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STATE OF MICHIGAN COURT OF APPEALS

THE LANE COMPANY INCORPORATED, Plaintiff-Appellee, v DEPARTMENT OF TREASURY, STATE OF MICHIGAN, Defendant-Appellant.

UNPUBLISHED January 25, 2011

No. 294456 Court of Claims LC No. 06-169-MT

Before: METER, P.J., and M. J. KELLY and RONAYNE KRAUSE, JJ. PER CURIAM. Defendant the Department of Treasury appeals by right an order of dismissal entered by the Court of Claims. The order of dismissal was entered by stipulation of the parties after the Court of Claims granted partial summary disposition in favor of plaintiff regarding plaintiff's claim that defendant should have waived a penalty for plaintiff's failure to make Single Business Tax (SBT) payments for tax years 1998 and 1999. Defendant contends that summary disposition was improperly granted. We affirm. Michigan's now-repealed1 Single Business Tax Act (SBTA), MCL 208.1 et seq., was originally promulgated by the Legislature in 1975 PA 228. Over the years, various standards have been used to determine whether out-of-state corporations have a "substantial nexus" with Michigan to be subject to SBT taxation in Michigan. Plaintiff is a Virginia corporation with no Michigan employees or property, but rather contracts with independent contractors to solicit requests for sales of its products, and those requests are considered and approved in Virginia. In 1988, plaintiff sought information from defendant about SBT returns for tax years 1981 through 1986. Defendant sent plaintiff a letter explaining that "[a] manufacturer receiving orders for its products, whose orders are sent outside the state for approval or rejection and if approved, are filled by shipment or delivery from a point outside the state, is afforded immunity from SBT

The SBTA was repealed in 2007, but any tax liabilities incurred prior to the date of repeal remain due and owing. MCL 208.151 et seq.

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under Public Law 86-272.2" The letter requested clarification from plaintiff "before we will clear your company of a possible SBT liability." Plaintiff replied that according to the list of "[e]xamples of non-immune activities" attached to defendant's letter, it "is not conducting business in Michigan," and "the only activity is the solicitation of orders which require acceptance outside the state of Michigan." The matter rested there for many years, and neither party contacted the other until 2000. In the meantime, this Court decided Gillette Co v Dep't of Treasury, 198 Mich App 303; 497 NW2d 595 (1993). Among other things, Gillette Co held that PL 86-272 did not apply to the Single Business Tax Act. Id. at 307-311. Immediately after this Court's Gillette Co decision, defendant took the position that the "resident employee nexus standard," simply meaning that a company must have a resident employee in Michigan, was the touchstone for SBT liability. We perceive no argument that plaintiff had SBT liability under this standard. Defendant contends that it again changed the standard for determining "substantial nexus" on the basis of subsequent appellate court decisions, presumably referring to Magnatek Controls Inc v Treasury Dep't, 221 Mich App 400; 562 NW2d (1997), in which this Court addressed the Commerce Clause "substantial nexus" standard and concluded that it required more than a "slightest presence" in a state, but substantial presence was not required. On February 24, 1998, defendant promulgated Revenue Administrative Bulletin (RAB) 1998-1, which set forth the newest standard for determining a "substantial nexus" for SBT purposes. Under RAB 1998-1, a "substantial nexus" for SBT liability purposes will be established by an out-of-state company "regularly and systematically conduct[ing] in-state business activity through . . . independent contractors," and this is rebuttably presumed to occur if the company spends two or more days soliciting sales (RAB 1998-1, I(6)(b)(i)(1)). For purposes of this appeal, it is conceded that plaintiff is subject to SBT liability for 1998 and 1999 under this standard. At issue is the 50% penalty that defendant assessed against plaintiff for plaintiff's failure to remit SBT payments for 1998 and 1999. Plaintiff contends that it was unaware of RAB 1998-1, it relied on the 1988 letter from defendant, and because the standard in RAB 1998-1 is significantly broader than any Michigan case law would support, its enforceability was dubious until it was finally upheld by decisions from this Court in 2005 and our Supreme Court in 2007.3 Plaintiff argued that this constituted "reasonable cause" for its failure to pay the SBT, so the penalty should have been waived. The trial court agreed. A grant or denial of summary disposition is reviewed de novo on the basis of the entire record to determine if the moving party is entitled to judgment as a matter of law. Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999). When reviewing a motion under MCR 2.116(C)(10), which tests the factual sufficiency of the complaint, this Court considers all

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The Interstate Income Tax Act of 1959, codified at 15 USC

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Michigan Law