STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6559

January 19, 1989

CONSTITUTIONAL LAW:

Const 1963 art 9, Sec. 10--distribution of interest and penalties collected on sales taxes to local units of government

Const 1963, art 9, Sec. 11--distribution of interest and penalties collected on sales taxes to State School Aid Fund

TAXATION:

Distribution of interest and penalties collected on certain taxes to local units of government or State School Aid Fund

Neither the people in Const 1963 nor the Legislature has required the distribution of interest and penalties collected on deficiencies in sales taxes, state income taxes, or single business taxes to local units of government or to the State School Aid Fund.

Franklin C. Pinkelman, C.P.A.

Auditor General

333 S. Capitol Avenue

Suite A

Lansing, Michigan 48913

You have requested my opinion concerning the proper application of several statutes making provision for distribution to cities, villages, townships, counties, and to the State School Aid Fund of sales taxes, state income taxes, and single business taxes collected by the state. Your particular concern is directed to whether constitutional provisions or statutory provisions require in any instance a proportionate distribution to local units of government or the State School Aid Fund of any interest and penalties collected by the state in conjunction with administration of the several acts imposing such taxes.

A. SALES TAX ACT--DISPOSITION OF PROCEEDS 1933 THROUGH 1963

The General Sales Tax Act, 1933 PA 167, MCL 205.51 et seq; MSA 7.521 et seq, was adopted in 1933. As originally enacted, it provided for the imposition and collection of a tax upon sales at retail at the rate of 3% of gross proceeds from such sales. Act 167, Sec. 2. Act 167, Sec. 1(h), defined the term 'tax' to include all taxes, interest and penalties levied under the Act. Act 167, Secs. 11 and 12 provided for the imposition and collection of interest and penalties for failure to comply with the Act. The revenue realized was originally dedicated to certain state purposes, including welfare and higher education purposes, subject to legislative appropriation. Act 167, Sec. 25.

In 1946, the people amended Const 1908 by adding art 10, Sec. 23, to provide for a distribution of state sales taxes. The amendment provided:

In 1960, this constitutional provision was amended to provide in part:

The language employed by these constitutional amendments required the distribution of a portion of the 'taxes' collected but none of the interest or penalties assessed and collected. As can be seen, the distribution was 1/2 cent and 2 cents of the tax levied. No intent to require a distribution of all 'collections' could be reasonably inferred.

B. SALES TAX ACT--DISTRIBUTION OF PROCEEDS--1964 TO DATE

In 1963, the people approved a revised constitution effective January 1, 1964.

As adopted, Const 1963 provided in pertinent part:

The Address to the People noted the Convention Comment to Const 1963, art 9, Sec. 10:

With respect to the distribution of a portion of sales taxes to school districts, Const 1963, art 9, Sec. 11, in pertinent part, provides:

The Comment of the Convention to art 9, Sec. 11 in the Address to the People states:

The Legislature amended Act 167, Sec. 1(h) to renumber it first as Sec. 1(l) and then by virtue of 1949 PA 272 as Sec. 1(m), and again as Sec. 1(l) by means of 1976 PA 70, but made no substantive change in its provisions. 1960 (2d Ex Sess) PA 1 amended Act 167, Sec. 2 to rewrite its provisions to increase the sales tax rate to '4% of the gross proceeds thereof, plus penalty and interest when applicable . . ..' This section was last amended by 1984 PA 228. Act 167, Secs. 11 and 12 were repealed by 1980 PA 164.

Neither the constitutional language actually employed nor the convention comments manifest any intent on the part of the framers or the people to change the existing distribution structure. Taxes and not interest or penalties, if any, were to be distributed in the stated proportions.

Indeed, if there were any implication that the words 'sales tax' as used in either Const 1963, art 9, Secs. 10 and 11, or Const 1908, art 10, Sec. 23, as last amended in 1960, consistently includes interest and penalty, an irreconcilable and illogical result is obtained. These constitutional provisions, in addition to providing for a distribution of 'sales tax,' each preclude imposition of a 'sales tax' in excess of 4%. The maximum permissible tax is imposed. If the term 'sales tax' includes any imposition of penalty or interest upon delinquent taxpayers as tax, arguably the result is the imposition of a 'sales tax' in excess of the 4% constitutional limitation. This result was never intended by the people. These constitutional provisions should not be construed as precluding reasonable statutory measures designed to prompt the timely payment of the tax and to compensate for the tardy payments of tax obligations.

In 1964, by means of 1964 PA 49, the Legislature amended Act 167, Sec. 25, to provide:

Was this a legislative departure from the constitutionally mandated distribution structure? Did it signify a change presumably providing for sums in excess of those mandated (or conceivably impermissibly less than those mandated if collection costs in any year exceed interest and penalty recovered)?

