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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)



Opinion No. 6493

February 4, 1988


Refund of solvency tax to employer


'Erroneously collected'

The solvency taxes assessed against and paid by employers with negative balance experience accounts for the automation project and partly expended on the project were neither mistakenly assessed by the Michigan Employment Security Commission nor mistakenly paid by the employer and may not be refunded as 'erroneously collected.'

Elizabeth P Howe


Department of Labor

309 North Washington

Lansing, Michigan 48909

You have requested my opinion on the following question:

Whether the provisions of the Michigan Employment Security Act 'allow the [Michigan Employment Security] commission to refund erroneously collected solvency taxes and whether any amount of solvency taxes collected and expended on the automation project, or any amount of solvency taxes collected and not expended on the automation project could be deemed 'erroneously collected' for purposes of refunding such amounts to negative balance employers.'

In connection with your question, you state:

'Consistent with the report on the Michigan Employment Security Commission automation project by Thomas G. Plunkett to Governor Blanchard, I have brought together a group of business and labor representatives. The group will, hopefully, make a recommendation on the issue of a solvency tax refund which would be taken to Mr. Plunkett for his review and subsequent report to Governor Blanchard.

'As part of the current deliberations, we are interested in recommending how the Commission might refund to appropriate employers a portion of the solvency tax collections which might be found to have been inappropriately expended on the automation project.'

Section 19a(1) of the Michigan Employment Security Act, (1) hereinafter the Act, MCL 421.19a; MSA 17.520(1), establishes the solvency tax to be assessed against negative balance employers and the conditions precedent for its assessment. A negative balance employer is one whose experience account reflects that laid-off employees have been paid unemployment benefits in an amount in excess of the amount of unemployment taxes collected from that employer.

Section 19a(2) of the Act, MCL 421.19a(2); MSA 17.520(1)(2), provides the formula for determining the rate of the solvency tax in any particular situation. Under this section, the solvency tax rate was set at 0.5% for 1983 and 1% for 1984. The solvency tax rate for 1985 was to be calculated by February 1, 1985 based upon estimates of the following amounts:

(i) interest due on federal loans during calendar 1985,

(ii) the amounts of funds required for the automation project for 1985,

(iii) deferred solvency taxes from previous years which cannot be collected in 1985 because of employer bankruptcies, and

(iv) the total taxable payroll for 1985 of all active employers who had negative balances in their experience accounts as of June 30, 1984.

Although solvency tax rate calculation guidelines were established for 1986 and subsequent years, this tax has not been imposed since 1985.

Section 19a(4) of the Act, MCL 421.19a(4); MSA 17.520(1)(4), provides, in pertinent part, that any '[a]djustments and refunds of erroneously collected solvency taxes shall be made in accordance with section 16 of the act.' (Emphasis added.) Section 16 of the Act, MCL 421.16; MSA 17.517, provides:

'If not later than 3 years after the date of payment of any amount as contributions or interest thereon, an emloying unit which has paid such amount shall make application for an adjustment or refund thereof the commission shall determine whether such contributions or interests or any portion thereof was erroneously collected; and the employing unit shall be promptly notified of such determination, which shall become final unless the employing unit files with the commission an application for redetermination thereof in accordance with the provisions of section 32a.'

The rule followed by the Supreme Court in the construction of statutes is well stated in City of Grand Rapids v Crocker, 219 Mich 178, 182-183; 189 NW 221 (1922), as follows:

'There seems to be no lack of harmony in the rules governing the interpretation of statutes. All are agreed that the primary one is to ascertain and give effect to the intention of the legislature. All others serve but as guides to assist the courts in determining such intent with a greater degree of certainty. If the language employed in a statute is plain, certain and unambiguous, a bare reading suffices and no interpretation is necessary. The rule is no less elementary that effect must be given, if possible, to every word, sentence and section. To that end, the entire act must be read, and the interpretation to be given to a particular word in one section arrived at after due consideration of every other section so as to produce, if possible, a harmonious and consistent enactment as a whole.'

