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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. 5678

March 27, 1980

INDUSTRIAL FACILITIES EXEMPTION CERTIFICATES:

Restoration or replacement of industrial property as a replacement facility

Duration and modification of certificate

MUNICIPALITIES:

Approval of industrial facilities exemption certificates for restoration or replacement of obsolete industrial facilities

STATE TAX COMMISSION:

Approval of industrial facilities exemption certificates for restoration or replacement of obsolete industrial facilities

Modification and duration of grant

WORDS AND PHRASES:

'Replacement facility' defined

'Similar utility' defined

A restoration or replactment of industrial property, including obsolete industrial property, constitutes a 'replacement facility' for the purposes of an industrial facilities exemption certificate.

An industrial facilities exemption certificate may not be denied a replacement facility where machinery and equipment are added to increase productive capacity, evey significantly, where other criteria of 1974 PA 198 are met.

Where partial demolition of obsolete property and partial reconstruction thereof or installation of new property of similar utility ensues, the industrial property is eligible for replacement facility status.

The term 'similar utility' is defined to mean the complete or partial reconstruction or installation of new property which enables the owner of an obsolete industrial facility to conduct industrial operations or functions which are like, have a general likeness to, or are reasonably comparable to the industrial functions performed within the obsolete property prior to its replacement.

Holders of existing industrial facilities exemption certificates may request the State Tax Commission to modify a certificate from 'new facility' status to 'replacement facility' status for the unexpired term of the original certificate provided that the Commission find compliance with all requirements of 1974 PA 198 for replacement facility status.

The State Tax Commission may not order a modification of the certificate on its own initiative.

Loren E. Monroe

State Treasurer

Department of Treasury

Treasury Building

Box 15128

Lansing, Michigan 48901

1974 PA 198, as last amended by 1978 PA 38, MCLA 207.551 et seq; MSA 7.800(1) et seq, provides for the establishment of plant rehabilitation districts and industrial development districts within units of local government. The title to 1974 PA 198, supra, discloses the statue's purpose as:

'AN ACT to provide for the establishment of plant rehabilitation districts and industrial development districts in local governmental units; to provide for the exemption from certain taxes; to levy and collect a specific tax upon the owners of certain facilities; to provide for the disposition of the tax; to provide for the obtaining and transferring of an exemption certificate and to prescribe the contents of those certificates; to prescribe the powers and duties of the state tax commission and certain officers of local governmental units; and to provide penalties.'

Consistent with the legislature's declared purpose in enacting 1974 PA 198, supra, the act seeks to stimulate industrial expansion and create new jobs in Michigan by reducing the property tax burden on restored, replaced, and new industrial property.

The stimulus provided by 1974 PA 198, supra, is in the form of significant tax incentives which may be provided to industrial facilities engaged in renovation, expansion of aging physical plants and the construction of new facilities. The corresponding benefit received by the state and local units of government are higher volume of capital expenditures, increased employment, and increased tax collections emanating from a higher level of economic activity.

Under 1974 PA 198, supra, a local unit of government in which the total ad valorem property tax levy is at least 30 mills, or in any city where an income tax is levied, plant rehabilitation districts and industrial dvelopment districts may be established to offer industrial firms certain tax incentives to stimulate restoration or replacement of industrial facilities, including obsolete industrial facilities, and to attract new industry to the area [section 4]. Under 1974 PA 198, supra, the granting of tax incentives is a local option left to the discretion of the legislative body of the local unit of government [Sections 6 and 9]. The granting of tax incentives by a local legislative body results from the establishment of a district on behalf of a requesting industrial concern.

Following establishment of a district, the industrial firm may apply for and be issued an Industrial Facilities Exemption Certificate which entitles the facility to exemption from ad valorem real and personal property taxes for up to 12 years. In place of the property tax, the industrial concern must pay a specific tax known as the Industrial Facility Tax. [Section 11]. The Industrial Facility Tax for a replacement facility (industrial property, including obsolete industrial property which is being restored or replaced), is determined in the same fashion as the ad valorem property tax. However, the state equalized valuation of the industrial property which is being replaced or restored remains at the level assessed prior to replacement or restoration, even though the replacement or restoration results in a substantial increase in the true value of the facility [Section 14(1)]. In the case of a new facility being built in a plant rehabilitation or industrial development district, the Industrial Facility Tax is also determined in the same manner as the ad valorem property tax. However, only half the total millage levied as ad valorem tax is applied, so that the resulting tax is equal to 50 percent of the property tax which would otherwise be owing [Section 14(2)].

