Betten Auto v. Dep't of Treas

• Decision Date: 01 August 2006
• Docket Number: Docket No. 265977.,Docket No. 265978.,Docket No. 265976.
• Citation: 723 N.W.2d 914,272 Mich. App. 14
• Parties: BETTEN AUTO CENTER, INC., Plaintiff-Appellee, v. DEPARTMENT OF TREASURY, Defendant-Appellant. Betten Motor Sales, Inc., d/b/a Toyota of Grand Rapids, Plaintiff-Appellee, v. Department of Treasury, Defendant-Appellant. Betten-Friendly Motors, d/b/a Family Auto Center, Plaintiff-Appellee, v. Department of Treasury, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

723 N.W.2d 914

272 Mich. App. 14

BETTEN AUTO CENTER, INC., Plaintiff-Appellee, v. DEPARTMENT OF TREASURY, Defendant-Appellant.

Betten Motor Sales, Inc., d/b/a Toyota of Grand Rapids, Plaintiff-Appellee, v. Department of Treasury, Defendant-Appellant.

Betten-Friendly Motors, d/b/a Family Auto Center, Plaintiff-Appellee, v. Department of Treasury, Defendant-Appellant.

Docket No. 265976.

Docket No. 265977.

Docket No. 265978.

Court of Appeals of Michigan.

Submitted May 3, 2006, at Lansing.

Decided August 1, 2006, at 9:05 a.m.

Released for Publication November 14, 2006.

COPYRIGHT MATERIAL OMITTED

Fraser Trebilcock Davis & Dunlap, P.C. (by Edward J. Castellani, Michael H. Perry, and Graham K. Crabtree), Lansing, for the plaintiffs.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, Heidi L. Johnson-Mehney, Assistant Attorney General, for the defendant.

Before: BORRELLO, P.J., and SAAD and WILDER, JJ.

PER CURIAM.

In this tax dispute, defendant appeals as of right an order granting summary disposition in favor of plaintiffs pursuant to MCR 2.116(C)(10). The issue is whether vehicles purchased by plaintiffs for resale and used by plaintiffs' employees before the vehicles were resold were subject to a use tax imposed by the Use Tax Act, MCL 205.91 et seq., or whether the vehicles fell within the resale exemption to use taxation under MCL 205.94(1)(c). We affirm in part, reverse in part, and remand.

From October 1999 to September 2003, plaintiffs, all licensed automobile dealerships selling both new and used automobiles, paid defendant a total of $48,449.74 in use taxes on vehicles that plaintiffs purchased for resale, allowed their employees to use, and ultimately resold.¹ In order to use these vehicles, the employees were required to sign a document called a "Demonstrator Agreement." By signing the demonstrator agreement, the employee agreed to make the demonstrator vehicle available for demonstration during normal business hours, to store the vehicle in an area of high visibility to help advertise the vehicle, to keep the vehicle clean and ready to show at all times, and to pay $25 a week to cover insurance costs. The employee also agreed not to use the vehicle for personal use (unless approved in advance by the dealership), not to permit any family member to drive the vehicle, not to store personal possessions in the vehicle, not to smoke in the vehicle, not to use the vehicle for vacation trips, and not to drive the vehicle outside the normal selling area of the dealership. Management for plaintiffs monitored the mileages of the demonstrator vehicles and kept the use of each vehicle below approximately 5,000 or 6,000 miles. Furthermore, each demonstrator vehicle had a "sticker" in the window listing the vehicle's features and pricing, and all such vehicles were subject to sale at any time.

After an unpublished opinion of this Court held that vehicles purchased for resale, used, and ultimately resold were not subject to a use tax, Crown Motors of Charlevoix, Ltd. v. Dep't of Treasury, unpublished opinion per curiam of the Court of Appeals, issued November 4, 2003, 2003 WL 22495608 (Docket No. 240555), each plaintiff filed a refund request with defendant. Defendant denied plaintiffs' requests for a refund, stating that Crown Motors was not binding because it was an unpublished opinion and asserting that it had "not altered its long-standing position that use tax is properly due on inventory this [sic] is used in a manner other than for demonstration purposes." In addition, defendant asserted that the Legislature's 2002 amendment of MCL 205.93(2) established "a formula to determine the tax basis of vehicles held by a dealership for ultimate resale but used for purposes other than demonstration."

