The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5322

July 10, 1978

EXECUTIVE ORGANIZATION:

Relationship between principal department and Type I agency

CONSTITUTION OF MICHIGAN:

Art 5, Sec. 2 (executive organization) Art 4, Sec. 31 (balanced budget)

BUDGET:

Authority of principal department to prepare budget of Type I agency

BOARDS & COMMISSIONS:

Relationship between principal department and Type I agencies

LICENSES & LICENSING:

License fees

MEDICAL PRACTICE BOARD:

Relationship with Department of Licensing and Regulation

DENTISTRY, STATE BOARD OF:

Relationship with Department of Licensing and Regulation

APPROPRIATIONS:

Continuing appropriations

Although the Medical Practice Board is authorized to collect license fees from medical physicians, the Department of Licensing and Regulation has charge of all monies collected.

The Department of Licensing and Regulation must deposit license fees collected by the Medical Practice Board in the State's general fund.

A fee collected from licensees of a regulated profession or business is a license fee if the amount is not wholly out of proportion to the cost of regulation but, if the revenue is disproportionate to the cost of regulation, it is a tax rather than a license fee. In determining the reasonableness of the amount collected, expenses incurred for the cost of supervision, administration, investigation and hearing are to be included. There is a presumption that the amount of the fee is reasonable unless the contrary is established.

Where the legislature places an appropriation provision in a statute which does not take effect during the ensuing year, the appropriation is treated as an intent to appropriate in the future.

Inasmuch as the legislature has made appropriations to the Department of Licensing and Regulation and such parts thereof as are to be allocated by the Department of Licensing and Regulation to the Board of Dentistry, expenditures for the payment of salaries of employees, special examiners, investigators, agents, etc., must be expended therefor under supervision of the department.

Preparation of and expenditure of funds of the Board of Dentistry is subject to supervision by the Department of Licensing & Regulation.

John R. Wilson, M.D.

Medical Practice Board

905 Southland

Lansing, Michigan 48910

Aris Hoplamazian, D.D.S.

State Board of Dentistry

905 Southland

Lansing, Michigan 48910

My opinion on the following questions concerning the financial operation and budgeting functions of your respective boards has been requested:

'1. Does the Department of Licensing and Regulation or the Medical Practice Board have the authority to collect license fees from medical doctors?

'2. Are the license fees collected under Act 185 considered state funds collected for deposit in the state's general fund?

'3. By what authority does the Department of Licensing and Regulation deposit the license fees collected in the state's general fund?

'4. If the Department of Licensing and Regulation lacks the statutory authority to deposit the fees in the state's general fund, what disposition should be made of said moneys?

'5. Does the current practice of the Department of Licensing and Regulation, in depositing the fees in the general fund and then allocating to the Medical Practice Board a minimal percentage of said revenues from the Department's appropriation budget, constitute an unlawful tax on the medical physicians of this state?

'6. If the answer to question 5 is in the affirmative, would this conclusion be avoided if the full amount of the revenue generated by the Medical Practice Board was allocated to the Medical Practice Board for operational expenses?

'7. Does the Board of Dentistry have authority to develop its own budget and control expenditures therefrom independently from the Department of Licensing and Regulation?'

Pursuant to Const 1963, art 5, Sec. 2, the Executive organization act of 1965 (1) was enacted creating nineteen principal departments as listed in 1965 PA 380, supra, Sec. 4. Included within these nineteen departments is the Department of Licensing and Regulation [hereinafter called the Department]. By 1965 PA 380, supra, Sec. 327, the Board of Registration in Medicine (2) and the Michigan State Board of Dentistry were transferred by a Type 1 transfer to the Department.

OAG, 1965-1966, No 4479, p 209, 215 (March 9, 1966), discussed and construed the Type 1 transfer of existing boards, offices, commissions and agencies to a principal department as follows:

'By way of summary, a Type 1 transfer under the Executive organization act of 1965 places the board, office, commission or agency intact within the principal department to which it has been transferred. Under the Act each board, office, commission or agency having a Type 1 transfer is subject to having its policy determinations and its functions administered under the supervision of the principal department head except those policy determinations and functions which may be exercised independently within the authority of the third sentence of Section 3(a) of the Act. The statutory powers, duties and functions which may be exercised independently of the department head pursuant to the legislative directive of the third sentence of Section 3(a) of the Act are retained and may be performed by the transferred agency without interference or supervision by the head of the department. This is but to say that within these categorical areas, the Type 1 agency acts independently of the department head and it necessarily follows that the head of the department is free from responsibility for each independent action.'