The approval of Industrial Facilities Exemption Certificate is a two-step process. While applications are filed, reviewed and approved by the legislative body of a local unit of government, they are also subject to concurrence by the Department of Commerce and approval by the State Tax Commission [Section 7]. The State Tax Commission, pursuant to 1974 PA 198, supra, is the body ultimately responsible for final approval and issuance of an Industrial Facilities Exemption Certificate [Section 7].

You have requested my opinion on the following questions:

'(1) Does restoration as defined in subsection 2(3)(a) always result in a 'replacement facility' under P.A. 198 of 1974 or can it result in either a replacement of new facility?

'(2) Does section 9(2)(e) of P.A. 198 of 1974 require that a property that falls under this section be denied 'replacement facility' status?

'(3) Does the Commission have to make a finding that there is partial demolition or partial reconstruction or installation of new property of similar utility as defined in section 3(5) in order for a property to qualify for 'replacement facility' status?

'(4) What does 'similar utility' as used in section 3(5) mean?

'(5) Will existing certificates that have been in force for some time be eligible for alteration in the future from new facility status under section 14(2) of P.A. 198 to 'replacement facility' status under section 14(1) of the same Act for the remaining life of the certificate?

'(6) Would a broader interpretation of future exemption applications result in retroactive 'replacement facility' exemption status for some existing exemption certificates in force?'

Your questions will be answered in the order presented.

'(1) Does restoration as defined in subsection 2(3)(a) always result in a 'replacement facility' under P.A. 198 of 1974 of can it result in either a replacement of new facility?'

1974 PA 198, supra, Sec. 2(3), as last amended by 1978 PA 37, states:

"Replacement facility' means:

'(a) In the case of a replacement or restoration which occurs on the same or contiguous land as that which is replaced or restored, industrial property which is or is to be acquired, constructed, altered, or installed for the purpose of replacement or restoration of obsolete industrial property together with any part of the old altered property which remains for use as industrial property after the replacement, restoration, or alteration.' [Emphasis added.]

In defining the word 'replacement facility', as set forth in 1974 PA 198, Sec. 2(3)(a), supra, the legislature, in using the disjunctive 'or', has expressed its judgment that either the restoration or replacement of industrial property, including obsolete industrial property, qualifies the property as a replacement facility. See Michigan Employment Security Commission v Arrow Plating Co, 10 Mich App 323, 328; 159 NW2d 378, 380 (1968). This conclusion is further supported by 1974 PA 198, supra, Sec. 3(5) and Sec. 3(6) respectively, which define the terms 'replacement' and 'restoration'. While there may be circumstances in which a 'replacement facility' may obtain mutual elements of replacement and restoration, as set forth in 1974 PA 198, Sec. 2(3)(a), supra, it is clear that either replacement or restoration of industrial property may constitute a 'replacement facility'.

This conclusion is further buttressed by 1974 PA 198, supra, Sec. 2(4) which provides that the term "[n]ew facility' means new industrial property other than a replacement facility to be built in a plant rehabilitation district or industrial development district.' [Emphasis supplied.] Under the statutory definition of the term 'new facility' as set forth in 1974 PA 198, Sec. 2(4), supra, a 'new facility' is comprised of new industrial property, as opposed to a 'replacement facility' which results from a replacement or restoration of industrial property, including obsolete industrial property.

The legislative history of 1974 PA 198, Sec. 2(4), supra, supports the conclusion that a 'new facility' is not to be treated as a 'replacement facility'. As originally enacted, 1974 PA 198, Sec. 2(4) provided that a "[n]ew facility' means new industrial property to be built in a plant rehabilitation district or industrial development district.' 1975 PA 302 amended 1974 PA 198, supra, Sec. 2(4) to add the phrase 'other than a replacement facility', thereby signifying that a 'new facility' may not be treated as a 'replacement facility'. A change in phraseology in the terms of a statute raises a presumption that a change in meaning is also intended. Michigan Transportation Co v Secretary of State, 41 Mich App 654, 665; 201 NW2d 83, 89 (1972), lv den, 389 Mich 767 (1973).

Therefore, in response to your first question, it is my opinion that under 1974 PA 198, Sec. 2(3)(a) and Sec. 2(4), supra, a restoration or replacement of industrial property, including obsolete industrial property, results in a 'replacement facility'.

'(2) Does section 9(2)(e) of P.A. 198 of 1974 require that a property that falls under this section be denied 'replacement facility' status'?

