In January 1984, the State Tax Commission issued a bulletin directing rural electric cooperatives to prepare their personal property tax statements using “the same procedures” as investor-owned utilities. The 1984 bulletin did not mention contributions in aid of construction (an up-front financial contribution from a third party to a utility that the utility later uses to offset total construction costs of a project). However, when the tax commission later issued its 1984 personal property reporting form for rural electric cooperatives, that form included contributions in aid of construction – which investor-owned utilities were not required to report. As a result, Cherryland Electric Cooperative alleged, it paid more in taxes to Blair, East Bay, and Garfield Townships than it would have if the tax reporting form had reflected the same procedures as for investor-owned utilities.
Cherryland sought relief from the Michigan Tax Tribunal for taxes Cherryland paid in 1999, 2000, and 2001, contending that the townships were obligated to refund the alleged overpayment. Cherryland brought its claims under MCL 211.53a, which states:
“Any taxpayer who is assessed and pays taxes in excess of the correct and lawful
amount due because of a clerical error or mutual mistake of fact made by the assessing officer and the taxpayer may recover the excess so paid, without interest, if suit is commenced within 3 years from the date of payment, notwithstanding that the payment was not paid under protest.”
The tax tribunal held that Cherryland was entitled to a refund, reasoning that “[t]he mutual mistake of fact was the parties’ shared erroneous belief that CIAC [contributions in aid of construction] was required to be reported and included pursuant to the [State Tax Commission’s] personal property statements and directives.”
The townships appealed, arguing that Cherryland was not entitled to a refund because any mistake was not one of fact, but one of law concerning requirements for tax reporting. But in an unpublished per curiam opinion, the Court of Appeals affirmed the tax tribunal.
“Paramount to the issue of whether recovery is warranted is a clear understanding of the difference between a mutual mistake of fact and a mistake of law,” the appellate court said.
The Court of Appeals compared Cherryland’s case to Ford Motor Company v City of Woodhaven, 475 Mich 425 (2006). In that case, Ford submitted tax statements that overstated the amount of taxable property Ford owned; based on those statement, tax assessors calculated, and Ford paid, more in taxes than Ford would have if the tax statements had been accurate. The Supreme Court held that Ford’s tax statements, which Ford and the tax assessors wrongly believed to be correct, supported “valid claims of mutual mistake of fact that were intended to be remedied under MCL 211.53a.” The Supreme Court reasoned that, when the Legislature inserted the term “mutual mistake of fact” into MCL 211.53a, the term was to be “construed and understood consistent with its peculiar meaning” as defined by common law. A “mutual mistake of fact” is defined as “an erroneous belief, which is shared and relied on by both parties, about a material fact that affects the substance of the transaction.” The parties’ mistake was mutual, the Court said, because both Ford and the tax assessors believed that the personal property statements were accurate. The mistake went to the “very nature of the transaction” because all the personal property Ford claimed in its statement was taxable.
Cherryland’s case, the Court of Appeals said, was “similar to the Ford case” in that “both Cherryland and the Townships’ assessors believed that the 1984 form was accurate. That belief, however, was erroneous as CIAC should not have been included in the personal property assessments for REAs based on the 1984 bulletin. The erroneous belief of the parties resulted in Cherryland’s personal property being inaccurately assessed, thus affecting the substance of the transaction.”
The townships argued that the mistake was one of law, because it was based on the State Tax Commission’s requirement – a matter of law, the townships contended – that the rural electric cooperatives report contributions in aid of construction. The Court of Appeals rejected that requirement: “[T]his case does not involve the ‘collection of an unauthorized tax.’ Rather, the tax here was authorized, but the form used to compute the tax contained an error.” Regardless of whether the State Tax Commission and the Michigan Electric Cooperative Association knew that the personal property reporting form included contributions in aid of construction, “any awareness does not change that Cherryland and the Townships’ assessors shared and relied on the erroneous belief that the 1984 form was correct,” the Court of Appeals said.
The townships appealed. In an order dated November 9, 2012, the Supreme Court ordered the case to be scheduled for oral argument “on whether to grant the application or take other action.” The Court directed the parties to “address whether these cases involve a mutual mistake of fact within the meaning of MCL 211.53a.”