See also White v City of Ann Arbor, 406 Mich 554, 562; 281 NW2d 283 (1979).

In view of the clear language of Secs. 19a(4) and 16 of the Act, if the solvency tax were erroneously collected, it could be returned to the taxpayer by order of the Michigan Employment Security Commission. Thus, the determinative question is whether the solvency tax collected pursuant to the above-cited sections of the Act and expended on automation, or collected but not expended thereon, may be deemed to have been erroneously collected, and therefore subject to refund.

The term 'erroneously collected' was interpreted by the Michigan Supreme Court in the context of the Michigan Employment Security Act in Lee v Employment Security Comm, 346 Mich 171, 177; 78 NW2d 309 (1956). In Lee, the Commission, based upon a registration report to determine liability showing individual ownership of the business involved, issued a determination holding the alleged individual owner subject to the provisions of the Act effective January 1, 1951. Over a year later, information was received that the business in question was actually owned and operated by a partnership from January 1, 1951 to September 1, 1951, and that it was owned and operated by one of the partners individually subsequent to September 1, 1951. Despite the new facts, the Commission issued a determination and a redetermination holding that the original liability determination could not be redetermined because more than one year had expired from the date of mailing of said determination and that no refund of contributions could be made under Sec. 16 of the Act. In holding that the appellant's contributions were erroneously collected and were therefore refundable, the Supreme Court adopted the trial court's finding of 'mutual error' as follows:

'It is apparent that the error herein concerned was an error on the part of the employer without subsequent correction by the commission upon its audit of the Master Polishing & Buffing Company books and records. The employer's bookkeeper made certain errors in filing the form UC 9 on November 9, 1951, but the commission's auditor apparently took no notice of plainly visible entries made on records which he admittedly examined.' Lee, supra, 346 Mich at 177.

In Lee, through error, the petitioner failed to report to the Commission that a partnership operated the business for a period of time that he was held subject to the Act as an individual. This reporting error formed the basis for the Supreme Court's holding that the taxes collected from the individual owner during the period the partnership operated the business were erroneously collected within the meaning of Sec. 16 of the Act. A refund was granted because of the reporting error.

Consistent with Lee, the courts in other jurisdictions have authorized a refund in interpreting the term 'erroneously collected' when the mistake or error was made either by the employer or the administrator. Higgins, Inc v Walker, 129 So2d 840, 847 (La App, 1961); R B Raybern & Co v Indiana Employment Sec Bd, 141 Ind App 699, 704-705; 232 NE2d 891, 894 (1968). However, the California court has interpreted the term 'erroneously collected' as authorizing a refund of taxes only when there is a mistake or an error on the part of the taxing authority, either in the levy of the tax or in the collection process. Sierra Investment Corp v County of Sacramento, 252 CA2d 339, 343-344; 60 Cal Rptr 519, 522 (1967). In the situation herein, however, neither the Commission nor any taxpayer committed a mistake or error in the levy, payment, or collection of solvency taxes under the Act.

Under Sec. 10(6) of the Act, MCL 421.10; MSA 17.510, all money collected pursuant to the solvency tax is placed in the contingent fund. Then all amounts necessary to make interest payments on the federal borrowings and to cover the costs of the automation project were to be withdrawn from this fund. Since the above expenses were less than the total solvency tax collected, the contingent fund now contains an excess.

In enacting Sec. 10(6) of the Act, the Legislature dealt specifically with the problem of an excess resulting from the difference between the collection of taxes and the payment of federal interest obligations. In such instance, the excess is to be transferred, at the discretion of the Commission, into the unemployment compensation fund. The same section also provides that amounts erroneously collected shall be withdrawn and expended for that purpose upon order of the Commission. It is thus seen that the Legislature, within Sec. 10(6) of the Act, established a clear distinction between excess amounts and amounts erroneously collected. Had the Legislature intended that excess amounts be equated with amounts erroneously collected, it would not have placed into the statute language dealing specifically with excess amounts as contradistinguished from erroneously collected amounts.