I will address your inquiries seriatim.

'1. Does the Department of Licensing and Regulation or the Medical Practice Board have the authority to collect license fees from medical doctors?'

In your letter you indicated that it has been the practice that all licensure fees forwarded to the Medical Practice Board are retained by the Department of Licensing and Regulation for deposit in the general fund. The application for licensure or the renewal application of medical physicians is validated by the Department of Licensing and Regulation with the information on the amount of money received and the date received metered on the application which is forwarded to the Medical Practice Board. The Board then relies on that validated document to determine whether the applicant has paid the appropriate fee.

Section 3 of 1973 PA 185, MCLA 338.1801 et seq; MSA 14.542(1) et seq, created the Medical Practice Board within the Department as the agency responsible for the examination, licensing and regulation of doctors of medicine. Powers of the Board with regard to licensing individuals to practice medicine include the power to issue, suspend and revoke licenses to practice medicine, reinstate licenses that have been limited, suspended or revoked, and provide for the annual registration of qualified individuals to practice medicine. 1973 PA 185, supra, Sec. 5. 1973 PA 185, supra, Sec. 6, provides in part:

'An applicant for a license to practice medicine is entitled to receive a license upon paying a fee of $105.00 and satisfying the board that the applicant meets all the following requirements: . . .'

Consequently, in order for the Medical Practice Board to issue a license, a fee of $105.00 must be paid by the applicant, provided he or she meets the requirements as listed in 1973 PA 185, Sec. 6, supra. It therefore follows that, since the Board has the statutory authority to issue medical licenses and an applicant is only entitled to receive a license upon paying a fee of $105.00, only the Board has the authority to collect license fees from medical physicians. However, consideration must be given to 1973 PA 185, supra, Sec. 3(6) which provides:

'The department shall have charge of the offices of the board and of its records and all moneys collected, shall supervise all necessary administrative work of the board, and shall perform the duties usually appertaining to those offices. The board shall recommend by name the appointment of the executive director of the board to the director of the department, and annually elect from its membership a chairman and a vice-chairman.' (emphasis added)

Based upon the foregoing, it is my opinion that the Medical Practice Board is authorized to collect license fees but must remit the fees to the Department of Licensing and Regulation.

Because of their close relationship, questions 2 and 3 will be discussed together.

'2. Are the license fees collected under Act 185 considered state funds collected for deposit in the state's general fund?

'3. By what authority does the Department of Licensing and Regulation deposit the license fees collected in the state's general fund?'

An examination of the state budget act, 1919 PA 98; MCLA 21.1 et seq; MSA 3.281 et seq, reveals that all departments, boards, etc., of state government except as otherwise provided, are wholly supported and maintained by specific appropriations by the legislature. (3) 1919 PA 98, supra, Sec. 10 provides:

'Except as hereinafter provided, all revenue of the state government, from whatever source derived, shall be turned into the state treasury by the state department, institution, board, commission or officer, which makes collection or receives such revenue, on or before the first day of each month following its collection or receipt and credited to the general fund: . . .'

Further, 1977 PA 100, Sec. 2(3), which is an act to make appropriations for the Department of Commerce, the Department of Labor, and the Department of Licensing and Regulation, states:

'Fees and other moneys received by the various departments, commissions, boards, agencies, and offices, for whom appropriations are made by this act, shall, except as otherwise provided by this act, or other acts, be promptly forwarded to the state treasurer and credited to the general fund.'

The Department, as noted in your opinion request, has charge of all moneys collected by the Medical Practice Board. 1973 PA 185, Sec. 3(6), supra. It is, therefore, my opinion that the license fees collected pursuant to the medical practice act, 1973 PA 185, supra, are state funds which are to be placed under the custody and responsibility of the Department and must be promptly forwarded to the state treasurer and credited to the general fund.

