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. 5471

March 29, 1979

LICENSES AND PERMITS:

Fee schedule based upon gross sales

COUNTIES:

Ordinance imposing license fee schedule based upon gross sales

FOOD:

License fee of food service establishment based upon gross sales

RECORDS AND RECORDATION:

Compelling disclosure of financial information for licensing purposes

The imposition of license fees as a condition for issuance of a license will be upheld if the revenue derived therefrom is not disproportionate to the cost of issuing the license and regulating the licensed business. The determination of the reasonableness of the license fee is within the sound discretion of the legislative body imposing it.

A reasonable license fee which is graduated in accordance with the gross sales of the establishment is not invalid per se.

Where the Ingham County Sanitary Code does not require disclosure of state or federal tax returns as a condition of licensure but rather, alternatively, allows the required documentation to be in the form of sales tax reports or a statement of a certified public accountant, it is valid.

Honorable Richard J. Allen

State Senator

The Capitol

Lansing, Michigan

With reference to the Ingham County Sanitary Code, you have requested my opinion on the following questions:

1. May a fee schedule of a food service be based upon the gross sales of the establishment? (1)

2. May a county compel a person operating a food service establishment to disclose documented financial information for purposes of licensing such an establishment?

3. May a county require disclosure of state or federal tax returns of a food service establishment as a precondition of licensure?

You note that the Ingham County Sanitary Code provides for a progressive fee schedule for licensing food service establishments in that the fee is based upon the gross sales of food service merchandise, including alcoholic beverages.

Section 410.8(A)(3) of the Ingham County Sanitary Code requires documentation of the gross sales figure, providing that:

'Acceptable documents shall include either [1] a suitable statement from a Certified Public Accountant, endorsed and transmitted by the owner or corporation officer who has signed the license application; or [2] a copy of all applicable federal income tax reports, such as Internal Revenue Service Form 1040 Schedule C; or [3] a copy of the applicable Michigan Sales Tax Report, supplemented by a statement of sales of liquor by service.' (Emphasis Added)

The documents are to be returned to the proprietor or agent of the food service establishment after review. If, however, the application for licensure does not contain the required documentary proof of gross sales, the maximum fee is charged. Ingham County Sanitary Code, Sec. 410.8(A)(3).

With respect to your first question, statutory authorization for the establishment of sanitation fees as a condition of food service establishment licensure is found in the Public Health Code, 1978 PA 368, MCLA 333.1101 et seq; MSA 14.15(1101) et seq. Article 12, Part 129 of the code speaks to food service establishment licensing fees at Sec. 12906(1):

'Each applicant for a license at the time an application is submitted shall pay to the local health department having jurisdiction the required sanitation service fees authorized by section 2444.' (2)

Article 2, Part 24, Sec. 2444 of the Public Halth Code, which deals with local health department administration of the code, states:

'A local governing entity, or in case of a district the district board of health, may fix and require the payment of fees for services authorized or required to be performed by the local health department. The local governing entity or district board may revoke, increase, or amend the fees. The fees charged shall not be more than the reasonable cost of performing the service.' (3) 1978 PA 368, Sec. 2444(1) (Emphasis Added)

While the Ingham County Sanitary Code predates the effective date of the Public Health Code; i.e., September 30, 1978, its provisions continue in effect and are considered as local health department regulations promulgated under the code. 1978 PA 368, supra, Sec. 25201(4).

In sustaining a municipal ordinance providing for the licensing and regulation of gasoline filling stations, the Supreme Court in Fletcher Oil Co v City of Bay City, 247 Mich 572, 576; 226 NW 248 (1929), set forth the following well-settled principles:

'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.' (Emphasis Added)

Accord: Merrelli v City of St. Clair Shores, 355 Mich 575; 96 NW2d 144 (1959); Bowers v City of Muskegon, 305 Mich 676; 9 NW2d 889 (1943); People v Riksen, 284 Mich 284; 279 NW 513 (1938); Detroit Retail Druggists' Assoc v City of Detroit, 267 Mich 405; 255 NW 217 (1934); North Star Line, Inc v City of Grand Rapids, 259 Mich 654; 244 NW 192 (1932); Vernor v Secretary of State, 179 Mich 157; 146 NW 338 (1914); O'Hara v Collier, 173 Mich 611; 139 NW 870 (1913); Foreman v Treasurer of Oakland County, 57 Mich App 231; 226 NW2d 67 (1974).

