Principal residence exemption (PRE); Effect of initially filing a nonresident tax return & later filing an amended resident tax return; MCL 211.7cc(3)(c); “Has filed”; Comparing the exception in MCL 211.7cc(3)(a); Campbell v Department of Treasury; Waiver of an issue; Tax Tribunal (TT)

In an issue of first impression, the court held that “MCL 211.7cc(3)(c) does not prohibit property owners from obtaining a PRE when they have amended an erroneously-filed nonresident tax return to reflect resident status.” Thus, it affirmed the TT’s judgment, which reversed respondent’s denial of petitioners’ claimed PRE. MCL 211.7cc(3)(c) provides that “a property owner generally may not qualify for an exemption if they have ‘filed a nonresident Michigan income tax return.’” The issue before the court was “whether a property owner may claim a PRE when they initially filed a nonresident” return but later filed an amended resident return. It concluded that the statute permits them to do so. In interpreting the provision, the dispute turned on whether “has filed” in the statute “refers to the physical act of filing a return, as respondent urges, or to the operative return in question, as petitioners urge.” After considering how amended tax returns work, the court determined that, “just as a litigant is bound by their most recently filed amended pleading, which supersedes the original pleading, an amended return effectively replaces the original return. The Legislature was presumably aware that taxpayers are permitted to amend their returns after filing when it drafted the exception.” Thus, the court saw “no reason why an amended state return should not be treated as superseding and replacing the initially filed return for purposes of MCL 211.7cc(3)(c).” As a result, the exception refers “to the taxpayer’s operative return, which includes an amended return, if applicable.” The court noted that its interpretation was also supported by MCL 211.7cc(3)(a)’s language, which the Legislature amended to forbid “property owners from amending an out-of-state tax return to obtain a tax benefit[.]” The absence of this language in MCL 211.7cc(3)(c) suggested it “did not intend to automatically disqualify property owners who amend an erroneously-filed nonresident Michigan tax return.” Because petitioners filed an amended return to correct petitioner-Sue Anne’s residency status, that was the operative return.