'4. If the Department of Licensing and Regulation lacks the statutory authority to deposit the fees in the state's general fund, what deposition should be made of said moneys?'

Because of my response to questions 2 and 3, no response to question 4 is required.

'5. Does the current practice of the Department of Licensing and Regulation, in depositing the fees in the general fund and then allocating to the Medical Practice Board a minimal percentage of said revenues from the Department's appropriation budget, constitute an unlawful tax on the medical physicians of the state?

To determine whether this practice of the Department constitutes an unlawful tax on the medical physicians of the state, it is necessary to examine the distinction between a license fee and a license tax. This distinction is set forth in OAG, 1941-1942, No 20935, p 320, 321-322 (August 29, 1941) as follows:

'The general rule is that, if the fees imposed as a condition for the issuance of a license are not disproportionate to the cost of issuing the license and the regulation of the business, it will be upheld. The presumption prevails that the amount of the fee is reasonable unless the contrary is established. If the amount is wholly out of proportion to the expense, it may be declared a tax, but, if revenue is incidentally derived, which is not so disproportionate so as to make the fee an unreasonable one, it will be upheld as a fee. This rule was stated by the Supreme Court of Michigan in Fletcher Oil Co v. City of Bay City, 247 Mich. 572, as follows:

"The imposition of license fees as a condition to issuing a license, when plainly intended as police regulations, will be upheld if the revenue derived therefrom is not disproportionate to the cost of issuing the license and the regulation of the business licensed. Anything in excess of an amount which will defray such necessary expenses cannot be imposed under the police power alone, because it then becomes a revenue measure. What is a reasonable license fee must depend upon the sound discretion of the legislative body imposing it, having reference to the circumstances and necessities of the case. It will be presumed the amount of the fee is reasonable unless it contrarily appears upon the face of the ordinance, by law, or law itself, or is established by proper evidence. In determining whether a fee required for a license is excessive or not, the expense or amount of regulatory provisions and the nature of the subject of regulation should be considered, and if the amount is wholly out of proportion to the expense involved, it will be declared a tax. If revenue is incidentally derived which is not so disproportionate as to make the fee charge unreasonable, there can be no objection.'

"See also Retail Druggists' Association v Detroit, 267 Michigan 405." (emphasis added)

In 1 Cooley, The Law of Taxation, (4th ed), Sec. 27, p 97-98, it is stated:

'. . . For instance, a reasonable inspection fee, where the occupation or act is of such a character as to require a certain amount of inspection to protect the public morals, health or safety, to pay the expenses of inspection, is not a tax but an exercise of the police power, and the same is true as to fees for the cost of examination of persons engaged in certain occupations, to determine their fitness. . . .'

In 53 CJS, Licenses, Sec. 3, p 452-454, the distinction between a license fee and a license tax is also discussed in the following manner:

'When license fee. If the fee is exacted for the primary purpose of regulating or restraining an occupation or privilege deemed dangerous to the public or to be specially in need of public control, and compliance with certain conditions is required in addition to the payment of the prescribed sum, such fee is a license fee or license tax properly imposed in the exercise of the police power and is not strictly speaking an ordinary tax, even though it is called a tax in the legislation which imposes it. A charge imposed as a consideration for a privilege granted one by a governmental unit is not 'tax' in the sense in which that word is ordinarily used.

'When tax. Where the fee is exacted solely or primarily for revenue purposes and payment of the fee gives the right to carry on the business or occupation without the performance of any further conditions, it is not a license fee but a tax imposed under the power of taxation, regardless of the name by which it may be called, or the mode adopted to enforce payment. The power of the licensing authority to revoke the license is not necessarily evidence that the fee required for the license is a regulatory rather than a revenue measure.'

Although the fee imposed on medical doctors is not limited to the expense of actually issuing the license, it is clear that the charge also covers the cost of supervision, administrative expenses, enforcement, investigators, hearing officers and other expenses that are not charged to the budget of the Medical Practice Board.

It is, therefore, my opinion that the fees collected from the medical physicians of this state are a legitimate exercise of the police power of the legislature and do not constitute an unlawful tax. The fact that the Department allocates an amount less than the fees collected to the Medical Practice Board is not determinative as it is also necessary to include all reasonable and proper expenses incurred by agencies of the state of Michigan in the licensing and regulation of medical physicians to arrive at the actual cost of regulation.