While no authority has been found which specifically addresses the propriety of a graduated license fee based upon gross sales, such a graduated 'license tax' (revenue measure) upon the privilege of doing business based upon the amount of sales has been specifically upheld as consistent with the Constitution of the United States. Clark v City of Titusville, 184 US 329; 22 S Ct 382; 46 L Ed 569 (1902). See also, Union Steam Pump Sales Co v Secretary of State, 216 Mich 261; 185 NW 353 (1921) (franchise tax based upon the amount of capital stock).

In answer to your first question, therefore, a fee schedule based upon the gross sales of a food service establishment is permissible under the facts stated and authorized by the Public Health Code to the extent that such fees are reasonable and reflect not more than the approximate actual cost of performing the health department's inspection and enforcement responsibilities subject to proof if challenged in court.

Addressing your second and third questions, it will be noted that Sec. 6103 of the Internal Revenue Code, 90 Stat 1667; 42 USC 6103, and the General Sales Tax Act, 1933 PA 167, Sec. 20, MCLA 205.70; MSA 7.541 respectively, provide for the confidentiality of federal income tax returns and sales tax returns. These federal and state enactments, however, bar only the government or its employees from disclosing the returns or information contained on the returns. It does not bar the state or other political subdivision, in the furtherance of a proper public objective, from requiring the disclosure of such documents or information from the person named on the return.

Thus, assuming that the graduated fee is validly related to an increase in inspection and enforcement costs, it would be reasonable for the county to require disclosure and verification of each establishment's gross receipts in order to assess the proper license fees. Such fees may include the cost of supervision, administrative expenses, enforcement activities, investigators, hearing officers, and related expenses. OAG, 1977-1978, No 5322, p ___ (July 10, 1978).

In addition, the Ingham County Sanitary Code does not require disclosure of state or federal tax returns as a condition of licensure. Rather, the county code speaks in the disjunctive and allows the required documentation to be in the form of federal income tax reports, or Michigan sales tax reports, or in the form of a statement of a certified public accountant.

It is, therefore, my opinion that the provisions dealing with the manner in which financial information is provided, as contained in the Ingham County Sanitary Code, are valid.

Frank J. Kelley

Attorney General

(1) Section 410.8 of the Ingham County Sanitary Code, as amended effective March 1, 1976, provides, in part, for the following fee schedule:

Class Description Fee

1. Food Service Establishment, first license,including plan review

service ...................................................... $100.00

2. Food Service Establishment with multiple facilities for food

preparation in same building under single license ............ $100.00

3. Food Service Establishment, unless eligible for Class 4a, 4b,

4c, or 5 ..................................................... $100.00

4. Food Service Establishment, if documented Gross Sales of food

service items for preceding 12-month period totaled:

(a) at least $250,000 but less than $750,000 ................. $ 75.00

(b) at least $100,000 but less than $250,000 ................. $ 50.00

(c) less than $100,000 ....................................... $ 25.00

5. License for Half Year or Less (November 1 to April 30, or May 1

to October 31), unless first license--60% of full year

license

(2) This provision replaced 1968 PA 269, Sec. 4; MCLA 325.804; MSA 14.529(4), which was repealed by 1978 PA 368, supra, Sec. 25101(a).

(3) This provision replaced 1927 PA 306, Sec. 6(3), as amended, MCLA 327.206(3); MSA 14.166(3), which was repealed by 1978 PA 368, supra, 25101(a).