Borden, Inc v. Department of Treasury

Levin, J.

(for affirmance). When, following receipt of the annual report of a corporation, the Franchise Fee Division "computes” the franchise fee of the corporation, it exhausts its authority under the statute. The Division is not authorized to re-compute the fee if it subsequently obtains what it regards as more accurate information.

The Division (or its predecessor, the Michigan Corporation and Securities Commission) stamped on Borden’s reports for each of the years 1964-1968 the date "filed” and the date "accepted”. On each report there appears the "Tentative computation of fee by Corporation” and separately, in the handwriting of a state employee, the "Fee as computed by Franchise Fee Division” (or, for the first two years, "Fee as computed by the Michigan Corporation and Securities Commission”).1 (Em*501phasis supplied.) Before the reports were accepted, *502an overpayment was computed by the Franchise Fee Division for 1966, a deficiency by the Corpora*503tion and Securities Commission for 1964. The deficiency was paid and is not in dispute.2

*504Borden was later notified, based on information obtained in subsequent field audits, of claimed deficiencies for the five years. From an adverse redetermination by the appeal board, it appealed to the circuit court. The circuit judge and, on further review, the Court of Appeals agreed with Borden that the Division and its predecessor, having computed the tax and accepted and filed Borden’s annual reports for the years in dispute, was without authority to compute the tax a second time and, hence, was without authority to levy a deficiency. We would affirm those judgments.

I

The statutory provisions establishing the procedures for the computation and collection of the corporate franchise fee took their present form in 1921.3

These provisions were structured on the premise that promptly after the filing of the annual report of a corporation, the franchise fee for the year would be computed by the Secretary of State (later the Michigan Corporation and Securities Commission, now the Corporate Franchise Fee Division of the Department of Treasury) after the receipt of such additional information as he (or his successors) requires.4

*505The statutes contain no language expressly or impliedly authorizing field audits. The practice was not to conduct field audits.

Subsequently, with the enactment of the sales, use and other state taxes, field audits pertaining to those taxes were legislatively authorized.

In 1941 the Department of Revenue was created to coordinate the collection of state taxes and to avoid duplications in facilities for tax collections and audits. The administration of the sales, use and other taxes was transferred to this new department.*5065 ***5 6The Department also succeeded to the functions and responsibilities of the Michigan Corporation and Securities Commission "over the enforcement, investigation and collection of past-due and delinquent corporate privilege and franchise fees and license fees of any nature.”6 The Commission retained the duty to "compute” the franchise fee and collect franchise fees not "past-due and delinquent”.

In 1952, in connection with a revision of the computation formula, it was provided that the Commission would continue to "compute” the franchise fee "working in conjunction with the state department of revenue.” No other change was made in structure or procedure.

II

It is too late for the Franchise Fee Division to "work in conjunction” with the Department of Revenue in the "computation” of a franchise fee after it has been computed. Whatever "work” is done "in conjunction” with the Department of Revenue manifestly is to be done before the Franchise Fee Division "computes” the fee. Any information obtained after computation can be utilized only to assist the Division in the computation of fees for subsequent years.

The "final determination” language goes back to the original enactment in 1921; it is part of a sentence authorizing the Michigan Corporation and Securities Commission to require the corpora*507tion itself to furnish information in addition to that required in the annual report:

"[T]o furnish detailed and exact information touching such several matters before making a final determination.”7

Clearly that language did not contemplate computations based on field audits but, rather, computations based on information obtained without audits. Nor could this language — enacted two decades before the Department of Revenue was created— set the stage for recomputations based on Revenue Department audits.

