates of deposit and other investment securities constitute "sales" under § 7(1) of the Michigan Single Business Tax Act and should be included in the sales factor of the apportionment formula.
Whether the trial court erred in granting plaintiff relief under § 69 of the Single Business Tax Act based on the alleged mischaracterization of plaintiff’s investment activities by the defendant.

Arguments of the Parties

Plaintiff's Arguments

The plaintiff argued that the proceeds from the sale of securities and investment paper should be included in the sales factor of the tax apportionment formula under the Single Business Tax Act.
Plaintiff contended that these investment activities constituted "sales" as defined in § 7(1) of the Act.
Plaintiff relied on United States Steel Corp v Wisconsin Dep't of Revenue to support a broad interpretation of "sales," asserting that the investment activities produced business income that should be apportioned to Michigan.

Defendant's Arguments

Defendant maintained that the receipts from investment securities did not qualify as sales under the Act because plaintiff was not engaged in the business of selling securities to customers in the ordinary course of business.
Defendant argued that plaintiff’s investment activities were for its own account, not as a dealer or trader in securities, and thus did not meet the statutory definition of "sale."
Defendant challenged the trial court’s grant of relief under § 69, asserting that no misclassification of plaintiff’s activities had occurred.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
United States Steel Corp v Wisconsin Dep't of Revenue, Wisconsin Tax Appeal Comm, May 9, 1985 (Docket No. I-6578)	Definition of "sales" as broadly encompassing gross receipts from regular trade or business operations producing apportionable income.	The court found plaintiff’s reliance misplaced because Wisconsin’s broader definition of sales differs from Michigan’s more restrictive statutory definition under § 7(1) of the Single Business Tax Act.
Trinova Corp v Dep't of Treasury, 433 Mich. 141; 445 N.W.2d 428 (1989), cert. granted 110 S. Ct. 1317 (1990)	Interpretation of § 69 of the Single Business Tax Act regarding relief for erroneous tax categorization.	The court applied this precedent to conclude that relief under § 69 was not warranted because the defendant did not err in its characterization of plaintiff’s investment activities.

Court's Reasoning and Analysis

The court analyzed the statutory definition of "sale" under § 7(1) of the Michigan Single Business Tax Act, which limits sales to gross receipts from transferring property held as stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of business, or from performance of business services. The court examined the nature of plaintiff’s investment securities—certificates of deposit, commercial paper, stocks, and bonds—which plaintiff acquired and sold for its own account.

The court found no evidence that plaintiff was engaged in the business of selling securities to third parties, nor that it was licensed or registered as a dealer in marketable securities. Plaintiff’s principal businesses were unrelated manufacturing and service operations. Consequently, the court held that the receipts from these investment activities did not fall within the statutory definition of "sales" for purposes of the tax apportionment formula.

Regarding relief under § 69 of the Act, the court reasoned that such relief depends on a finding that the defendant misclassified plaintiff’s activities. Since the court determined no such misclassification occurred, the grant of relief was erroneous.

Holding and Implications

The court REVERSED the trial court’s judgment in favor of plaintiff and remanded the case for further proceedings consistent with the opinion.

This decision directly affects the parties by denying plaintiff’s claim for tax refund and relief under § 69, affirming the defendant’s interpretation of the Single Business Tax Act. The opinion does not establish new precedent but clarifies the application of the statutory definition of "sale" in the context of investment securities held by a taxpayer for its own account.

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USX CORPORATION v DEPARTMENT OF TREASURY

PER CURIAM.

Plaintiff began this litigation in 1982. The appeal before us arises from an amended complaint which alleged that for the calendar year 1976 defendant erroneously interpreted the Single Business Tax Act. Plaintiff complained that as a result it overpaid taxes by $791,260.21 and was entitled to a refund and relief under § 69 of the act, MCL 208.69; MSA 7.558(69). Following a bench trial, the court entered judgment in favor of plaintiff. Defendant now appeals as of right. We reverse.

The Michigan Single Business Tax Act sets forth a procedure by which a multistate taxpayer's tax base is apportioned to Michigan. MCL 208.45; MSA 7.558(45). One factor in this apportionment formula is the ratio of total sales in Michigan to total sales everywhere. Plaintiff argued that defendant improperly excluded from the formula the proceeds from the sale of securities and investment paper. The court found that plaintiff's receipts due to the redemption and sales of certificates of deposit and other securities constituted sales under § 7(1) of the Single Business Tax Act, MCL 208.7(1); MSA 7.558(7)(1), and should have been included in the computation of the sales factor.

"Sale" is defined in § 7(1) as

the gross receipts arising from a transaction or transactions in which gross receipts constitute consideration: (a) for the transfer of title to, or possession of, property that is stock in trade or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the tax period or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, or (b) for the performance of services, which constitute business activities other than those included in (a), or from any combination of (a) or (b).

The relevant investment securities consisted of CDS, commercial paper, stocks, and bonds. The securities were acquired from the issuers and then redeemed or resold to banks or investors.

Plaintiff's thesis is that these investment activities constitute sales. To hold that the investments were sales, the trial court must have found that the CDS and other securities constituted stock in trade or inventory, or were held "primarily for sale to customers in the ordinary course of business." However, the trial court did not find that plaintiff was in the business of selling securities to third parties; nor did plaintiff show that it was licensed or registered by the Securities and Exchange Commission or the State of New York as a dealer in marketable securities. Plaintiff's major lines of business were manufacturing, chemicals, resource development, fabricating, engineering, domestic transportation, and utilities. The only evidence presented showed that the plaintiff was purchasing and selling securities for its own account.

To support this argument plaintiff relies on United States Steel Corp v Wisconsin Dep't of Revenue, Wisconsin Tax Appeal Comm, May 9, 1985 (Docket No. I-6578). This reliance is misplaced; the Wisconsin definition of "sales" is much broader and more general, providing:

[T]he term "sales" for purposes of the sales factor [is defined] as "generally all gross receipts derived by a taxpayer from transactions and activities in the course of its regular trade or business operations which produce business (apportionable) income." [ Id., p 35, quoting Wis Adm Code, § Tax 2.39(5)(a).]

We conclude that the trial court's characterization of plaintiff's investment activities as sales is not supported by the evidence and that the receipts from these activities do not fall within the definition of sale found in § 7(1).

Defendant also complains that the court erred in granting plaintiff relief under § 69 of the Single Business Tax Act. The trial court's grant of relief under that act was conditioned on its finding that defendant had incorrectly categorized plaintiff's investment activities. Because, as shown above, the defendant did not incorrectly categorize plaintiff's investment activities, the trial court erred in granting plaintiff relief under § 69 of the Single Business Tax Act. Trinova Corp v Dep't of Treasury, 433 Mich. 141; 445 N.W.2d 428 (1989), cert gtd ___ US ___; 110 S Ct 1317; 108 L Ed 2d 492 (1990).

We reverse the judgment of the trial court and remand for further proceedings consistent with this opinion. We do not retain jurisdiction.