                           STATE OF MICHIGAN

                            COURT OF APPEALS



ALTICOR INC,                                                         UNPUBLISHED
                                                                     February 9, 2016
                Plaintiff-Appellant/Cross Appellee,

v                                                                    No. 323350
                                                                     Court of Claims
DEPARTMENT OF TREASURY,                                              LC No. 12-000139-MT

                Defendant-Appellee/Cross
                Appellant.


Before: RIORDAN, P.J., and JANSEN and FORT HOOD, JJ.

PER CURIAM.

         This case arises under the Michigan Single Business Tax Act1 (“SBTA”) and involves a
final order from the Court of Claims requiring defendant to issue a tax refund to plaintiff in the
amount of $533,271.00 plus interest. Plaintiff appeals as of right, contending that the refund
should have been greater because certain payments from subsidiaries for shared employee
services were improperly characterized as “sales.” Defendant cross-appeals arguing that certain
payments from a subsidiary pursuant to a license for use of a customer list were erroneously
characterized as “royalties,” rather than “sales,” and were therefore not used in calculating
plaintiff’s tax base. We affirm.

        Plaintiff is a worldwide direct marketing company that manufactures, markets, and sells a
variety of consumer products through Independent Business Owners (IBOs). During the years at
issue, plaintiff was also the parent company of numerous subsidiaries. Plaintiff shared certain
employees and their services with its subsidiaries; the shared employees performed tasks related
to human resources, finance, legal services, and accounting. The subsidiaries paid a
proportionate amount of the shared employees’ salary by way of a credit to plaintiff. Plaintiff
refers to this method of payments by the affiliates to plaintiff for the shared employees as a “cash
pooling system.”

      Defendant audited plaintiff’s Single Business Tax (“SBT”) returns from September 1999
to August 2004, and plaintiff subsequently filed a complaint in the Court of Claims and a motion


1
    The SBTA, MCL 208.1 et seq. was repealed by 2006 PA 325, effective December 31, 2007.


                                                -1-
for summary disposition, asserting that, following the audit, defendant made improper
adjustments to its SBT returns. At issue was whether the reimbursement by the subsidiaries for
shared employees qualified as “sales” under the SBTA, and whether payments plaintiff received
from a subsidiary, Quixtar, Inc., pursuant to a license for the use of plaintiff’s list of IBOs should
be construed as royalties. The trial court issued an opinion and order granting the motion for
summary disposition in part and denying it in part. The court concluded that payments received
by plaintiff from its affiliates for services rendered by shared employees were “sales” for the
purpose of the SBTA. However, the trial court agreed with plaintiff that the payments received
from Quixtar for use of the customer list were royalties within the meaning of the SBTA, and
that they were properly deducted from plaintiff’s tax base. Both plaintiff and defendant appeal
the trial court’s order.

       First, we address plaintiff’s argument the trial court erred because the reimbursements for
services rendered by the shared employees were not sales. We disagree.

        This Court reviews de novo a trial court’s decision on a motion for summary disposition
under MCR 2.116(C)(10). MEEMIC Ins Co v DTE Energy Co, 292 Mich App 278, 280; 807
NW2d 407 (2011). A motion for summary disposition pursuant to MCR 2.116(C)(10) “tests the
factual support for a claim and should be granted if there is no genuine issue as to any material
fact and the moving party is entitled to judgment as a matter of law.” Id. “A genuine issue of
material fact exists when the record, giving the benefit of reasonable doubt to the opposing party,
leaves open an issue upon which reasonable minds might differ.” West v Gen Motors Corp, 469
Mich 177, 183; 665 NW2d 468 (2003). This Court also reviews de novo questions of statutory
interpretation. Green Oak Twp v Munzel, 255 Mich App 235, 238; 661 NW2d 243 (2003).