After defendant denied their requests for a refund, plaintiffs filed separate complaints in the Court of Claims seeking declaratory judgments that plaintiffs were not liable to pay a use tax for new and used vehicles that plaintiffs purchased as inventory for resale and that were ultimately resold, as well as a refund of use tax already paid, plus costs, attorney fees, and interest. Plaintiffs moved for summary disposition under MCR 2.116(C)(10), arguing that the vehicles in question were exempt from the use tax under the resale exemption, MCL 205.94(1)(c), because they were purchased and held in inventory for resale and were ultimately resold. Plaintiffs disputed defendant's assertion that plaintiffs' employees' use of the vehicles converted the vehicles from exempt to taxable status under MCL 205.97. Defendant argued that plaintiffs were liable to pay the use tax on the vehicles because although plaintiffs originally purchased the vehicles for resale, and the vehicles were therefore originally exempt from the use tax under the resale exemption of MCL 205.94(1)(c), plaintiffs' employees' use of the vehicles converted the vehicles from exempt to nonexempt. Defendant further argued that the Legislature's 2002 amendment to MCL 205.93(2) also demonstrated the Legislature's recognition that a vehicle purchased for resale may be used for a nonexempt purpose before being resold and that the lower 2.5-percent use tax imposed under MCL 205.93(2) should apply to plaintiffs' vehicles. The trial court noted that even though it was not bound by Crown Motors, it found Crown Motors persuasive. Furthermore, the trial court ruled that plaintiffs' vehicles qualified under the resale exemption contained in MCL 205.94(1)(c) and rejected defendant's conversion argument. The trial court therefore ordered defendant to refund plaintiffs $48,449.74 in use taxes already paid.

We review de novo a trial court's grant or denial of summary disposition under MCR 2.116(C)(10). Spiek v. Dep't of Transportation, 456 Mich. 331, 337, 572 N.W.2d 201 (1998). A motion brought under MCR 2.116(C)(10) tests the factual support for a claim. Downey v. Charlevoix Co. Bd. of Rd. Comm'rs, 227 Mich.App. 621, 625, 576 N.W.2d 712 (1998). The pleadings, affidavits, depositions, admissions, and any other documentary evidence submitted by the parties must be considered by the court when ruling on a motion brought under MCR 2.116(C)(10). MCR 2.116(G)(5); Downey, supra at 626, 576 N.W.2d 712. When reviewing a decision on a motion for summary disposition under MCR 2.116(C)(10), this Court "must consider the documentary evidence presented to the trial court `in the light most favorable to the nonmoving party.'" DeBrow v Century 21 Great Lakes, Inc. (After Remand), 463 Mich. 534, 538-539, 620 N.W.2d 836 (2001), quoting Harts v. Farmers Ins. Exch., 461 Mich. 1, 5, 597 N.W.2d 47 (1999). A trial court has properly granted a motion for summary disposition under MCR 2.116(C)(10) "if the affidavits or other documentary evidence show that there is no genuine issue in respect to any material fact, and the moving party is entitled to judgment as a matter of law." Quinto v. Cross & Peters Co., 451 Mich. 358, 362, 547 N.W.2d 314 (1996).

Michigan has enacted the Use Tax Act, MCL 205.91 et seq. The use tax "complements the sales tax and is designed to cover those transactions not covered by Michigan's General Sales Tax Act." WPGP1, Inc. v. Dep't of Treasury, 240 Mich.App. 414, 416, 612 N.W.2d 432 (2000). Under the Use Tax Act, a use tax is imposed "for the privilege of using, storing, or consuming tangible personal property in this state at a rate equal to 6% of the price of the property or services specified. . . ." MCL 205.93(1). The Use Tax Act places the ultimate liability on the consumer. MCL 205.97; World Book, Inc. v. Dep't of Treasury, 459 Mich. 403, 408, 415-416, 590 N.W.2d 293 (1999). The term "use" is defined broadly to include "the exercise of a right or power over tangible personal property incident to the ownership of that property including transfer of the property in a transaction where possession is given." MCL 205.92(b). Under MCL 205.94(1)(c), however, "[p]roperty purchased for resale" and property purchased for "demonstration purposes" are exempt from the use tax. The exemptions in MCL 205.94(1)(c) specifically provide:

(1) The following are exempt from the tax levied under this act, subject to subsection (2):

* * *

(c) Property purchased for resale, demonstration purposes, or lending or leasing to a public or parochial school offering a course in automobile driving. . . . For a dealer selling a new car or truck, exemption for demonstration purposes shall be determined by the number of new cars and trucks sold during the current calendar year or the immediately preceding year without regard to specific make or style according to the following schedule of 0 to 25, 2 units; 26 to 100, 7 units; 101 to 500, 20 units; 501 or more, 25 units; but not to exceed 25 cars and trucks in 1 calendar year for demonstration purposes. . . .

"[T]ax exemptions are strictly construed against the taxpayer and in favor of the taxing authority." Nomads, Inc. v. Romulus, 154 Mich.App. 46, 55, 397 N.W.2d 210 (1986) (emphasis in original). "Since taxation is the rule and exemption the exception, the intention to make an exemption must be expressed in clear and unambiguous terms." Id. Because tax exemptions are disfavored, the taxpayer has the burden of proving entitlement to a tax exemption. Elias Bros. Restaurants, Inc. v. Treasury Dep't, 452 Mich. 144, 150, 549 N.W.2d 837 (1996).

The trial court ruled that plaintiffs' vehicles were exempt from use taxation under the resale exemption contained in MCL 205.94(1)(c). Defendant concedes that plaintiffs are entitled to a demonstration exemption for 25 vehicles on the basis of the number of vehicles plaintiffs sell each year.² However, defendant argues that any vehicles beyond the 25 allowed under the demonstration exemption were not exempt under the resale exemption because plaintiffs' employees' use of the otherwise use-tax-exempt vehicles resulted in the conversion of the vehicles under MCL 205.97 and the...