Title: JOHN T STONE V STATE OF MICHIGAN

State: michigan

Issuer: Michigan Supreme Court

Document:

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Michigan Supreme Court 
Lansing, Michigan 48909 
C hief Justice 
Justices 
Maura D. Corrigan  
Michael F. Cavanagh 
Elizabeth A. Weaver 
Marilyn Kelly 
Clifford W. Taylor 
Robert P. Young, Jr. 
Opinion 
Stephen J. Markman 
FILED SEPTEMBER 24, 2002  
JOHN T. STONE and PHILLIP M. STEVENS,  
Plaintiffs-Appellees,  
v  
No. 120211  
STATE OF MICHIGAN and DEPARTMENT OF  
TREASURY,  
Defendants-Appellants.  
PER CURIAM  
I  
At issue is whether the plaintiffs, members of a class  
consisting of those who retired under the state’s 1996 early  
retirement program,1 are subject to withholding for state and  
local income taxes on monthly accumulated sick leave payments  
pursuant to MCL 38.19f(3).  The Court of Claims and the Court  
of Appeals concluded these payments were not taxable.  We  
reverse because we conclude that these sick leave payments are  
1  1996 PA 487; 1997 PA 3.  
 
 
 
not tax exempt under the relevant statute.  
II  
As all the parties acknowledge, pursuant to the Michigan  
Civil Service Commission Compensation Plan (MCSCCP), Civil  
Service Reg 5.10(3)(D)(1)(a) retiring employees of the state  
of Michigan hired before October 1, 1980, typically receive a  
lump-sum payment for their accumulated sick leave from which  
income tax is withheld.  In 1996, however, the Legislature, by  
amending the State Employees Retirement Act (SERA), MCL 38.1  
et seq., created an early retirement program of limited  
duration for some senior state employees. This legislation,  
which was designed to encourage early retirement by enhancing  
certain 
retirement 
benefits, also provided that the payment of  
accumulated sick leave time to these early retirants2 was to  
be made not in a lump sum as was usual, but rather in sixty  
consecutive equal monthly payments.3  The state, consistent  
with its handling of other retirants accumulated sick leave  
pay, was of the view that these payments were subject to  
withholding for state and local tax purposes.  
2 A “retirant,” as defined by MCL 38.1h(2), is “a person 
who has ceased to be a member of the retirement system by 
reason of retirement with a pension or retirement allowance 
payable from the funds of the retirement system.”  
3  MCL 38.19f(3) provides:  
Any amount that a member retiring under this 
section would otherwise be entitled to receive in a  
lump sum at retirement on account of accumulated 
sick leave shall be paid in 60 consecutive equal 
monthly installments.  
2  
 
 
  
Plaintiffs, representing a class of former employees who  
retired under the early retirement program, sued the state and  
the Department of Treasury in the Court of Claims arguing that  
taxes could not be withheld from these payments because such  
withholding was prohibited by MCL 38.40(1) of the SERA.4  
The 
Court 
of 
Claims agreed and granted plaintiffs’ motion  
for summary disposition. The Court of Appeals affirmed in a  
two-to-one decision. 247 Mich App 507; 638 NW2d 417 (2001).  
Defendants seek leave to appeal.  
III  
The grant or denial of summary disposition by a trial  
court is reviewed de novo. Spiek v Dep’t of Transportation,  
456 Mich 331, 337; 572 NW2d 201 (1998).  This matter also  
presents an issue of statutory interpretation. In construing  
a statute, it is our obligation to review the words of the  
statute and give the words used their plain and ordinary  
meanings. Herald Co v Bay City, 463 Mich 111, 117-118; 614  
NW2d 873 (2000).  
IV  
The amendment of the SERA, at § 40(1), states that any  
4  MCL 38.40(1) provides:  
The right of a person to a pension, an 
annuity, a retirement allowance, any optional 
benefit, any other right accrued or accruing to any 
person under the provisions of this act, the 
various funds created by this act, and all money 
and investments and income of the funds, are exempt 
from any state, county, municipal, or other local 
tax . . . .  
3  
right accrued or accruing to a person under the act is not  
taxable.  Plaintiffs contend this language precludes taxation  
of these payments.  However, this statute did not create a  
right to receive a lump-sum payment for accumulated sick  
leave.  That right had earlier been created under the MCSCCP.  
The SERA, at § 19f(3), only altered the manner of payment.  
When the plaintiffs accepted the state’s offer of early  
retirement, with its attendant benefits, they also agreed to  
a “give-back” that allowed the sick leave payment to be made  
over a sixty-month period, rather than being paid off at the  
time of retirement.  This concession did not create a right  
that accrued to plaintiffs under the SERA.  Therefore the tax  
exemption provided under § 40(1) does not apply to the monthly  
payments for accumulated sick leave under § 19(f).  
Plaintiffs also contend that taxation of payments for  
accumulated sick leave is a diminishment of a contractual  
benefit and as such is a violation of Const 1963, art 9, § 24,  
which 
provides 
that 
accrued financial benefits of each pension  
plan and retirement system of the state shall be a contractual  
obligation that shall not be diminished or impaired.  However,  
plaintiffs cannot argue that their benefits were impaired or  
diminished because these payments were subject to tax and paid  
over a sixty-month period in light of the fact that they  
agreed 
to 
this 
alteration and thus waived their constitutional  
right under Const 1963, art 9, § 24.  There is no question  
4  
 
 
 
 
 
that constitutional right can be contractually relinquished,5  
and plaintiffs waived their right when they agreed to retire  
under the conditions set forth in the act.  
IV  
The judgment of the Court of Appeals is reversed. The  
matter is remanded to the Court of Claims for entry of  
judgment in favor of defendants.  The motion for peremptory  
reversal filed by the defendants is denied as moot.  
CORRIGAN, C.J., and WEAVER, TAYLOR, YOUNG, and MARKMAN, JJ.,  
concurred.  
CAVANAGH and KELLY, JJ., would not dispose of this case by  
an opinion per curiam, but would grant leave to appeal.  
5  Snepp v United States, 444 US 507; 100 S Ct 763; 62 L  
Ed 2d 704 (1980); Haig v Agee, 453 US 280; 101 S Ct 2766; 69 
L Ed 2d 640 (1981).  
5