       The audit period at issue covered September 1999 to August 2004. Prior to January 1,
2001, the SBTA defined “sales” as follow:

                “Sale” or “sales” means the gross receipts arising from a transaction or
       transactions in which gross receipts constitute consideration: (a) for the transfer
       of title to, or possession of, property that is stock in trade or other property of a
       kind which would properly be included in the inventory of the taxpayer if on hand
       at the close of the tax period or property held by the taxpayer primarily for sale to
       customers in the ordinary course of its trade or business, or (b) for the
       performance of services, which constitutes business activities other than those
       included in (a), or from any combination of (a) or (b). [1982 PA 376 (emphasis
       added).]

       After January 1, 2001, MCL 208.7(1)(a) defined sales in pertinent part as follows:

              “Sale” or “sales” means the amounts received by the taxpayer as
       consideration from the following:

              (i) The transfer of title to, or possession of, property that is stock in trade
       or other property of a kind which would properly be included in the inventory of
       the taxpayer if on hand at the close of the tax period or property held by the



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       taxpayer primarily for sale to customers in the ordinary course of its trade or
       business.

                (ii) The performance of services, which constitute business activities other
       than those included in subparagraph (i), or from any combination of business
       activities described in this subparagraph and subparagraph (i). [2000 PA 477
       (emphasis added).]

Thus, as the trial court explained, under either definition of “sales” in MCL 208.7, a sale of
services required: (1) that an amount be received; (2) that the amount constitute consideration;
and (3) that the consideration be for the performance of services, which constitute business
activities. The parties do not dispute this construction of the statutory definition.

        In regard to the first element, whether an amount was received, we agree with the trial
court that the reimbursements qualified as an amount received by plaintiff. Plaintiff argues that
the receipts were merely a bookkeeping entry to record the pass-through payment of employees
and did not constitute actual receipts pursuant to Ford Credit Int’l Inc v Dep’t of Treasury, 270
Mich App 530; 716 NW2d 593 (2006). However, the trial court persuasively distinguished the
facts of this case from Ford Credit Int’l. In Ford Credit Int’l, this Court was persuaded that
dividends that were merely “deemed” to have been received but were not actually paid to the
taxpayer were not receipts under the SBTA. Id. at 538. The Court reasoned that the deemed
dividend was not a receipt because the internal revenue code recognized that it was “an
accounting fiction rather than a fiscal reality.” Id. at 537-538. The Court also noted that the
word “receipts” denoted “the amount or quantity received.” Id. at 537, quoting Random House
Webster’s Collegiate Dictionary (2001). Thus, the Court explained, the word “receipts”
“strongly suggests that the Legislature only intended to include within it the money a business
actually receives rather than any amount merely attributable to it.” Id. However, as the trial
court here noted, the current case does not deal with accounting fictions; the amounts at issue
were recorded in plaintiff’s books and represented the actual obligation of the affiliates that had
to be satisfied. Accordingly, we are not convinced by plaintiff’s argument in this regard.

        Plaintiff also asserts that the cash pooling system with its subsidiaries did not create a
true debt between plaintiff and its subsidiaries. To support its contention, plaintiff relies on a
decision of the Massachusetts Appellate Tax Board. “Caselaw from other states is not binding
on this court, but may be ‘instructive’ and used as a guide.” Wells Fargo Bank, NA v Null, 304
Mich App 508, 533; 847 NW2d 657 (2014). While we may adopt the reasoning of caselaw from
other states, we are not compelled to adopt the reasoning from this Massachusetts case because it
applies factors derived from Massachusetts law that are not directly connected to the definition
of “sales” as laid out in the Michigan SBTA.

       In regard to the second element, we conclude that the amounts received by plaintiff were
consideration. Plaintiff attempts to distinguish between consideration and reimbursement,
arguing that the amounts received were reimbursement rather than consideration because there
was no profit. The SBTA does not define consideration; therefore, it is proper to rely on
dictionary definitions. Halloran v Bhan, 470 Mich 572, 578; 683 NW2d 129 (2004). The word
“consideration” is defined as “[s]omething of value (such as an act, a forbearance, or a return
promise) received by a promisor from a promisee.” Black’s Law Dictionary (7th ed).