The foregoing construction of this 1921 enactment finds support in the fact that 14 years later field audits were still thought to be impractical:

“The statute does not provide, in express language or by authorization of expense, for the impractical procedure of audit and appraisal of each corporation each year by the State. It contemplates that the tax shall be found from the annual report of the corporation to the Secretary of State supplemented by the further facts demanded * * * .” In re Appeal of Hoskins Manufacturing Co, 270 Mich 592, 596-597; 259 NW 334 (1935).8

This Court has said: "Tax exactions, property or excise, must rest upon legislative enactment, and collecting officers can only act within express authority conferred by law. Tax collectors must be able to point to such express authority so that it may be read when it is questioned in court. The *508scope of tax laws may not be extended by implication or forced construction. Such laws may be made plain, and the language thereof, if dubious, is not resolved against the taxpayer.” In re Dodge Brothers, 241 Mich 665, 669; 217 NW 777 (1928), an appeal from a computation of a corporate franchise fee pursuant to 1921 PA 85.

Ill

The Franchise Fee Division stresses the need for prompt filing and acceptance of the annual report, the impracticability of auditing a corporation’s books every year and the utility of combining an audit for other tax purposes with an audit for corporate franchise fee purposes. These are entirely valid considerations but they overlook the history of the franchise fee.

The franchise fee was initially a license fee— sometimes called a privilege fee — to be paid in advance for the privilege of exercising the franchise during the ensuing year. The procedures for computation of the fee contemplate that it will be determined promptly after the annual report is filed and before the franchise is exercised. The annual report division has consistently administered its responsibilities in this manner. Only in subsequent years did the fee become a revenue raising measure,9 but the authority of the tax collector — the Franchise Fee Division and its predecessors — was not enlarged, the statutory procedures have not been changed. Only recently, many years after the 1952 amendment (see text follow*509ing fn 6) has the Franchise Fee Division sought, based on field audits for other tax purposes, to recompute a franchise fee it had previously computed.

While it may make sense to utilize field audits in determining the correct fee, the Legislature has failed to provide, any means by which a different fee can properly be computed after the fee has once been computed and the annual report accepted.

The Attorney General would have us revise the procedures so that this seemingly desirable safeguard of the revenues can be implemented. When confronted with the need for finality and the absence of a statute of limitations other than the limitation implicit in the obligation to compute the fee promptly before acceptance of the annual report, he suggests the six-year statute applicable to personal actions.

Only by a strained construction can that limitation period — applicable to actions commenced in a court10 — be applied to the determination of a tax deficiency which a department of government claims it is authorized to make without commencing an action and, if it is correct in its thesis, once made is final unless the taxpayer appeals. A determination so made may never reach a court, and then only upon appeal from an adverse administrative determination, not as an action commenced in court.11 11

*510IV

Courts are, indeed, sometimes constrained to supply a gap in legislation, particularly legislation which, builds on common-law doctrine. The law of taxation is statutory, and historically the prerogative of the legislative branch.

The Attorney General and the Franchise Fee Division ask us not just to improvise to provide for utilization of an audit capability which did not exist when the corporate franchise fee procedures took their present form in 1921, but to change a long established feature of the administration of the franchise fee. They ask us to eliminate the finality, absent fraud or administrative appeal, of the computation made early in the year the franchise is exercised, and to substitute a relatively long six-year statute of limitations.

If the present system does not adequately safeguard the revenue, the Division may present the evidence to the Legislature.12 The Legislature will be as concerned about protecting the revenue as the Department of the Treasury and the Attorney General. It has not been demonstrated that there is need for judicial improvisation pending a legislative solution. A legislative solution has the advantage that at the same time there can be enacted a statute of limitations expressive of legislative choice concerning an appropriate limitation period.

T. G. Kavanagh and M. S. Coleman, JJ., concurred with Levin, J.

1964 report: The report was received from Borden on May 8, 1964. A deficiency was computed and Borden notified on July 8, 1964. The *501deficiency was paid July 15, 1964 and the report was filed July 29, 1964:

1965 report: Received and filed'without change:

*502

1966 report: An overpayment was computed by the Division and refund was made after the report was filed:

*5031967 report: Received and filed without change:

1968 report: Received and filed without change after further infornation was furnished by Borden:

See fn 1.