Similarly, when dealing with the excess in the contingent fund attributable to the automation project, this excess may not be deemed to be an amount erroneously collected since the Legislature has not in Sec. 10(6) of the Act equated the term 'excess' with the term 'erroneous.' In any event, it must be kept in mind that the Legislature has not specifically addressed whether or how any excess in automation project funding is to be distributed. Absent a legislative grant of authority, the Commission is without authority to return such funds to negative balance employers. F M Sibley Lumber Co v Dep't of Revenue, 311 Mich 654, 661; 19 NW2d 132 (1945).

Furthermore, the solvency tax is not erroneously collected as long as the subject employer has a negative balance experience account on June 30 preceding any given calendar year and the Commission adheres to the collection formula articulated in Sec. 19a(2) of the Act, including the rate ceilings imposed therein. This conclusion finds harmony in the context of statutes providing for refunds of taxes which were erroneously paid or erroneously collected. A leading treatise, examining such statutes, noted the following pertinent language:

'The term 'erroneously assessed,' as used in such statutes, means an assessment illegal because of a jurisdictional defect and does not include a mere error of judgment in valuing the property.' (Emphasis supplied.) (Footnote omitted.) 3 Cooley, Taxation (4th ed), Sec. 1209, pp 2505-2506.

Justice Cooley emphasized that '[c]ourts cannot substitute their judgment as to the valuation of property for the judgment of the duly constituted tax authorities.' 4 Cooley, Taxation, Sec. 1612, p 3222.

Further, in Cedar Rapids Hotel Co v Stirm, 222 Iowa 206; 268 NW 562 (1936), the court held that taxes collected in the exercise of lawful authority are not taxes erroneously collected.

In Stanley v Supervisors of Albany, 121 US 535, 549; 7 S Ct 1234; 30 L Ed 1000 (1887), the Court held as follows:

'It is only where the assessment is wholly void, or void with respect to separable portions of the property, the amount collected on which is ascertainable, or where the assessment has been set aside as invalid, that an action at law will lie for the taxes paid, or for a portion thereof. Overvaluation of property is not a ground of action at law for the excess of taxes paid beyond what should have been levied upon a just evaluation.' (Emphasis added.)

In Clay County v Brown Lumber Co, 90 Ark 413, 420; 119 SW 251, 253-254 (1909), the court also declined to extend the statutory words 'erroneously assessed' to an alleged excessive valuation of property:

'[W]e do not think that the term 'erroneously assessed,' . . . refers to an overvaluation of . . . property. The term 'erroneous assessment,' . . . refers to an assessment that deviates from the law and is therefore invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the assessing officers in fixing the amount of the valuation of the property. If the property . . . was exempt from taxation, or if the property was not located in the county, or if the tax was invalid, or if there was any clear excess of power granted, so as to make the assessment beyond the jurisdiction of the assessing officer or board, then the provisions [of the statute] give the owner a remedy for a refunding of such taxes thus erroneously paid: But a remedy is not given by this section to the party aggrieved by reason only of an excessive assessment or overvaluation of his property.' (Emphasis added.)

Applying the rationale developed in the above cases, it must be concluded that the solvency tax here in issue was not erroneously collected within the meaning of Secs. 16 and 19a(4) of the Act. The facts in this situation are in contradistinction from those in the Lee case. Here, neither the solvency tax, which was collected and expended, nor those taxes which were collected but not expended, were collected or received in error as in Lee; nor were they collected without legal authority so as to present a jurisdictional defect.

It is my opinion, therefore, that the solvency taxes assessed against and paid by employer with negative balance experience accounts for the automation project and partly expended on the project were neither mistakenly assessed by the Michigan Employment Security Commission nor mistakenly paid by the employers and may not be refunded as 'erroneously collected.'

Frank J. Kelley

Attorney General

(1) 1936 (Ex Sess) PA 1, MCL 421.1 et seq; MSA 17.501 et seq.


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