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Additionally, our Supreme Court defined “consideration” to require “a benefit on one side, or a
detriment suffered, or service done on the other.” Gen Motors Corp v Dep’t of Treasury,
Revenue Div, 466 Mich 231, 239; 644 NW2d 734 (2002) (citation omitted). As determined by
the trial court, there was consideration because plaintiff received payment by way of a debit from
the affiliate’s account in exchange for services provided by the shared employees. The fact that
the service was provided at cost is not relevant because no definition of consideration requires
that the underlying transaction or exchange must result in a profit.

         Finally, in regard to the third element, we agree with the trial court that the
reimbursements were for the performance of business activities as defined by the SBTA. To
qualify as a sale, the consideration must be received for the performance of services that
constitute business activities. The SBTA defines “business activities” to include, in relevant
part, “the performance of services . . . with the object of gain, benefit, or advantage, whether
direct or indirect, to the taxpayer or to others, but shall not include the services rendered by an
employee to his employer . . . .” MCL 208.3(2). Plaintiff contends that the services it provided
to its affiliates were not business activities because they were not done with the object of gain as
evidenced by the fact that the services were provided at cost. However, the trial court pointed
out that plaintiff provided the services and ultimately benefited because it alleviated the need for
plaintiff’s affiliates to hire employees to provide duplicative services. This would indirectly
benefit plaintiff’s own bottom line, and the SBTA provides that the gain or benefit from the
service can be “direct or indirect, to the taxpayer or to others. . . .” MCL 208.3(2). Additionally,
because the gain or benefit can accrue to others, the services could be a business activity because
the affiliates benefited from the shared employee services in that they did not have to hire full-
time employees. Accordingly, we agree with the reasoning and conclusion of the trial court.

         Plaintiff points out that the definition of “business activities” specifically excludes
“services rendered by an employee to his employer.” MCL 208.3(2). Plaintiff contends that
pursuant to Kaiser Optical Sys, Inc v Dep’t of Treasury, 254 Mich App 517; 657 NW2d 813
(2002), a parent company’s shared employees performing accounting services for an affiliate are
the business activities of the affiliate, not the parent. However, we are not convinced that Kaiser
stands for the proposition claimed by plaintiff. In Kaiser, an affiliate corporation based in
Michigan reimbursed its parent company for the services that the parent’s accounting staff in
California regularly rendered to the affiliate. Id. at 519. At issue in Kaiser was whether the
affiliate had established a sufficient nexus with the State of California for tax purposes. Id. at
521-522. The Court ultimately held that the affiliate had established a sufficient nexus with
California, declining to hold that the parent company was the actual employer of the shared
employees because the facts did not establish that the affiliate had no right to control the shared
employees. Id. at 524. While Kaiser held that the shared employees’ services were made to the
affiliates, it did not contemplate the impact on the parent company or the tax considerations
arising regarding the parent company. While the basic factual scenario in Kaiser is similar to
that presented here, the issue and law being applied were distinct. Plaintiff’s attempts to apply
Kaiser are, in our opinion, far too extenuated to apply convincingly in this matter. Thus, we are
not convinced that the holding in Kaiser conclusively establishes that the reimbursements did not
constitute business activities pursuant to MCL 208.3(2).

        In addition, plaintiff’s argument that the reimbursements were not an amount received or
a receipt because they did not generate profit is unavailing. Plaintiff cites PM One, Ltd v Dep’t

