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. 6880

November 16, 1995

TAXATION:

Inventory tax for cigarettes acquired on or before February 1, 1994

The Legislature has not imposed the additional 50-cents-per-pack inventory tax under section 7(4) of 1993 PA 327 on inventory acquired by the wholesaler on or before February 1, 1994, if the wholesaler, prior to February 21, 1994, prepaid the 25-cents-per-pack tax imposed by the predecessor act, 1947 PA 265.

Honorable Bob Emerson

State Representative

The Capitol

Lansing, Michigan

You have asked a question that may be stated as follows:

Has the Legislature imposed the additional 50-cents-per-pack inventory tax under section 7(4) of 1993 PA 327 on inventory acquired by the wholesaler on or before February 1, 1994, if the wholesaler, prior to February 21, 1994, prepaid the 25-cents-per-pack tax imposed by the predecessor act, 1947 PA 265?

Section 7a of 1947 PA 265, as added by 1987 PA 219, imposed a tax of 25-cents-per-pack upon wholesalers of cigarettes. In 1993, the Legislature enacted 1993 PA 327, the Tobacco Products Tax Act, MCL 205.421 et seq; MSA 7.411(31) et seq, and repealed 1947 PA 265, effective May 1, 1994. The new act was given immediate effect but was tie-barred to the submission to the people of Senate Joint Resolution S and the enactment into law of a number of other House Bills. The people approved Senate Joint Resolution S on March 15, 1994, and the other House Bills were enacted by the Legislature on various dates late in December of 1993 and approved by the Governor late in December 1993, as part of the school property tax and school finance reform. House Legislative Analysis, HB 5111 et al, March 1, 1994.

Section 7(1)(c) of 1993 PA 327 imposes on a wholesaler a tax of 75-cents-per-pack of cigarettes when the cigarettes are sold. Section 7(4) imposes a 50-cents-per-pack inventory tax on cigarettes acquired after February 1, 1994. Section 7 provides, in pertinent part:

(1) Beginning May 1, 1994, a tax is levied on the sale of tobacco products sold in this state as follows:

(c) For cigarettes, if the sales tax is levied at a rate of 6% under the general sales tax act, Act No. 167 of the Public Acts of 1933, being sections 205.51 to 205.78 of the Michigan Compiled Laws, 37.5 mills per cigarette.

(2) On or before the twentieth day of each calendar month, every licensee under section 3 other than a retailer, secondary wholesaler, or vending machine operater shall file a return with the department stating the amount of each tobacco product sold and specifying the wholesale price charged for all tobacco products sold by the licensee for each place of business in the preceding calendar month. The return shall be signed under penalty of perjury. The return shall be on a form prescribed by the department and shall contain or be accompanied by any further information the department requires.

(3) At the time of the filing of the return, the licensee shall pay to the department the tax levied in subsection (1) for tobacco products sold during the calendar month covered by the return, less compensation equal to 1% of the total amount of the tax due to cover the cost of expenses incurred in the administration of this act.

(4) Every licensee and retailer who, on May 1, 1994, has on hand for sale any cigarettes acquired after February 1, 1994 upon which a tax has been paid pursuant to Act No. 265 of the Public Acts of 1947, being sections 205.501 to 205.522 of the Michigan Compiled Laws, shall file a complete inventory of those cigarettes before June 1, 1994 and shall pay to the department at the time of filing this inventory a tax equal to the difference between the tax imposed in subsection (1) and the tax that has been paid pursuant to Act No. 265 of the Public Acts of 1947.

(5) The department may require the payment of the tax imposed by this act upon the importation or acquisition of a tobacco product. A tobacco product for which the tax under this act has once been imposed and that has not been refunded if paid is not subject upon a subsequent sale to the tax imposed by this act.

(7) A person liable for the tax may reimburse itself by adding to the price of the tobacco products an amount equal to the tax levied under this act. [Emphasis added.]