OAG, 1967-1968, No 4501, p 206, 209 (March 8, 1968), concluded that 1964 PA 49 was unconstitutional in part:

The Legislature could not provide for a distribution of less than the required proportion of all of the taxes collected to be paid to township, cities, villages and the State School Aid Fund.

OAG, 1967-1968, No 4051, supra, did not address whether Const 1963 or the statute required distribution of interest and penalties. Neither before nor since that date have state officers responsible for administration distributed interest or penalties as a portion of sales tax collections. An administrative interpretation of a tax statute of such long standing should not be disturbed. The interpretation should not be overturned unless it is clearly erroneous or unless a different construction is plainly required. Roosevelt Oil Co v Secretary of State, 339 Mich 679; 64 NW2d 582 (1954); State v Detroit, 130 Mich App 503; 343 NW2d 597 (1983), lv den 424 Mich 894 (1986).

Subsequent actions taken by the people and by the Legislature do not lead to a different conclusion. In 1974, amendments were made to the sales tax provisions of Const 1963, art 9, Sec. 8, to exempt from sales and use taxes certain foods and drugs only. In pertinent part, Const 1963, art 9, Sec. 8, provides:

The State Revenue Sharing Act of 1971, 1971 PA 140, MCL 141.901 et seq; MSA 5.3194(401) et seq, originally provided only for a distribution of a portion of the sales tax. As employed in this Act, 'sales tax' is defined as the 'sales tax imposed by Act No. 167 of the Public Acts of 1933.' Act 140, Sec. 2, MCL 141.902; MSA 5.3194(402). The definition employed does not indicate the interest and penalties collected on deficiencies for unpaid sales taxes are to be subsumed in the term 'sales tax' for the purposes of the Revenue Sharing Act.

The State Revenue Sharing Act of 1971, Act 140, Sec. 12(1), MCL 141.912(1); MSA 5.3194(412)(1), in pertinent part, provides:

There is no indication of legislative intent in the State Revenue Sharing Act of 1971, Act 140, that sales tax means or includes amounts in excess of the sales tax itself.

It is noted that Act 167, Sec. 25, was amended in 1978 and again in 1982. 1978 PA 428 rewrote Sec. 25 to read in part:

As amended by 1982 PA 440, Act 167, Sec. 25, in pertinent part, provided:

It was last amended by 1987 PA 259 without substantial change.

There is no significant difference between the provisions of this section as it was amended in 1964, 1978, 1980, 1982, or 1987.

It must be concluded that neither the people nor the Legislature have ever required a distribution of any penalty or interest collected for sales tax delinquencies. The construction of the pertinent provisions by disbursing authorities has been uniform and has remained unchanged for decades. It should be adhered to until otherwise mandated by constitutional amendment or legislative act.

C. REVENUE SHARING ACT--DISTRIBUTION OF

The State Revenue Sharing Act of 1971, 1971 PA 140, supra, additionally makes provisions for the distribution to cities, villages, townships, and counties of state income tax and intangibles tax.

In Sec. 2 of the Revenue Sharing Act of 1971, MCL 141.902; MSA 5.3194(402), the term 'tax' is defined:

The definition employed limits moneys to be distributed under provision of the Act to 'taxes' collected, and does not include any possible collections of penalty or interest. It is further noted that to indulge in any argument that the 'income tax imposed' includes interest or penalty collected would raise the issue of whether the 'tax' was or remained uniform as to rate as required by 1963 Const, art 9, Sec. 7. A construction of statutory language which renders it unconstitutional should be avoided. Child Welfare Society of Flint v Kennedy School Dist, 220 Mich 290, 295; 189 NW 1002 (1922).

D. SINGLE BUSINESS TAX DISTRIBUTIONS

A review of Chapter 6 of the Single Business Tax Act, 1975 PA 228, Sec. 131 et seq; MCL 208.131 et seq; MSA 7.558(131) et seq, leads to a similar conclusion.

None of its provisions require payment to any local units of government of penalty or interest collected in administration of the Act. Remittances under the Act are related to a proportion of the state equalized value of inventory reported in 1975, and the current property tax rate in each tax authority. Act 228, Sec. 134, as amended by 1987 PA 267, MCL 208.134; MSA 7.558(134).

No distribution of any portion of the subject interest and penalties collected upon sales tax, state income tax, or the single business tax to local units or the State School Aid Fund is constitutionally or legislatively mandated.

Should the Legislature desire to effect a distribution to local units of government or to the State School Aid Fund of interest and penalties collected on deficiencies in such taxes, it may do so by appropriate amendment of the affected statutes.

It is my opinion, therefore, that neither the people in Const 1963 nor the Legislature has required that interest and penalties collected on deficiencies in sales taxes, state income taxes, or single business taxes be distributed to local units or to the State School Aid Fund.

Frank J. Kelley

Attorney General