1921 PA 85; MCLA 450.301-450.310; MSA 21.201-21.210(1).

It is clear both from the language of the annual report forms (see fn 1) and of the statutes (infra, this footnote) that the key word is "computation”.

The corporate franchise fee is initially self-assessed. The taxpayer is required to file an annual report supplying information from which the fee can be computed, and is further required to pay the fee it computes as shown on the annual report when it is filed. The statute specifies in some detail the information to be set forth in the annual report, additionally requiring "[s]uch other information and facts as the department of treasury may demand and need for the purpose of computing the annual privilege fee provided by law.” (Emphasis *505supplied.) 1970 CL 450.82; MSA 21.82, now MCLA 450.1911; MSA 21.200(911); MCLA 450.304; MSA 21.205.

The collector of the corporate franchise fee is not bound by the amount shown on the report; the taxpayer can be required to furnish additional information. It is provided that the "Michigan corporation and securities commission shall in all such cases be authorized to require the corporation to furnish detailed and exact information touching such several matters before making a final determination of the privilege fee to be paid by such corporation.” (Emphasis supplied.) MCLA 450.304; MSA 21.205.

It was also provided that such reports shall be carefully examined and "if upon such examination they shall be found to comply with all the requirements of this act” the report shall be filed and a copy forwarded to the county where the corporation has its registered office. 1970 CL 450.84; MSA 21.84, now MCLA 450.1131; MSA 21.200(131).

It is further provided that "[i]n the case of computing the annual franchise fee * * * such computations shall be made by the Michigan corporation and securities commission, working in conjunction with the state department of revenue”. (Emphasis supplied.) MCLA 450.305; MSA 21.208.

It is further provided that the corporation "shall be notified as soon as practicable of the computation of its franchise fee pursuant [to the last mentioned provisions] * * * in the event it has remitted an amount in excess of the proper fee or has any further liability with respect thereto”; provision is made for refund or credit of any excess paid; and any corporation "may apply for a redetermination of its franchise fee by filing a written request therefor with the corporation and securities commission within 20 days after receipt of notice of the original computation above referred to”. The commission "shall promptly redetermine the liability of such corporation.” The corporation may then appeal to the appeal board; the appeal board "shall recompute the liability of the taxpayer”. (Emphasis supplied.) MCLA 450.309; MSA 21.210.

1941 PA 122.

In contrast with the statutory provisions relating to the franchise fee, the Sales Tax Act (MCLA 205.68, 205.72; MSA 7.539, 7.543), the intangibles tax act (MCLA 205.141, 205.143; MSA 7.556[11], 7.556[13]), and the Income Tax Act (MCLA 206.455, 206.408; MSA 7.557[1455], 7.557[1408]), provide for audit and assessment of deficiencies.

MCLA 205.13; MSA 7.657(13).

The deficiencies sought to be levied against Borden are based on field audits, not on information furnished by Borden in response to inquiries from the Franchise Fee Division "touching such several matters”.

In both Hoskins and McLouth Steel Corp v Corporation & Securities Commission, 372 Mich 76; 124 NW2d 900 (1963), the proceedings concern computations of franchise fees before acceptance and filing of annual reports, not an attempted recomputation.

Initially, the fee was not less than $50 nor more than $10,000 (1921 PA 85, § 4); subsequently the minimum amount was reduced to $10 and the maximum amount was increased to $50,000 (1923 PA 233) and still later the maximum amount was eliminated (1951 PA 277).

"All other personal actions shall be commenced within the period of 6 years after the claims accrue * * * .” MCLA 600.5813; MSA 27A.5813.

In re MacDonald Estate, 341 Mich 382; 67 NW2d 227 (1954), dealt with the applicability of the general statute of limitations in the context of an action commenced in the probate court.

The decedent’s will was admitted to probate on petition filed with that court. The estate had never been closed. The probate court had cited the surety on the executrix’s bond and had ordered the surety to *510pay inheritance tax based on a determination made 28 years after the death of the deceased; the order was set aside on appeal.

The extent of the revenue loss under the system established by the Legislature is unclear.