By Ben Solis
Gongwer News Service
The Michigan Supreme Court on Thursday ruled unanimously that the Court of Appeals and the Wayne Circuit Court did not err when both found a Detroit fire prevention fee wasn’t an unlawful tax in violation of the Headlee Amendment.
The high court, however, decided the Court of Appeals’ reasoning was materially flawed despite the lower court coming to the correct conclusion.
In an unsigned order issued Thursday, the Supreme Court said it agreed with the defendant-appellee in Midwest Valve & Fitting Company v. Detroit (MSC Docket No. 165726), affirming both the lower courts in the process.
The lawsuit involves the city’s imposition of annual charges on owners of commercial property and multiunit residential property within the city’s limits. The plaintiff, an owner who paid the charges, claimed they are taxes in violation of the Headlee Amendment. The city, however, said they were permit fees. The trial court granted partial summary disposition to the city on the Headlee claim but dismissed the plaintiff’s remaining claims.
The plumbing supply company appealed, but the Court of Appeals affirmed the trial court in a published opinion. The high court was asked to address whether the challenged annual charges violate Headlee, the Prohibited Taxes by Cities and Villages Act or both.
The Supreme Court heard oral arguments in the matter in November.
On Thursday, the justices of the high court wrote that they agreed with the Court of Appeals that the defendant’s charges under the facts on record met the definition of a fee, and therefore summary disposition was correctly granted to the city.
“The fees are spent entirely on financing the regulatory activity directly applicable to and governing the plaintiff, an operator of commercial properties. The defendant adequately ‘differentiated … particularized benefits to property owners from the general benefits conferred on the public,’’ the order said. “Moreover, the charges at issue are proportional and reasonably calculated to approximate the costs the defendant incurs to administer the regulatory program for individual payors. Therefore, the defendant’s fire-service charges are not taxes.”
That said, the court found the Court of Appeals’ reasoning to be “flawed in material ways.”
“While considering the regulatory benefits received by plaintiff in exchange for the charges imposed, the Court of Appeals repeatedly relied upon the fact that the plaintiff was provided a permit and, moreover, the plaintiff was not legally prohibited from occupying its property and running a business,” the high court wrote. “The Court of Appeals reasoned that the ‘primary benefit’ of the fire service charge was ‘a permit allowing the owner to operate on its premises.’ According to the Court of Appeals, the defendant provided a benefit to the plaintiff in the form of a legal right ‘to operate a business in Detroit’ and ‘occupy the premises the plaintiff owned as a business.’”
The court said that was “a misleading statement of the law.”
“A governmental policy, practice, or decision to not prohibit a payor from using its property or operate a business does not, without more, constitute a benefit under the applicable legal standards distinguishing taxes from fees,” the order said. “A policy by a government to not impose legal sanctions, prohibitions, or limitations on payors, their use of property, or their operation of their businesses or livelihoods cannot, without more, be considered a ‘benefit’ upon which governments can justify and exact money as service fees. Of course, most taxes have legal consequences, whether through fines, liens, or other sanctions. But the existence of a tax enforcement regime, whether effected through permit revocation or other legal action, is not a regulatory service to the affected parties.”
If they were stated otherwise, the court reasoned, local governments “could evade the legal limitations of the Headlee Amendment through policies that condition the issuance of a license or permit upon the payment of a tax unrelated to the actual ‘costs of a regulatory activity.’”
“That is not what the law commands,” the high court wrote. “While the costs of operating the fire protection program and the costs imposed on the defendant in issuing and administering the occupancy permits can be recovered through reasonable and proportional fees, the plaintiff’s mere possession of a permit to occupy its lawfully owned property and operate a business in Detroit cannot be considered a benefit that distinguishes the instant fee from a tax. Putting aside the fact that the plaintiff received a legal permit, the defendant used money collected from the charge in its entirety to fund the cost of running the regulatory program, which oversaw and administered fire-safety standards for commercial and multi-residential permit holders in Detroit.”
Since the plaintiff operated a commercial property, and it paid the fee for the regulatory system administered, the supposed tax at issue was a reasonable and proportional fee imposed on select properties like the plaintiff’s, and ones the city subjected to regulatory oversight. The fee was not collected for general benefits conferred to the public, the court added, much like that of a tax.