The Legislature had previously at various times increased the rate of the cigarette tax by amendment of section 7 of 1947 PA 265. See, amendatory 1959 PA 274; 1961 PA 156; 1962 PA 215; 1970 PA 11; 1982 PA 73, and 1987 PA 219. Each time the Legislature provided that the acts became effective, licensees and retailers were required to pay the full tax increase on their entire inventory of cigarettes, regardless of the date of acquisition of the cigarettes. In 1993 PA 327, the Legislature departed from this practice. Instead, section 7(4) of 1993 PA 327 imposes the additional 50-cents-per-pack inventory tax only on cigarettes acquired after February 1, 1994.

As introduced, section 7 of HB 5104, which became 1993 PA 327, did not exclude cigarettes acquired on or before February 1, 1994. That language was put in by the Senate on December 24, 1993. 1993 Journal of the Senate 3282-3283. This language was then concurred in by the House of Representatives on the same day. 1993 Journal of the House 3869. The Governor approved the bill on December 31, 1993, and upon filing with the Secretary of State on the same day, HB 5104 became 1993 PA 327. There is nothing in the House Legislative Analysis, HB 5111 et al, March 1, 1994, discussing the February 1, 1994, cut-off date for the inventory upon which the inventory tax on the wholesaler would apply.

You question whether prepayment of the tax by wholesalers under 1947 PA 265 avoids the additional liability under section 7(4) of 1993 PA 327 for cigarettes acquired on or before February 1, 1994. In that regard, the plain language of section 7(4) includes both licensees and retailers. Under sections 2(d) and 3(1) of 1993 PA 327, it is clear that cigarette wholesalers are licensees under that act.

In addition, both section 7(4) of 1947 PA 265 and section 7(5) of 1993 PA 327 authorized the Treasury Department to require the payment of the cigarette tax "upon the importation or acquisition" of the cigarettes. Thus, the Legislature has expressly recognized that the tax may be paid before the tax liability has accrued based on the sale of the cigarettes by the wholesaler.

Moreover, historically, the Department of Treasury has taken the position in its administration of the tax statutes of this state that a taxpayer may prepay the tax liability before it accrues. This is routinely done, for example, by many persons paying their intangibles tax. Thus, the decision to allow tax prepayment here is consistent with the historical administrative practices of the Department of Treasury.

The Department of Treasury, in implementing section 7(4) of 1993 PA 237, continued that practice, taking the position that cigarette wholesalers could prepay the 25-cents-per-pack tax imposed by 1947 PA 265 on cigarettes acquired and in the possession of wholesalers in Michigan on or before February 1, 1994, even though the tax liability was not incurred until the wholesaler sold the cigarettes. Consistent with section 7(2) and (3) of 1993 PA 327, the Department of Treasury required that the prepayment on the January inventory be made by February 21, 1994. It also took the position that the cigarettes acquired on or before February 1, 1994, on which the 25-cents-per-pack tax had been prepaid, were not subject to the additional 50-cents-per-pack inventory tax imposed by section 7(4) of 1993 PA 237. See the January 19, 1994, letter from the Chief Deputy Treasurer of the Department of Treasury to the Chief Executive Officer of the Michigan Distributors and Vendors Association, Inc. The administrative construction of a statute by the agency charged with administering the statute is always given the most respectful consideration by the courts. Oakland Schools Bd of Education v Superintendent of Public Instruction, 401 Mich 37, 41; 257 NW2d 73 (1977).

The Legislature made the decision, in enacting section 7(4) of 1993 PA 327, not to impose the inventory tax upon cigarettes acquired by wholesalers on or before February 1, 1994. The Department of Treasury estimates that this decision resulted in the loss of approximately $38 million in potential tax revenue. The levy of taxes rests in the sound discretion of the Legislature, subject only to constitutional limitation. Hudson Motor Car Co v Detroit, 282 Mich 69, 79; 275 NW 770 (1937). Within constitutional limitations, the Legislature has "full control" over taxation. Thompson v Auditor General, 261 Mich 624, 642; 247 NW 360 (1933).

It is my opinion, therefore, that the Legislature has not imposed the additional 50-cents-per-pack inventory tax under section 7(4) of 1993 PA 327 on inventory acquired by the wholesaler on or before February 1, 1994, if the wholesaler, prior to February 21, 1994, prepaid the 25-cents-per-pack tax imposed by the predecessor act, 1947 PA 265.

Frank J. Kelley

Attorney General