                                                -4-
of Treasury, 240 Mich App 255, 279; 611 NW2d 318 (2000), for the proposition that
reimbursement of costs paid for with another’s money do not constitute gross receipts under the
SBTA. While PM One bears some semblance to the case at bar, there are important distinctions
that make plaintiff’s comparison inapt. In PM One, a management company managed properties
on behalf of clients, and it sometimes retained third-party contractors to furnish goods or services
to maintain the properties. Id. at 259. The management company paid the third-party
contractors by transferring money from its client’s account to a central depository account
(“CDA”), and it then issued a check for the same amount from the CDA to the contractor. Id.
The Court held that the reimbursements from the clients to the management company for
payment of third-party contractors were not the company’s sales under the SBTA because the
company “neither provided the disputed goods and services nor received or otherwise owned the
consideration that flowed through the CDA from the individual client’s depository account to the
third-party vendors.” Id. at 265. PM One dealt with the agency exclusion of the SBTA which
provides that gross receipts do not “include the amounts received in an agency or other
representative capacity solely on behalf of another or others . . . .” Id. at 268, quoting MCL
208.7(3).

        The case at bar is distinguishable from PM One. Here, plaintiff’s own employees are
“shared employees” with plaintiff’s subsidiaries; they are not third-party contractors or vendors.
Thus, plaintiff is in some way providing the services that its employees render on behalf of
plaintiff’s subsidiaries. Additionally, plaintiff owns the consideration that flows to it as a result
of the subsidiaries rendering payment for the services. Unlike in PM One, plaintiff did not
receive the money “solely on behalf” of the shared employees “because of an express agency
relationship.” Id. at 269. There is no indication that the shared employees have an express
agency relationship with plaintiff for the purpose of accepting payment from the subsidiaries.
Further, the agency exception under the SBTA does not apply in this case because gross receipts
do include “amounts received by persons having the power or authority to expend or otherwise
appropriate such amounts in payment for or in consideration of sales or services made or
rendered by themselves or by others acting under their direction and control . . . .” Id. at 268,
quoting MCL 208.7(3). Here, plaintiff received payment in consideration of services rendered
by the shared employees, who were arguably under plaintiff’s direction and control. Thus, the
agency exception does not apply and the amounts received were receipts.

         Like the trial court, we further reject plaintiff’s assertion that the services it provided to
its affiliates do not constitute business activities because they do not represent plaintiff’s primary
business. To support this proposition, plaintiff relies on USX Corp v Dep’t of Treasury, 187
Mich App 256; 466 NW2d 294 (1990) and HJ Heinz Co v Dep’t of Treasury, 197 Mich App
210; 494 NW2d 850 (1992). Both cases are distinguishable and inapplicable for the same
reasons articulated by the trial court in that they involved sales in the context of the transfer of
property rather than services. Most importantly, the resolution of those cases turned on whether
the property was “stock in trade or other property” that would be “properly included in the
inventory of the taxpayer . . . or held by the taxpayer primarily for sale to customers in the
ordinary course of its trade or business.” MCL 208.7(1)(a)(i). Thus, those cases addressed sales
under the SBTA in the context of property, rather than the sale of services, which are involved in
this case. As the trial court noted, MCL 208.7 does not require a sale of services to be derived
from a service that constitutes the taxpayer’s main line of business. The parties’ arguments


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about what constitutes plaintiff’s main line of business are immaterial because plaintiff’s line of
business is irrelevant when determining whether the services it provided were a business activity.

        Plaintiff’s argument that the Court should “harmonize” statutory subsections that deal
with the word “sales” is unfounded and contrary to the rules of statutory interpretation. In
interpreting a statute, the fundamental task of a court is to “discern and give effect to the
Legislature’s intent as expressed in the words of the statute.” Pohutski v City of Allen Park, 465
Mich 675, 683; 641 NW2d 219 (2002). Here, the Legislature created two distinct definitions to
define the sale of property and the sale of services. MCL 208.7(1)(a)(i) and (ii). To combine or
otherwise “harmonize” these definitions would negate the Legislature’s manifest intent that the
definitions should be different.