'6. If the answer to question five is in the affirmative, would this conclusion be avoided if the full amount of the revenue generated by the Medical Practice Board was allocated to the Medical Practice Board for operational expenses?'

Because of my response to question 5, no response to question 6 is required.

'7. Does the Board of Dentistry have authority to develop its own budget and control expenditures therefrom independently from the Department of Licensing and Regulation?'

1939 PA 122, Sec. 3; MCLA 338.203; MSA 14.269(3), provides:

'The secretary shall receive the salary as is appropriated by the legislature. Each member, other than the secretary, shall receive for each day actually engaged in the duties of his office a per diem and his actual and necessary expenses. The per diem compensation of board members and the schedule for reimbursement of expenses shall be established annually by the legislature. Annually the legislature shall appropriate for the expenses of the board but in no case shall the appropriations exceed the receipts of the board. The moneys received by the board shall be deposited in the general fund of the state. The amounts necessary for the expenditures of the board shall be paid out of the state treasury in accordance with the accounting laws of the state upon vouchers signed by the president or secretary of the board.' (emphasis added)

Const 1963, art 4, Sec. 31 states:

'. . . Any bill requiring an appropriation to carry out its purpose shall be considered an appropriation bill. . . .'

As noted, 1939 PA 122, Sec. 3, supra, in pertinent part, states:

'. . . Annually the legislature shall appropriate for the expenses of the board but in no case shall the appropriations exceed the receipts of the board. . . .'

Thus, the question arises as to whether 1939 PA 122, Sec. 3, supra, constitutes an appropriation to the Board of Dentistry on a yearly basis.

In Board of Education of Oakland Schools v Superintendent of Public Instruction, 392 Mich 613; 221 NW2d 345 (1974), the Supreme Court held, inter alia, that where the legislature places an appropriation provision in a statute which does not take effect during the ensuing fiscal year, such provision is intended to function only as a desire to appropriate in the future. An act which merely expresses an intent is not an appropriation act.

Moreover, any appropriation beyond the ensuing fiscal year would conflict with and be violative of the budgetary procedures set forth in Const 1963, art 4, Sec. 31 in that the statute would contain a continuing appropriation and only the appropriation for the ensuing fiscal year would be in harmony with Const 1963, art 4, Sec. 31. (4) In re Advisory Opinion on Constitutionality of 1975 PA 227; 396 Mich 465, 499; 242 NW2d 3, 17 (1976).

It must follow that 1939 PA 122, Sec. 3, supra, having made appropriations for more than the ensuing year, do not contain valid appropriations to the Michigan Board of Dentistry for the current fiscal year. The legislature is free to make such appropriations for the Michigan Board of Dentistry as it may choose. It must be noted that the current appropriation act, 1977 PA 100, contains no appropriations to the Michigan Board of Dentistry other than a line item for Board of Dentistry per diem. It does contain appropriations to the Department of Licensing and Regulation and such parts thereof as are allocated by the Department of Licensing and Regulation to the Michigan Board of Dentistry to be used to hire and pay salaries of employees, special examiners, investigators, agents, etc., must be expended therefor under supervision of the Department. OAG, 1965-1966, No 4479, supra.

It is abundantly clear that preparation and control of budget and expenditures by the Board of Dentistry are subject to supervision of the Department of Licensing and Regulation. OAG, 1965-1966, No 4479, supra.

It is, therefore, my opinion that preparation of its budget and expenditures of funds by the Board of Dentistry must be made under the supervision of the Department of Licensing and Regulation.

Frank J. Kelley

Attorney General

(1) 1965 PA 380; MCLA 16.101 et seq; MSA 3.29(1) et seq.

(2) The successor to the Board of Registration in Medicine is the Medical Practice Board. 1973 PA 185, Sec. 3; MCLA 338.1803; MSA 14.542(3).

(3) See 1919 PA 98, supra, Secs. 8 and 9.

(4) This provision was not operative when OAG, 1947-1948, No 616, p 485 (January 22, 1948), and OAG, 1949-1950, No 1027, p 342 (September 9, 1949) were issued. These opinions are, therefore, superseded.