02. Employer Liability, Tax Rate, Successorship

MESC v ASC, Inc – 2.06

Digest no. 2.06

Section 22(d)(3), formerly 22(e)(3)

Cite asMESC v ASC, Inc, unpublished opinion of the Court of Appeals of Michigan, issued August 7, 1991 (Docket No. 119777).

Appeal pending: No
Claimant: N/A
Employer: ASC, Inc.
Docket no.: L82 22133 1825
Date of decision: August 7, 1991

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COURT OF APPEALS HOLDING: Where a vertical merger takes place involving multiple corporate entities related as parent – subsidiary, the merger transactions occur in sequence, not simultaneously.

FACTS: Prior to June 1982, Wisco Corporation was a wholly owned subsidiary of Ultra International, Inc. In turn, Ultra was a wholly owned subsidiary of American Sunroof Corp. Heinz Prechter was the sole stockholder of Sunroof, and he was the sole director of all 3 corporations. At the time Wisco’s contribution rate was 7.8% and Sunroof’s rate was 5.5%. Without applying statutory limit provisions, both corporations would have had a rate of 9%. For economic reasons Sunroof dissolved both Wisco and Ultra into their parent corporations. The business name of Sunroof was changed to ASC, Inc. On June 23, 1981, Prechter signed 3 separate resolutions dissolving the 3 corporations into their parent business effective June 30, 1982. MESC notified ASC, Inc. that it was a successor of the other businesses and assigned a 9% contribution rate for 1982 pursuant to Section 22(e)(3) because it treated the transfer as “simultaneous”.

DECISION: The mergers in this case were not “simultaneous”, and Section 22(e)(3) is not applicable. The rate assigned to ASC is the same as Sunroof’s – 5.5%.

RATIONALE: “We agree with the Board of Review and the circuit court that it was legally impossible for the transfer in this case to have occurred concurrently. If the assets of a subsidiary corporation are to be transferred to the parent corporation the subsidiary and parent may not both dissolve at the same time. The parent must remain in existence in order to accept the subsidiary’s assets. Only after a subsidiary has dissolved and the parent has accepted its assets may that parent dissolve and transfer both its assets and its former subsidiary’s assets to another corporation.”

Digest Author: Board of Review (original digest here)
Digest Updated: 12/91

02. Employer Liability, Tax Rate, Successorship

Ha-Marque Fabricators, Inc v MESC – 2.04

Ha-Marque Fabricators, Inc v MESC
Digest no. 2.04

Section 19, Section 22(d)(3), formerly 22(e)(3)

Cite asHa-Marque Fabricators, Inc v MESC, 178 Mich App 470 (1989); lv den 435 Mich 877 (1990).

Appeal pending: No
Claimant: N/A
Employer: Ha-Marque Fabricators, Inc.
Docket no.: L82 18210 1893
Date of decision: July 17, 1989

View/download the full decision here

COURT OF APPEALS HOLDING: A weighted average of the tax rate of the employer’s two predecessors which were merged into it must be used to determine the employer’s tax rate under Section 19 and 22(e)(3).

FACTS: The employer, based in Illinois, acquired two Michigan subsidiaries and merged them into its operation during a corporate reorganization and then filed a registration report to determine liability with the MESC. MESC assigned a 9% tax rate for 1982. The MESC based its calculations on legislative amendments to the rate calculation provision. The legislature failed to amend Section 22(e)(3) to conform to the other amendments. MESC interpreted the law to require that in mergers the employer should be assigned a total of the former employer’s rates.

DECISION: Employer’s tax rate must be determined by a weighted average of the merged former employer’s rates pursuant to Section 22(e)(3) and 19(a)(6) of the Act.

RATIONALE: “Although in this appeal, the MESC interprets Section 22(e)(3) to mandate a calculation of the employer’s contribution rate based on the balances in the employer’s experience account, we do not believe that the legislature intended such a construction. While we give respectful consideration to the MESC’s interpretation of the statute, we are not bound by it and we decline to follow it here.”

“We believe that the circuit court judge correctly interpreted Section 22(e)(3) as requiring that a weighted average approach be applied to determine Ha-Marque’s contribution rate … .”

Digest Author: Board of Review (original digest here)
Digest Updated: 6/91