Opinion
Docket No. 161155.
Submitted March 8, 1995, at Lansing.
Decided June 2, 1995, at 9:45 A.M.
Foster, Swift, Collins Smith, P.C. (by Louis K. Nigg), for the plaintiff.
Frank J. Kelley, Attorney General, Thomas L. Casey, Solicitor General, and Russell E. Prins and Steven D. Hughey, Assistant Attorneys General, for the defendant.
Before: DOCTOROFF, C.J., and CAVANAGH and SMOLENSKI, JJ.
The trial court granted plaintiff's motion for summary disposition pursuant to MCR 2.116(C)(9) and (10), ruling that plaintiff's world-wide income was excluded from consideration in his Michigan farmland preservation property tax credit. We granted leave to appeal, and we reverse.
Plaintiff was a resident of the Netherlands who owned farmland in Michigan. In exchange for leaving some of this farmland undeveloped, plaintiff became eligible for a tax credit pursuant to the Farmland and Open Space Preservation Act, MCL 554.701 et seq.; MSA 26.1287(1) et seq. That act states, in relevant part:
Plaintiff Arie DeKoning died after this appeal was filed. We granted the motion to substitute Joris DeKoning, Arie's son and successor in interest, as plaintiff.
(1) An owner of farmland and related buildings covered by a development rights agreement meeting the requirements of this act who is required or eligible to file a return as an individual or a claimant under the state income tax act may claim a credit against the state income tax liability for the amount by which the property taxes on the land and structures used in the farming operation, including the homestead, restricted by the development rights agreement exceeds 7% of the household income as defined in Chapter 9 of the state income tax act, excluding any deduction if taken under section 613 of the internal revenue code. [MCL 540.710(1); MSA 26.1287(10)(1).]
The state Income Tax Act, MCL 206.1 et seq.; MSA 7.557(101) et seq., defines "household income" as all income received by all persons of a household in a tax year while members of a household. MCL 206.508(4); MSA 7.557(1508)(4). "Income" is defined as the sum of federal adjusted gross income as defined in the Internal Revenue Code, 26 U.S.C. § 1 et seq., plus all income specifically excluded or exempt from the computations of the federal adjusted gross income. MCL 206.510(1); MSA 7.557(1510)(1).
Neither party disputes that plaintiff was eligible for the farmland preservation tax credit. The parties disagree with regard to the amount of plaintiff's income that should be included in the calculation of his household income. MCL 540.710(1); MSA 26.1287(10)(1). Defendant argues that plaintiff's household income should include his world-wide income. Plaintiff maintains that "income" as defined in the Internal Revenue Code includes only income earned in the United States.
Because statutory interpretation is a question of law, we review the trial court's decision de novo. Smeets v Genesee Co Clerk, 193 Mich. App. 628, 633; 484 N.W.2d 770 (1992). Generally, tax laws are construed against the government. However, tax exemption statutes are to be strictly construed in favor of the taxing unit. Great Lakes Sales, Inc v State Tax Comm, 194 Mich. App. 271, 276; 486 N.W.2d 367 (1992). Because the farmland preservation tax credit reduces the amount of tax imposed, we review this statute as an exemption provision.
Relying on 26 U.S.C. § 872, the trial court ruled that the Internal Revenue Code defines gross income for nonresident aliens as including only income from sources within the United States. Therefore, plaintiff's household income, for purposes of the farmland preservation tax credit, should have included only his income earned in the United States. We disagree.
Section 872 of the Internal Revenue Code states:
(a) General Rule — In the case of a nonresident alien individual, gross income includes only —
(1) gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
(2) gross income which is effectively connected with the conduct of a trade or business within the United States. [ 26 U.S.C. § 872. Emphasis added.]
From the words "gross income includes," we can presume that the items not listed are excluded. The state Income Tax Act defines "income" as the sum of federal adjusted gross income as defined in the Internal Revenue Code plus all income specifically excluded or exempt from the computations of the federal adjusted gross income. MCL 206.510(1); MSA 7.557(1510)(1). As an exclusion from federal adjusted gross income, income from sources outside the United States should be added to the federal adjusted gross income to calculate household income under the state Income Tax Act.
Our interpretation is consistent with the purpose of the farmland preservation tax credit. The credit is meant to encourage farmers to leave some of their land in a natural, undeveloped state. The credit was necessary because the pressures of urban and suburban development often resulted in property taxes so high that a farmer who wished to maintain the land in an undeveloped state could not afford to do so and was forced to sell his property for development. House Legislative Analysis, HB 4244, March 20, 1974.
If we assume, as the trial court did, that the only purpose of the farmland preservation tax credit is to encourage the preservation of farmland, then the restriction on the credit by the amount that property taxes exceed seven percent of household income would serve no purpose. This restriction is intended to assist low-income farmers who want to leave some of their land undeveloped. Including plaintiff's world-wide income in the calculation of household income would still promote this intent. Since plaintiff is not a low-income farmer, he would not need a large tax credit if he desired to keep some of his land undeveloped. We hold that, for purposes of the Farmland and Open Space Preservation Act, MCL 540.710(1); MSA 26.1287(10)(1), "household income" includes the taxpayer's world-wide income.
Because we hold that the trial court's ruling was erroneous, we reverse the grant of attorney's fees and costs. MCR 2.625(A).
Reversed and remanded for proceedings consistent with this opinion. We do not retain jurisdiction.