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STATE OF MICHIGAN COURT OF APPEALS

OHIO SAVINGS BANK, Plaintiff-Appellant, v DEPARTMENT OF TREASURY, Defendant-Appellee.

UNPUBLISHED October 13, 2009

No. 284656 Court of Claims LC No. 07-000007-MT

Before: Talbot, P.J., and Wilder and M. J. Kelly, JJ. PER CURIAM. Plaintiff appeals as of right a Court of Claims order granting summary disposition to defendant under MCR 2.116(I)(2). The court held that, under the Michigan Single Business Tax Act (SBTA), MCL 208.1 to MCL 208.145,1 plaintiff was required to pay a single business tax for business activities in Michigan that resulted in income even though the income was received at addresses outside of the state. The court also declined to waive a penalty assessed to plaintiff for failure to file and pay taxes. Because we conclude that there were no errors warranting relief, we affirm. Plaintiff argues that MCL 208.65 was interpreted incorrectly to include interest income that was not received in Michigan, that a Revenue Administrative Bulletin (RAB) on the topic was invalid because it contravened MCL 208.65, and that the RAB at issue should not have been applied retroactively. Plaintiff also argues that an alternative statute applied for purposes of sourcing its income, and that it should not have been assessed a penalty for failure to file and pay taxes. This Court reviews de novo both a trial court's decision on a motion for summary disposition and questions of statutory interpretation. Eggleston v Bio-Medical Applications of Detroit, Inc, 468 Mich 29, 32; 658 NW2d 139 (2003); Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999). Plaintiff is based in Cleveland, Ohio, and had branch offices in Arizona and Florida. During the relevant period, plaintiff's business activities included offering banking services, such as issuing loans and credit cards, and buying bundles of mortgages from loan brokers. After

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The SBTA was repealed in 2006. 2006 PA 325.

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auditing plaintiff's business activities in Michigan for the period from October 1, 1998 to September 30, 2001, defendant assessed a tax on plaintiff in the amount of $608,446. Defendant also billed plaintiff for $226,394.56 in interest and $152,115 as a penalty, for a total liability of $986,955.56. During the relevant period, plaintiff received payments for loans that were secured by property located in Michigan, and received credit card payments from customers located in Michigan. None of the payments received by plaintiff were sent to a Michigan address. Plaintiff only had a single employee in Michigan, who purchased loan bundles from brokers. Defendant assessed the tax against these business activities. Plaintiff first argues that, based on the language of MCL 208.65, only interest income received in Michigan was subject to the SBTA. A financial organization, such as plaintiff, apportions its income to Michigan sources based on MCL 208.65. MCL 208.65 provides: The tax base of a financial organization attributable to Michigan sources shall be taken to be: (a) The entire tax base of a taxpayer whose business activities are confined solely to this state. (b) In the case of a taxpayer whose business activities are conducted partially within and partially without this state that portion of its tax base as its gross business in this state is to its gross business everywhere during the period covered by its return. Gross business includes the sum of: (i) Fees, commissions, or other compensation for financial services. (ii) Gross profits from trading in stocks, bonds, or other securities. (iii) Interest charged to customers for carrying debit balances of margin accounts, without deduction of any costs incurred in carrying the accounts. (iv) Interest and dividends received. (v) Any other gross income resulting from the operation as a financial organization. In this case, the parties dispute whether MCL 208.65(b)(iv) requires plaintiff to include, as single business tax gross business, interest payments it received at addresses outside of Michigan from loans made that were secured by property in Michigan or made to borrowers located in Michigan. Plaintiff argues that MCL 208.65 defines gross business as interest and dividends received, and that "in this state" modifies the first reference to "gross business" in MCL 208.65(b). Therefore, it argues, the plain reading of the statute in MCL 208.65(b) would be that plaintiff's tax base includes "interest and dividends received in this state . . . ." Thus, plaintiff concludes, its portion of gross business sourced to Michigan is zero because it received no interest in this state. This Court has already addressed--and rejected--a similar argument. In PNC Bank Nat'l Association v Dep't of Treasury, ___ Mich App ___, ___; ___ NW2d ___ (2009), PNC

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argued that, although it received interest income from loans that were secured by real property in Michigan and from unsecured loans made to Michigan customers, the interest from those loans could not be included when calculating its tax under the SBTA because it received payments from these transactions at an address outside Michigan. This Court stated that it was unconvinced that PNC's interpretation of MCL 208.65(b)(iv) was correct: "It seems illogical that the Legislature would intend to exempt from taxation interest income earned on loans secured by Michigan property or made to Michigan customers simply because the payments on these loans were sent to an out-of-state mailing address." Id. at ___. This interpretation, the Court noted, would "set up a perfect tax loophole" and was inconsistent with the clear purpose behind

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