        Plaintiff’s argument that the treatment of transactions under federal tax law should
control is also unpersuasive. Plaintiff correctly argues that the SBTA states that “[a] term used
in this act and not defined differently shall have the same meaning as when used in comparable
context in the laws of the United States relating to federal income taxes in effect for the tax year
unless a different meaning is clearly required.” MCL 208.2(2) (emphasis added). However, as
defendant points out, Michigan’s SBTA has its own definition of “sales” under MCL 208.7.
Thus, Michigan’s definition of “sales” controls. Plaintiff cites cases from other states for the
proposition that amounts not classified as sales for federal tax purposes are not sales for the
purpose of state tax apportionment. “Caselaw from other states is not binding on this court, but
may be ‘instructive’ and used as a guide.” Wells Fargo Bank, 304 Mich App at 533. Aside from
its non-binding nature, cases from other states are not persuasive to the extent that they deal with
the specific tax law of other states rather than Michigan’s tax law and definition of sales.

        Finally, plaintiff’s argument that the trial court’s decision represents bad tax policy that
this Court should avoid is not availing. As defendant points out, the responsibility for the justice
or wisdom of legislation rests with the Legislature, and the Court construes rather than makes the
law. Boyer-Campbell Co v Fry, 271 Mich 282, 299-300; 260 NW 165 (1935). Accordingly, all
of plaintiff’s arguments on appeal are rejected. The reimbursements paid by affiliates were
properly qualified as sales under the SBTA. Accordingly, the trial court did not err in denying
plaintiff’s motion for summary disposition on this issue.

      Next, we address defendant’s argument that the trial court erred in holding that the
payments from Quixtar (an affiliate) to plaintiff were royalties and not sales. We disagree.

        Under MCL 208.9(7)(c), a taxpayer can deduct royalties from its tax base for the
purposes of the SBTA. However, the word “royalties” is not defined in the SBTA. Michigan
courts have addressed the definition of royalties. In Mobil Oil Corp v Dep’t of Treasury, 422
Mich 473, 373 NW2d 730 (1985), our Supreme Court was called on to define the meaning of
“royalties” in the context of oil and gas leases under the SBTA. The Court initially relied on
dictionary definitions, stating:

       The Random House College Dictionary defines a “royalty” as:

                     [A] compensation or portion of the proceeds paid to the
               owner of a right, as a patent or oil or mineral right, for the use of it

                                                 -6-
               . . . an agreed portion of the income from a work paid to its author,
               composer, etc., usually a percentage of the retail price of each copy
               sold . . . a royal right, as over minerals, granted by a sovereign to a
               person or corporation . . . the payment made for such a right. [The
               Random House College Dictionary (rev ed), p 1150. Emphasis
               added.]

              This definition includes mineral and oil “royalties” with the “royalties”
       paid for patents and copyrights and refers to them as a “payment.” Black’s Law
       Dictionary defines a “royalty” as:

                       Compensation for the use of property, usually copyrighted
               material or natural resources, expressed as a percentage of receipts
               from using the property or as an account per unit produced. A
               payment which is made to an author or composer by an assignee,
               licensee or copyright holder in respect of each copy of his work
               which is sold, or to an inventor in respect of each article sold under
               the patent. Royalty is share of product or profit reserved by owner
               for permitting another to use the property. . . . In mining and oil
               operations, a share of the product or profit paid to the owner of the
               property. [Black’s Law Dictionary (5th ed), p 1195. Emphasis
               added.]

       [Mobil Oil Corp, 422 Mich at 484.]

        Following Mobil Oil, this Court determined in Mourad Bros, Inc, v Dep’t of Treasury,
171 Mich App 792, 796; 431 NW2d 98 (1988), that a royalty can result where a taxpayer pays a
percentage of its gross sales for the right to use a style, trademark, or trade names. Mourad cited
Mobil Oil for the proposition that royalties are “payment received for the use of property.” Id.
Later, in Zenith Data Sys v Dep’t of Treasury, 218 Mich App 742, 747; 555 NW2d 264 (1996),
this Court further explained that the definitions listed in Mobil Oil were given in the context of
oil and gas royalties, and the definitions “were not used as an all-encompassing definition of
royalties for SBTA purposes.”

