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A Better Partnership
January 07, 2016

Dictionary definition of the word “under” controls in the Court of Appeals’ ordering of tax credits pursuant to the Michigan Business Tax Act

Tax credits that are “under” the Michigan Business Tax Act (BTA) are those that are provided for within the act or are otherwise subject to its authority even if the credits are not created by the BTA, the Court of Appeals held in Ashley Capital, LLC, v. Department of Treasury, No. 322386.  In so holding, the court concluded that, pursuant to MCL 208.1403(1), compensation credits and investment credits have a “super priority” position relative to brownfield rehabilitation credits and carryforward credits.
Plaintiff Ashley Capital, LLC, brought suit against the Department of Treasury, asserting that the Department had improperly calculated the amount of tax owed under the former BTA for the 2008, 2009, and 2011 tax years.  Specifically, Ashley Capital contested the order in which the Department had applied carryforward credits from the Single Business Tax Act (SBTA) when it calculated Ashley Capital’s BTA liability.  The BTA states that “the credits provided in this section shall be taken before any other credit under this act.”  MCL 208.1403(1). The credits provided for in the referenced section are the compensation credit and the investment tax credit.  Despite this language, the Department required Ashley Capital to take carryforward credits and brownfield rehabilitation credits before taking compensation credits and investment credits, claiming that credits “under” the BTA consist only of credits created by the BTA, which does not include the brownfield rehabilitation credits and the carryforward credits that originated under the SBTA.  In contrast, Ashley Capital argued that the brownfield rehabilitation credits and carryforward credits are credits provided for under the BTA, and thus, the compensation credits and investment tax credits should have been taken before the brownfield rehabilitation and carryforward credits.  The Court of Claims agreed with Ashley Capital’s argument and granted summary disposition in its favor.  The Department appealed.
The Court of Appeals first noted that to be “under” the BTA, a credit must be “within the group or designation of” the BTA or “subject to the authority, control, guidance, or instruction of” the BTA.  The BTA expressly provides for the carryforward credits under MCL 208.1401 and for brownfield rehabilitation credits under MCL 208.1437.  Thus, based on a plain definition of what it means to be “under” the BTA, the compensation credits and investment tax credits have priority over the brownfield rehabilitation and carryforward credits.  Moreover, the court noted that if the Legislature had only intended to place the compensation credits and investment credits before credits created by the BTA, as the Department argued, the Legislature would have made this intent clear.  Finally, the court concluded that while the Department’s interpretation of the BTA was entitled to consideration, it was not persuasive because it did not comport with the plain language of the statute.  Accordingly, the court affirmed the decision of the lower court.

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