1974 PA 198, supra, Sec. 9(2) states that a local legislative body and the State Tax Commission shall not grant an industrial facilities exemption certificate unless the applicant demonstrates, among other specific requirements, that:

'(e) Completion of the facility does not constitute merely the addition of machinery and equipment for the purpose of increasing productive capacity but rather is primarily for the purpose and will primarily have the effect of restoration, replacement, or updating the technology of obsolete industrial property. An increase in productive capacity, even though significant, shall not constitute an impediment to the issuance of an industrial facilities exemption certificate if other criteria in this section and act are met. This subdivision shall not apply to a new facility.' [Emphasis supplied.]

The concluding sentence of 1974 PA 198, Sec. 9(2)(e), supra, makes clear that its provisions do not apply to a 'new facility', as defined by 1974 PA 198, Sec. 2(4), supra. Thus, 1974 PA 198, Sec. 9(2)(e), supra, applies only to a 'replacement facility', as set forth in 1974 PA 198, Sec. 2(3), supra. Every clause and every word of a statute is presumed to have force and meaning, and full effect must be given to every part of the statute. Wyandotte Savings Bank v Eveland, 347 Mich 33; 78 NW2d 612 (1956).

Further, it must be observed that 1974 PA 198, Sec. 9(2)(e), supra, provides that where completion of a replacement facility will have the primary effect of restoration, replacement, or updating technology of obsolete industrial property, the concomitant addition of machinery and equipment for the purpose of increasing productive capacity, even though significant, 'shall not constitute an impediment to the issuance of an industrial facilities exemption certificate if other criteria in this section and act are met.' Thus, the legislature intended that an industrial facilities exemption certificate be issued to a replacement facility, even in the case where a significant increase in productive capacity results from restoration, replacement, or updating technology of obsolete industrial property, where the replacement facility meets other criteria set forth in 1974 PA 198, Sec. 9, supra, and the remainder of the act. Full effect must be given to each and every part of the statute. Wyandotte Savings Bank, supra.

Therefore, in response to your second question, it is my opinion that an industrial facility tax exemption certificate may not be denied a 'replacement facility', pursuant to 1974 PA 198, Sec. 9(2)(e), supra, solely due to the addition of machinery and equipment for the purpose of increasing productive capacity to a significant extent, where such added machinery and equipment has as its primary purpose and effect the restoration, replacement, or updating the technology of obsolete industrial property, so long as the criteria set forth in 1974 PA 198, Sec. 9(2), supra, and the remainder of the act, are met.

'(3) Does the Commission have to make a finding that there is partial demolition or partial reconstruction or installation of new property of similar utility as defined in section 3(5) in order for a property to qualify for 'replacement facility' status'?

The Commission to which you refer is the State Tax Commission, which under 1974 PA 198, supra, Sec. 7(1), is empowered to find whether a facility complies with the act so as to be a restoration or replacement, constituting a replacement facility, or a new facility, and if the Commission so finds, it shall issue an industrial facilities exemption certificate.

1974 PA 198, Sec. 3(5), supra, states "[r]eplacement' means the complete or partial demolition of obsolete industrial property and the complete or partial reconstruction or installation of new property of similar utility.' It is again observed, as set forth in my response to your first question, that a 'replacement facility' under 1974 PA 198, Sec. 2(3), supra, is descriptive of either the replacement or the restoration of industrial property, including obsolete industrial property. Thus, whether a facility undergoes replacement or restoration, as respectively defined in 1974 PA 198, Sec. 3(5) and Sec. 3(6), supra, the property thereby qualifies as a 'replacement facility', for the purpose of meeting the theshold requirement of eligibility for an exemption certificate under 1974 PA 198, Sec. 9(2), supra.

As set forth in 1974 PA 198, Sec. 3(5), supra, replacement means 'complete or partial demolition of obsolete industrial property and the complete or partial reconstruction or installation of new property of similar utility.' 1974 PA 198, supra, Sec. 2(7) defines 'obsolete industrial property' as 'industrial property the condition of which is substantially less than an economically efficient functional condition.' 1974 PA 198, supra, Sec. 2(8) defines 'economically efficient functional condition' as:

'. . . a state or condition of property the desirability and usefulness of which is not impaired due to changes in design, construction, technology, or improved production processes, or from external influencing factors which make the property less desirable and valuable for continued use.'

