A unanimous Michigan Supreme Court decision this week will have big implications for for-profit schools and colleges – and even for-profit laboratories, research and development facilities, and test centers.
On Monday, May 1, 2017, the Supreme Court held that personal property of for-profit schools and colleges is exempt from property tax. The decision in SBC Health Midwest, Inc v City of Kentwood involved SBC Health, a Delaware for-profit corporation that operates the Sanford-Brown College in Grand Rapids. SBC Health requested a tax exemption from the City of Kentwood for personal property used by Sanford-Brown College, which the city refused. SBC appealed that decision to the Tax Tribunal which held in favor of the city on the basis that exemption applied only to nonprofit educational institutions. The Tribunal’s decision was later reversed by the Court of Appeals.
Taxation is a statutory field. No tax can be levied and collected without statutory authorization, and exemptions for taxation are matters of legislative grace. Modern tax statutes serve many purposes beyond simply raising revenue. The tax laws trend toward the complicated and elaborate because those statutes are shaped by many (and sometimes conflicting) value judgments, economic, social, and political. The legislature chooses a variety of structural mechanisms including exemptions, deductions, and credits to advance those policy goals. Sometimes those features are drafted with less than meticulous precision.
While not everyone agrees on how much power courts should have, the principal of judicial restraint is well established in Michigan. This means that determining legislative intent is one of the key roles that the judicial system plays in Michigan and the best tool for evaluating the intent of the legislature are the words used in the enacted law. The Supreme Court has applied this strict construction canon repeatedly.
At issue in SBC Health, was a provision in Michigan’s General Property Tax Act that exempts from taxation the personal property of charitable, educational, and scientific institutions. Another provision of the act applies a separate tax exemption covering both the real and personal property of non-profit schools only, but that provision does not control the former more general provision of the act, according to the Court.
The Supreme Court observed that nothing in the language of the section at issue required a school to demonstrate nonprofit status to claim the tax exemption. A unanimous Court then applied widespread and importing interpretative tools, that whenever there is reason to believe that the legislature meant to include a particular thing within the scope of its legislation, it would have referred to that thing expressly. Because of this expectation, the legislature’s failure to mention a school’s nonprofit status to claim a personal property exemption was grounds for the Court to infer that this requirement was deliberately excluded. The Court therefore refused to import a nonprofit requirement into MCL 211.9(1)(a), because to do so would violate a well-established rule of statutory construction preventing the court from reading into a statute words that the legislature did not include.
For-profit schools should review the taxable status of their personal property. Additionally, although SBC Health involved a for-profit school, the reasoning arguably applies to profit scientific institutions, such as research and development laboratories. Accordingly, scientific organization should review the taxable status of their personal property to determine if any changes should be made under the SBC Health decision.
Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or firstname.lastname@example.org.