        In Michigan United Conservation Clubs v Dep’t of Treasury, 239 Mich App 70, 79; 608
NW2d 141 (1999), aff’d by equal division 463 Mich 995 (2001), this Court further defined the
definition of royalties. The Court quoted the above definitions from Mobil Oil and explained
that a royalty “has the following elements or characteristics: (1) it is a payment, (2) in the form
of either the product itself or proceeds from the sale of the product, and (3) made in
consideration for the use of the property.” The Court subsequently held that tax credits were not
royalties because they failed to meet each of the three elements, including the element that a
royalty must be in the form of the product itself or proceeds from the sale of the product. Id. In
Columbia Assoc, LP v Dep’t of Treasury, 250 Mich App 656, 673; 649 NW2d 760 (2002), this
Court subsequently used the same three-part test to determine that network affiliation fees paid
by cable operators to TV networks were royalties within the meaning of the SBTA. The Court
also explained that the affiliation fees were payment for the use of copyrighted material that were
based on the number of subscribers, and this brought the fees directly within the Black’s Law

                                                -7-
Dictionary definition that our Supreme Court relied upon in Mobil Oil. Id. at 673-674.
Defendant also references unpublished decisions of this Court that have used the three-part
definition articulated in Michigan United Conservation Clubs.

        The trial court rejected defendant’s claim that “the payments do not meet the definition of
royalty under Mobil Oil because they are based on a percentage of the sale of manufactured
products and not a percentage or either (1) the licensed product itself; or (2) the proceeds from
the sale of the licensed product.” According to the trial court, the result of such a holding would
be that “royalties [could not] arise for the purposes of the SBT[A] unless the licensed intangibles,
such as the Contacts Lists here, [were] later sold.” The court distinguished Mobil Oil because it
related only to mineral and oil operations, and further referenced Zenith Sys, which provided that
Mobil Oil did not provide an all-encompassing definition of royalties. Zenith Data Sys, 218
Mich App at 747. The trial court explained that case law did not require that the licensed
property be sold to constitute a royalty because payment based on a percentage of the total sales
for the use of licensed property was sufficient to constitute a royalty under Mourad Bros.

         On appeal, the parties initially dispute whether the Supreme Court’s definition of
“royalties” announced in Mobil Oil applies outside of the context of oil and gas royalties. The
parties’ larger dispute centers around whether royalties must take the form of either a product
itself or the proceeds from the sale of a product, pursuant to the second element articulated by the
Court in Michigan United Conservation Clubs.

        Overall, we agree with the result reached by the trial court. While it appears this Court
has attempted to further define the definitions of royalties as provided in Mobil Oil, we are not
convinced that the definition should be restricted in the manner suggested by defendant in this
circumstance. Such a conclusion would lead to a result that would disallow royalties for the use
of the customer list in this case unless it was sold. Rather, as acknowledged by this Court in
Zenith, we conclude that the definition is adaptable and there is no all-encompassing definition
for royalties. Further, in relying the basic definition set forth in Mobil Oil, a royalty could come
from a percentage of the receipts from the use of property or a share of the profit resulting from
another’s use of property. Mobil Oil, 422 Mich at 484, quoting Black’s Law Dictionary (5th ed),
p 1195 (“Compensation for the use of property, usually copyrighted material or natural
resources, expressed as a percentage of receipts from using the property or as an account per unit
produced. . . . Royalty is share of product or profit reserved by owner for permitting another to
use the property. . . .”). In addition, this Court has reached a similar result in the past in Mourad.
While defendant is correct that Mourad is non-binding under MCR 7.215(J)(1) because it was
published before November 1, 1990, Mourad is nevertheless persuasive and demonstrates
plaintiff’s argument that royalties do not have to be payments made in the form of a product or
proceeds from the sale of a product. Ultimately, because the payments at issue were based on a
percentage of gross sales and were facilitated by use of the licensed property, we conclude that
the payments were royalties, and affirm the decision of the trial court.

       Affirmed.

                                                              /s/ Michael J. Riordan
                                                              /s/ Karen M. Fort Hood


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