Thus, industrial property is in an economically inefficient functional condition where the desirability and usefulness of the property is impaired due to changes in design, construction, technology, improved production factors, or from external influencing factors, making such property less desirable and valuable for continued use. Therefore, under 1974 PA 198, Sec. 2(7) and Sec. 2(8), supra, obsolete industrial property is that which is not in an economically efficient functional condition, due to one or more of the causative factors specified in 1974 PA 198, Sec. 2(8), supra, which make the property less desirable and valuable for continued use as industrial property. Accordingly, the phrase 'similar utility', as used in 1974 PA 198, Sec. 3(5), supra, with respect to the replacement of obsolete industrial property by new property of similar utility, may take meaning only when viewed in the context of what factor, or factors, cause the obsolete industrial property which is completely or partially demolished to be in less than an economically efficent functional condition.

It is further noted that the phrase 'external influencing factors' which make industrial property less desirable and valuable for continued use, as set forth in 1974 PA 198, Sec. 2(8), supra, is not defined in the act. It must not be presumed that the legislature intended to do a useless thing by insertion of the phrase 'external influencing factor', and, thus, this factor must be given effect in each project in light of the purposes of the act, as set forth in its title. Klopfenstein v Rohlfing, 356 Mich 197; 96 NW2d 782 (1959). Where industrial property becomes obsolete and, thus, is in an economically inefficient functional condition due to 'external influencing factors', the replacement of such property through 'complete or partial reconstruction or installation of new property of similar utility' pursuant to 1974 PA 198, Sec. 3(5), supra, must be given a broad interpretation by the Commission.

Where obsolete industrial property is undergoing replacement by either complete or partial demolition, and thereafter complete or partial reconstruction, or installation, of new property of similar utility follows, pursuant to 1974 PA 198, Sec. 3(5), then the facility 'shall be determined' by the Commission to be a replacement facility, pursuant to 1974 PA 198, Sec. 7(1), supra.

Clearly, under 1974 PA 198, Sec. 3(5), supra, a facility is no less a replacement facility where obsolete industrial property is partially demolished, and thereafter, new property of similar utility is partially reconstructed or installed. In such event, the Commission shall so determine, pursuant to 1974 PA 198, Sec. 7(1), supra. Every clause and word of a statute must be given effect. Wyandotte Savings Bank, supra. Once the Commission finds a property to be a replacement facility, then the Commission must determine whether the facility complies with 1974 PA 198, Sec. 9, supra, and other provisions of the act, as mandated by 1974 PA 198, Sec. 7(1), supra, prior to issuance of an industrial facilities exemption certificate.

Therefore, in response to your third question, the State Tax Commission shall determine industrial property to be eligible for 'replacement facility' status where partial demolition of obsolete property and partial reconstruction thereof or installation of new property of similar utility ensues, as provided by 1974 PA 198, Sec. 3(5), supra.

'(4) What does 'similar utility' as used in section 3(5) mean?'

1974 PA 198, Sec. 3(5), supra, provides that 'replacement of an industrial facility means complete or partial demolition of obsolete industrial property, and the resultant complete or partial reconstruction or installation of new property of 'similar utility.' No provision of the act defines the phrase 'similar utility', although the placement of the phrase 'similar utility' in relation to the previous language within the provision indicates it has reference to the general type of industrial operations or functions performed in or in connection with the facility prior to complete or partial demolition of the obsolete industrial property.

The word 'similar' in a statute generally means that one thing resembles in many respects, or nearly corresponds, or is somewhat like, or has general likeness to, some other thing, as opposed to a thing identical in form and substance. Thomas v Consumers Power Co, 58 Mich App 486, 493-494; 228 NW2d 786, 790 (1975), aff'd in part, rev'd in part, 394 Mich 459; 231 NW2d 653; Hansen v Waring, 123 Cal App 2d 165, 168; 266 P2d 560, 562-563 (1954). See also Handlon v Wolff, 72 Cal App 2d 53, 58; 164 P2d 46, 49 (1946) (the term 'similar position' in a city charter was construed to mean a 'reasonable comparable' postion).

The word 'utility' has been interpreted to mean the state or quality of being useful. Schurtz v City of Grand Rapids, 208 Mich 510, 524; 175 NW 421, 426 (1919). The word utility has been held to be synonymous with usefulness. Mills v Charles Roberts Air Conditioning Appliances, 93 Ariz 176, 179; 379 P2d 455, 456 (1963); Thompson v Commissioner of Internal Revenue, 203 F2d 820, 825 (CA 4, 1953).

Thus, based on the foregoing, the phrase 'similar utility', in the context of 1974 PA 198, Sec. 3(5), supra, may be interpreted as the complete or partial reconstruction or installation of new property which enables the owner of such facility in which the property is replaced to conduct industrial operations or functions which are somewhat like, or have a general likeness to, or are reasonable comparable to, the industrial functions performed within the obsolete property prior to the property's replacement.

