Summary
In Bauer, this Court determined that § 15 of the severance tax act, MCL 205.315; MSA 7.365, allows an individual who pays the severance tax on royalties received from oil and gas leases to be exempt from paying income tax on those royalties.
Summary of this case from Elenbaas v. Department of TreasuryOpinion
Docket No. 141659.
Submitted October 5, 1993, at Lansing.
Decided December 20, 1993, at 9:50 A.M. Leave to appeal sought.
Rosi, Olson Levine, P.C. (by Philip R. Rosi and John W. Tilley), for the plaintiffs.
Frank J. Kelley, Attorney General, Thomas L. Casey, Solicitor General, Russell E. Prins and Steven D. Hughey, Assistant Attorneys General, for the defendant.
Plaintiffs are holders of royalty interests and lessors of mineral rights in oil and gas wells in the State of Michigan. In 1985, plaintiffs received royalty payments from the production of oil and gas. These royalties were reduced to reflect payment of the severance tax, pursuant to Brown v Shell Oil Co, 128 Mich. App. 111; 339 N.W.2d 709 (1983).
Plaintiffs submitted applications to defendant, the Department of Treasury, for refunds of that portion of their 1985 personal income taxes attributable to payments received on their royalty interests. In doing so, they relied on § 15 of the severance tax act, MCL 205.315; MSA 7.365, which provides:
The severance tax herein provided for shall be in lieu of all other taxes, state or local, upon the oil or gas, the property rights attached thereto or inherent therein, or the values created thereby; upon all leases or the rights to develop and operate any lands of this state for oil or gas, the values created thereby and the property rights attached to or inherent therein: Provided, however, Nothing herein contained shall in anywise exempt the machinery, appliances, pipe lines, tanks and other equipment used in the development or operation of said leases, or used to transmit or transport the said oil or gas: And provided further, That nothing herein contained shall in anywise relieve any corporation or association from the payment of any franchise or privilege taxes required by the provisions of the state corporation laws.
Defendant denied plaintiffs' applications for refunds, relying on Revenue Administration Bulletin 1989-22.
Plaintiffs subsequently filed the instant suit, seeking a judgment declaring that Revenue Administration Bulletin 1989-22 was void and that plaintiffs were entitled to an exemption from state personal income taxes under § 15. Plaintiffs filed a motion for summary disposition. Following a hearing, the court ordered judgment in favor of defendant. Plaintiffs now appeal, and we reverse.
The sole issue before us is whether an individual who pays severance tax on royalties received in an oil and gas lease is exempt from paying income taxes on those royalties.
Plaintiffs argue that § 15 exempts royalty income from other state taxes. Plaintiffs point to the fact that although the severance tax was enacted before there was an income tax, it has never been amended to include an exception for income tax.
We dismiss out of hand plaintiffs' argument in their brief that "[n]or was § 15 ever amended to add such an exception (despite its numerous modifications of the Act, including a broad overhaul in 1965)," because the Michigan income tax was not enacted until 1967.
Defendant argues that § 15 sets forth certain state and local taxes to which the exemption applies, and that there is nothing to indicate that the Legislature extended the exemption beyond those taxes in force in 1929. Defendant points to the fact that the Income Tax Act, MCL 206.1 et seq.; MSA 7.557(101) et seq., did not provide for a credit for severance taxes that have been paid.
We agree with plaintiffs.
When a statute is clear and unambiguous, judicial construction or interpretation is unnecessary and therefore precluded. Lorencz v Ford Motor Co, 439 Mich. 370; 483 N.W.2d 844 (1992).
Here, the relevant portion of § 15 reads:
The severance tax herein provided for shall be in lieu of all other taxes, state or local, upon . . . the values created. . . .
We find this to be a clear and unambiguous statement. When the statute says "in lieu of all other taxes," we can conclude only that it means what it says. The words of a statute are to be taken in the sense in which they will be understood by those who must abide by it. In re D'Amico Estate, 435 Mich. 551; 460 N.W.2d 198 (1990).
The difficulty arises in considering this in conjunction with MCL 206.51(1); MSA 7.557(151)(1), which provides:
For receiving, earning, or otherwise acquiring income from any source whatsoever, there is levied and imposed a tax. . . .
The most fundamental rule for the construction of two statutes covering the same subject generally is that they must be construed together to give meaning to both, if at all possible. Borden, Inc v Dep't of Treasury, 391 Mich. 495; 218 N.W.2d 667 (1974). In case of conflict between two legislative enactments, the more specific statute or code must prevail. This is the commonly accepted view in dealing with such conflicts. This is so even though the specific statute was enacted before the general statute. Imlay Twp School Dist v State Bd of Ed, 359 Mich. 478; 102 N.W.2d 720 (1960).
To give the specific statute, the severance tax act, its proper effect, we must hold that the payments on a royalty interest are not subject to personal income tax.
Although defendant argues that the Legislature never listed the income from royalty interests as exempt from the personal income tax, we note that it also never amended the severance tax to include personal income tax as an exception. If the Legislature desires a different result, it is certainly free to amend the appropriate statutes accordingly.
We reverse and remand for entry of the appropriate order in accordance with this opinion. We do not retain jurisdiction.