Heidelberg Bldg. v. Treas. Dept.

714 N.W.2d 664

270 Mich. App. 12

HEIDELBERG BUILDING, L.L.C., on its own behalf and on behalf of all others similarly situated, Plaintiffs-Appellants, v. DEPARTMENT OF TREASURY, Defendant-Appellee.

Docket No. 264038.

Court of Appeals of Michigan.

Submitted January 4, 2006, at Lansing.

Decided February 21, 2006, at 9:05 a.m.

Released for Publication May 11, 2006.

COPYRIGHT MATERIAL OMITTED

Thomas G. Cecil, PLLC (by Thomas G. Cecil), and Bodman LLP (by James J. Walsh) Mason, Ann Arbor, for the plaintiffs.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and Ross H. Bishop, Assistant Attorney General, for the defendant.

Before: BANDSTRA, P.J., and FITZGERALD and WHITE, JJ.

PER CURIAM.

Plaintiffs appeal as of right the Court of Claims order denying their motion for summary disposition and granting summary disposition to defendant in this class action alleging that MCL 211.905(1) violates equal protection. We affirm.

Plaintiffs challenge a provision of the State Education Tax Act (SETA), MCL 211.901 et seq., that specifies that state education taxes (SETs) collected with city taxes are subject to the same penalties for late payment as other late taxes collected simultaneously.¹ Thus, two taxpayers in two different municipalities who are equally late in paying the same amount of tax may owe a different total amount of tax, interest, and penalties. Plaintiffs allege that this practice violates equal protection: "[S]ection 211.905(1) and its predecessor created classes of similarly situated taxpayers who are treated differently solely because of the location of their taxable property."

Plaintiff Heidelberg Building, L.L.C., sought class certification "of all persons or entities from whom the City of Ann Arbor or any other city, township or county or Treasury collected penalties, interest and collection charges for State Education Tax payments," and asked the court to find that any penalties, interest, and collection charges imposed by local tax-collecting authorities (cities, townships, etc.) "are unlawful and that Section 211.905(1) and its predecessor are, in part, unconstitutional."² The court certified the class as follows:

(1). All persons or entities from whom the City of Ann Arbor and any other Michigan city, township, county or the Michigan Department of Treasury collected penalties and interest for State Education Tax assessments during the period of time beginning three years prior to the filing of the complaint in this matter and concluding on the effective date of the April 30, 2002 amendment to MCL 211.905(1), which provided that the State Education Tax "shall be subject to the same penalties, interest, and collection charges as city taxes."

(2). All persons or entities from whom the City of Ann Arbor and any other Michigan city, township, county or the Michigan Department of Treasury collected penalties and interest for State Education Tax assessments during the period of time beginning three years prior to the filing of the complaint in this matter and concluding with the date of entry of judgment in this matter.

Plaintiffs moved for partial summary disposition under MCR 2.116(C)(10), and defendant asked the court to grant it summary disposition under MCR 2.116(I)(2). The court granted summary disposition to defendant, noting:

The State Education Tax Act in Section 5 requires local units of government to collect and distribute the state education tax under the provisions of the General Property Tax Act and subject to the same penalty, interest, and collection charges as city taxes. The General Property Tax Act in Section 107 [MCL 211.107] provides that the interest, penalty, and collection fees of the Act are applicable to cities and villages if not inconsistent with their charters or ordinance.[³]

The plaintiff claims that this statutory scheme, if you will, violates the equal protection clause of the Fourteenth Amendment. There is no question here that states are subject to the equal protection clause of the Fourteenth Amendment when enacting tax legislation. However, tax statutes are presumed to be constitutional.

The plaintiff has briefed this matter well and presented the Court with a number of cases from other jurisdictions that he has persuasively presented. However, I cannot find any of those cases that are analogous to exactly the situation that we have here.

Here, the Court has to engage in an analysis that asks whether the enactments, classifications, are based on natural distinguishing characteristics and whether they bear a reasonable relationship to the object of the legislation.

In addition, the Court has to inquire as to whether all persons of the same class are included and affected alike, or are immunity and privileges extended to an arbitrary or unreasonable class while denied to others of like kind.