Gongwer News Service
The Michigan Supreme Court on Thursday ruled unanimously that the Court of Appeals and the Wayne Circuit Court did not err when both found a Detroit fire prevention fee wasn’t an unlawful tax in violation of the Headlee Amendment.
The high court, however, decided the Court of Appeals’ reasoning was materially flawed despite the lower court coming to the correct conclusion.
In an unsigned order issued Thursday, the Supreme Court said it agreed with the defendant-appellee in Midwest Valve & Fitting Company v. Detroit (MSC Docket No. 165726), affirming both the lower courts in the process.
The lawsuit involves the city’s imposition of annual charges on owners of commercial property and multiunit residential property within the city’s limits. The plaintiff, an owner who paid the charges, claimed they are taxes in violation of the Headlee Amendment. The city, however, said they were permit fees. The trial court granted partial summary disposition to the city on the Headlee claim but dismissed the plaintiff’s remaining claims.
The plumbing supply company appealed, but the Court of Appeals affirmed the trial court in a published opinion. The high court was asked to address whether the challenged annual charges violate Headlee, the Prohibited Taxes by Cities and Villages Act or both.
The Supreme Court heard oral arguments in the matter in November.
On Thursday, the justices of the high court wrote that they agreed with the Court of Appeals that the defendant’s charges under the facts on record met the definition of a fee, and therefore summary disposition was correctly granted to the city.
“The fees are spent entirely on financing the regulatory activity directly applicable to and governing the plaintiff, an operator of commercial properties. The defendant adequately ‘differentiated … particularized benefits to property owners from the general benefits conferred on the public,’’ the order said. “Moreover, the charges at issue are proportional and reasonably calculated to approximate the costs the defendant incurs to administer the regulatory program for individual payors. Therefore, the defendant’s fire-service charges are not taxes.”
That said, the court found the Court of Appeals’ reasoning to be “flawed in material ways.”
“While considering the regulatory benefits received by plaintiff in exchange for the charges imposed, the Court of Appeals repeatedly relied upon the fact that the plaintiff was provided a permit and, moreover, the plaintiff was not legally prohibited from occupying its property and running a business,” the high court wrote. “The Court of Appeals reasoned that the ‘primary benefit’ of the fire service charge was ‘a permit allowing the owner to operate on its premises.’ According to the Court of Appeals, the defendant provided a benefit to the plaintiff in the form of a legal right ‘to operate a business in Detroit’ and ‘occupy the premises the plaintiff owned as a business.’”
The court said that was “a misleading statement of the law.”
“A governmental policy, practice, or decision to not prohibit a payor from using its property or operate a business does not, without more, constitute a benefit under the applicable legal standards distinguishing taxes from fees,” the order said. “A policy by a government to not impose legal sanctions, prohibitions, or limitations on payors, their use of property, or their operation of their businesses or livelihoods cannot, without more, be considered a ‘benefit’ upon which governments can justify and exact money as service fees. Of course, most taxes have legal consequences, whether through fines, liens, or other sanctions. But the existence of a tax enforcement regime, whether effected through permit revocation or other legal action, is not a regulatory service to the affected parties.”
If they were stated otherwise, the court reasoned, local governments “could evade the legal limitations of the Headlee Amendment through policies that condition the issuance of a license or permit upon the payment of a tax unrelated to the actual ‘costs of a regulatory activity.’”
“That is not what the law commands,” the high court wrote. “While the costs of operating the fire protection program and the costs imposed on the defendant in issuing and administering the occupancy permits can be recovered through reasonable and proportional fees, the plaintiff’s mere possession of a permit to occupy its lawfully owned property and operate a business in Detroit cannot be considered a benefit that distinguishes the instant fee from a tax. Putting aside the fact that the plaintiff received a legal permit, the defendant used money collected from the charge in its entirety to fund the cost of running the regulatory program, which oversaw and administered fire-safety standards for commercial and multi-residential permit holders in Detroit.”
Since the plaintiff operated a commercial property, and it paid the fee for the regulatory system administered, the supposed tax at issue was a reasonable and proportional fee imposed on select properties like the plaintiff’s, and ones the city subjected to regulatory oversight. The fee was not collected for general benefits conferred to the public, the court added, much like that of a tax.
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