However, the phrase 'similar utility' must not be viewed in isolation, but must take concrete meaning when measured against the factor, or factors, which make obsolete the industrial property to be replaced. Accordingy, as set forth in my third response, the factor, or factors, which cause industrial property to be obsolete, and thus in less than an economically efficient functional condition, pursuant to 1974 PA 198, Sec. 2(7) and Sec. 2(8), supra, must be examined. Thus, where a manufacturing facility becomes obsolete due to external influencing factors making the property less desirable and less valuable for continued economical use, complete or partial reconstruction thereof or installation of new property to carry on manufacturing, within essentially the same facility, albeit for manufacture of a different product, even where a significant increase in productive capacity may result, would constitute 'similar utility' under the statute. The laudable legislative objective of the act, which include the retention as well as the addition, of manufacturing facilities and employment opportunities within the state, must be broadly viewed in construing the term 'similar utility.'

'(5) Will existing certificates that have been in force for some time be eligible for alteration in the future from new facility status under section 14(2) of P.A. 198 to 'replacement facility' status under section 14(1) of the same Act for the remaining life of the certificate?'

1974 PA 198, supra, Sec. 16(1), as last amended by 1978 PA 38, provides the duration of an industrial facilities exemption certificate, which 'shall remain in force and effect for a period to be determined by the legislative body of the local government unit . . . [f]or not more than 12 years after the completion of the facility. . . .' Thus, pursuant to 1974 PA 198, Sec. 16(1), supra, an industrial facilities exemption certificate has a statutorily-limited duration of not more than 12 years. 1974 PA 198, Sec. 16(2), supra, reinforces the 12 year maximum duration, by providing that an application not filed within 12 months after commencement of work on a facility, but within 12 months thereafter, may be eligible for an industrial facility exemption certificate for a period of not more than 11 years.

1974 PA 198, supra, Sec. 20 provides that '[a] party aggrieved by the issuance or refusal to issue, revocation, transfer, or modification of an industrial facilities exemption certificate may appeal from the finding and order of the commission. . . .' [Emphasis supplied], pursuant to the administrative procedures act of 1969, 1969 PA 306, MCLA 24.201 et seq; MSA 3.560(101) et seq. (1)

Thus, 1974 PA 198, Sec. 20, supra, would authorize the holder of an existing certificate to petition the State Tax Commission for modification of its previously-determined facility status, assuming the facility complies with all requirements of the act requisite for modification. I note that 1974 PA 198, supra, Sec. 6, which requires the legislative body of the local governmental unit to approve or disapprove the initial application for an industrial facilities exemption certificate does not apply to modification of a certificate previously approved by the State Tax Commission for the term prescribed by the local legislative body, pursuant to 1974 PA 198, Sec. 16(1), supra.

Therefore, in response to your fifth question, it is my opinion that the holders of existing certificates may petition the State Tax Commission for modification, and the Commission may modify the certificate from 'new facility' status to 'replacement facility' status for the unexpired term of the original certificate, where the petitioner demonstrates, and the Commission finds, compliance with all requirements of the act for replacement facility status.

'(6) Would a broader interpretation of future exemption applications result in retroactive 'replacement facility' exemption status for some existing exemption certificates in force?'

No provision of 1974 PA 198, Sec. 20, supra, providing the State Tax Commission with authorization to entertain petitions to modify existing industrial facilities exemption certificates, provides for other than prospective actions or orders by the State Tax Commission. Statutes are deemed prospective except where the contrary clearly appears from clear unambiguous language within the act in question. Briggs v Campbell Wyant and Cannon Foundry Co, 2 Mich App 204; 139 NW2d 336 (1966), aff'd 379 Mich 160; 150 NW2d 752 (1967); OAG, 1979-1980, No 5531, p ___ (August 6, 1979).

Therefore, it is my opinion that any modification in the terms of a certificate sought by a certificate holder pursuant to 1974 PA 198, Sec. 20, supra, may only be prospective in effect, subject to the original certificate's duration as prescribed by the local legislative body. Further, in the absence of the filing by a current certificate holder of a petition for modification, the State Tax Commission may not undertake any modification on its own initiative.

Frank J. Kelley

Attorney General

(1) It should be noted that 1974 PA 198, supra, Sec. 18, authorizes the State Tax Commission to promulgate administrative rules pursuant to the administrative procedures act of 1969, supra. The State Tax Commission has chosen not to promulgate rules.

 


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