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146335 - SMK v Department of Treasury

James H. Novis
(Appeal from Ct of Appeals)
(Michigan Tax Tribunal)
Department of Treasury,
Scott L. Damich


The Department of Treasury is obligated to give a taxpayer notice of any assessment, decision, or order. The notice “shall be given either by personal service or by certified mail addressed to the last known address of the taxpayer.” MCL 205.28(1)(a). In 1993, the Legislature enacted a Taxpayer Bill of Rights, including MCL 205.8, which states: “If a taxpayer files with the department a written request that copies of letters and notices regarding a dispute with that taxpayer be sent to the taxpayer’s official representative, the department shall send the official representative, at the address designated by the taxpayer in the written request, a copy of each letter or notice sent to that taxpayer. A taxpayer shall not designate more than 1 official representative under this section for a single dispute.”


In these related cases, the Department gave notice to two taxpayers – petitioner Fradco, Inc. and petitioner SMK, LLC – that the Department had determined that they owed additional sales tax to the State.


The first taxpayer, Fradco, used a form prepared by the Department to notify it that Judy Zeppa, CPA, was authorized to represent Fradco. Zeppa appeared on behalf of Fradco at an informal conference held to discuss the alleged sales tax deficiency. The Department sent Zeppa a copy of its decision and order of determination, which concluded that Fradco owed unpaid sales taxes, penalties, and interest. The decision and order stated that a final assessment would be issued in 30 days. After several months, Zeppa contacted the department to check on the status of the final assessment; she was told that it had not yet issued. The final assessment was issued several months after that, but it was sent only to Fradco’s business address. The Department did not send a copy of the final assessment to Zeppa. Zeppa did not learn of the final assessment until ten months after it had been issued.


The second taxpayer, SMK, also used the Department’s form to notify it that SMK authorized a representative to act on its behalf. In fact, SMK authorized three representatives to act on its behalf: CPAs Scot Smith and Edward Kisscorni, and attorney Todd Gambrell. According to Kisscorni, he dealt directly with the Department’s auditor, who was aware that SMK had authorized Kisscorni to represent it. In this case, the Department sent SMK, at its business address, a final audit determination letter, a notice of intent to assess, and a final assessment. These notices and letters were not sent to SMK’s designated representatives. SMK’s designated representatives did not learn of the final assessment until 38 days after it had been issued.


Fradco and SMK filed separate appeals with the Tax Tribunal. In each case, the Department filed a motion for summary disposition, arguing that the Tax Tribunal did not have jurisdiction over the appeal because it was not filed within the 35-day time limit set forth in MCL 205.22. That statute states that a “taxpayer aggrieved by an assessment, decision, or order of the department may appeal the contested portion of the assessment, decision, or order to the tax tribunal within 35 days, or to the court of claims within 90 days after the assessment, decision, or order.” If the taxpayer does not file an appeal in accordance with this statute, the Department’s decision is “final and not reviewable in any court by mandamus, appeal, or other method of direct or collateral attack.” MCL 205.22(4). The statute states that an assessment is “final, conclusive, and not subject to further challenge after 90 days after the issuance of the assessment, decision, or order of the department, and a person is not entitled to a refund of any tax, interest, or penalty paid pursuant to an assessment unless the aggrieved person has appealed the assessment in the manner provided by this section.”


The Tax Tribunal denied the Department’s motions for summary disposition. The Tax Tribunal held that the 35-day appeal period did not begin to run until the taxpayer’s designated representative received actual notice of the final assessment. Because both Fradco and SMK filed their appeals within 35 days of the date their designated representatives learned of the final assessments, the appeals were timely, the Tax Tribunal ruled. In SMK’s case, the Tribunal judge noted that SMK failed to comply with MCL 205.8 when it designated three representatives, rather than the single representative allowed by the statute. But because the Department failed to send copies of the notices to any of the three representatives, the Tribunal judge concluded that SMK’s failure to comply with this aspect of the statute was irrelevant.


Both cases then proceeded to a hearing on the accuracy of the assessment. In each case, the Tax Tribunal issued a final opinion and judgment canceling the assessment against the taxpayer.


The Department filed separate claims of appeal, challenging only the Tax Tribunal’s ruling on the jurisdictional issue. The Court of Appeals affirmed the Tax Tribunal’s denial of the Department’s motion for summary disposition in two nearly identical published opinions. The appeals court held that MCL 205.8 imposes an affirmative and mandatory duty on the Department to send copies of letters and notices regarding a dispute to a taxpayer’s designated representative. MCL 205.28, which describes the type of notice that must be given to the taxpayer, operates in tandem with MCL 205.8. In its opinions in Fradco v Department of Treasury, and SMK v Department of Treasury, the Court of Appeals held: “If a taxpayer has filed a proper written notice that appoints an official representative, then [the Department] must give notice to both the taxpayer and the taxpayer’s representative before the 35-day period under MCL 205.22 begins to accrue. Because petitioner filed its appeal within 35 days after its representative received notice from [the Department], the Tax Tribunal retained jurisdiction.”


The Department sought leave to appeal to the Supreme Court in each case. The Department argued that it satisfied its obligation to give notice by sending notices of the final assessments to the taxpayers by certified mail at their last known address, as required by MCL 205.28(1)(a), and that the Court of Appeals erred in expanding the notice requirement to include compliance with MCL 205.8, which only requires that a “copy” of a letter or notice be sent to a representative. The Department argued that each taxpayer’s failure to file a timely appeal deprived the Tax Tribunal of jurisdiction over the case. The taxpayers responded that the Court of Appeals properly interpreted the notice statutes and correctly held that the appeal period was tolled until both the taxpayer and its representative received notice of the final assessments. Any other reading of the statutes has the potential to render the appeals process meaningless for certain taxpayers, who are relying on advice and guidance from their designated representatives.


In an order dated March 27, 2013, the Supreme Court granted leave to appeal. The order directs the parties to address: “(1) whether the running of the 35-day time period in MCL 205.22(1) for an aggrieved taxpayer to file an appeal in the Tax Tribunal from a final assessment is triggered when the respondent Department of Treasury complies with the notice provision of MCL 205.28(1)(a), or is there an additional notice requirement under MCL 205.8 when a taxpayer has filed a proper written request designating an official representative to receive copies of letters and notices; and (2) whether the tolling ruling adopted by the Tax Tribunal and the Court of Appeals is contrary to the finality language of MCL 205.22(4) and (5).”