The assessment and imposition of this tax is a matter of statewide concern and it's assessed and imposed by the State. The collection of the tax, however, has been delegated to and is a matter of local responsibility and concern. If the State imposed and collected different levels of interest based solely on location, I believe there would be a stronger argument for a violation of equal protection. But here the State delegated collection authority to the cities and allowed the cities to set the interest rate for late payments. This classifies taxpayers according to the jurisdiction of the collecting authority, which is a naturally distinguishing characteristic. I believe it bears a reasonable relationship to the object of the legislation because it recognizes the autonomy of local units to control matters of local authority and concern.

While the assessment of the taxes is a state matter, the collection, as I indicated, is a local matter. All persons of the class are included and affected alike.

I do not see a violation of the equal protection clause or the Fourteenth Amendment. There being no factual matters or disputes in this case, judgment should be granted to the defendant under MCR 2.116(I)(2).

This appeal ensued.

I

Whether MCL 211.905(1) of the SETA violates the state or the federal equal protection clauses, which are coextensive, presents a question of law that this Court reviews de novo. TIG Ins. Co., Inc. v. Dep't of Treasury, 464 Mich. 548, 557, 629 N.W.2d 402 (2001).

A

The essence of the Equal Protection Clauses is that the government not treat persons differently on account of certain, largely innate, characteristics that do not justify disparate treatment. Miller v. Johnson, 515 U.S. 900, 919, 115 S.Ct. 2475, 132 L.Ed.2d 762 (1995); El Souri v. Dep't of Social Services, 429 Mich. 203, 207, 414 N.W.2d 679 (1987). Conversely, the Equal Protection Clauses do not prohibit disparate treatment with respect to individuals on account of other, presumably more genuinely differentiating, characteristics. Puget Sound Power & Light Co. v. City of Seattle, 291 U.S. 619, 54 S.Ct. 542, 78 L.Ed. 1025 (1934). Moreover, even where the Equal Protection Clauses are implicated, they do not go so far as to prohibit the state from distinguishing between persons, but merely require that "the distinctions that are made not be arbitrary or invidious." Avery v. Midland Co., Texas, 390 U.S. 474, 484, 88 S.Ct. 1114, 20 L.Ed.2d 45 (1968).

When a party raises a viable equal protection challenge, the court is required to apply one of three traditional levels of review, depending on the nature of the alleged classification. The highest level of review, or "strict scrutiny," is invoked where the law results in classifications based on "suspect" factors such as race, national origin, or ethnicity, none of which are implicated in this case. Plyler v. Doe, 457 U.S. 202, 216-217, 102 S.Ct. 2382, 72 L.Ed.2d 786 (1982). Absent the implication of these highly suspect categories, an equal protection challenge requires either rational-basis review or an intermediate, "heightened scrutiny" review.

A. WHERE RATIONAL BASIS APPLIES

Under rational-basis review, courts will uphold legislation as long as that legislation is rationally related to a legitimate government purpose. Dandridge v. Williams, 397 U.S. 471, 485, 90 S.Ct. 1153, 25 L.Ed.2d 491 (1970). To prevail under this highly deferential standard of review, a challenger must show that the legislation is "arbitrary and wholly unrelated in a rational way to the objective of the statute." Smith v. Employment Security Comm., 410 Mich. 231, 271, 301 N.W.2d 285 (1981). A classification reviewed on this basis passes constitutional muster if the legislative judgment is supported by any set of facts, either known or which could reasonably be assumed, even if such facts may be debatable. Shavers v. Attorney General, 402 Mich. 554, 613-614, 267 N.W.2d 72 (1978). Rational-basis review does not test the wisdom, need, or appropriateness of the legislation, or whether the classification is made with "mathematical nicety," or even whether it results in some inequity when put into practice. O'Donnell v. State Farm Mut. Automobile Ins. Co., 404 Mich. 524, 542, 273 N.W.2d 829 (1979). Rather, the statute is presumed constitutional, and the party challenging it bears a heavy burden of rebutting that presumption. Shavers, supra. [Crego v. Coleman, 463 Mich. 248, 258-260, 615 N.W.2d 218 (2000).]

"Absent an imposition on a fundamental right or a suspect class, tax legislation is reviewed to determine whether its classifications bear a rational relation to a legitimate state purpose." TIG, 464 Mich. at 550-551, 629 N.W.2d 402. "A rational basis for legislation exists when any set of facts can be reasonably conceived to justify the discrimination." Kellogg Co. v. Dep't of Treasury, 204 Mich.App. 489, 496, 516 N.W.2d 108 (1994).

Although the challenged statute does not state the purpose of allowing various municipalities within the state to determine the penalties for late tax payments for themselves, several purposes are conceivable,...