Ameritech v. Treasury Dep't

• Decision Date: 07 August 2008
• Docket Number: Docket No. 276374.
• Citation: 281 Mich. App. 132,761 N.W.2d 470
• Court: Court of Appeal of Michigan — District of US
• Parties: AMERITECH PUBLISHING, INC. v. DEPARTMENT OF TREASURY.

761 N.W.2d 470

281 Mich. App. 132

AMERITECH PUBLISHING, INC. v. DEPARTMENT OF TREASURY.

Docket No. 276374.

Court of Appeals of Michigan.

Submitted June 5, 2008, at Lansing.

Decided August 7, 2008.

Approved for Publication September 30, 2008, at 9:00 a.m.

Jaffe, Raitt, Heuer & Weiss, PC, Southfield (by Brian G. Shannon and Robert E. Lewis), for the plaintiff.

Michael A. Cox, Attorney General, B. Eric Restuccia, Solicitor General, and Michael R. Bell, Assistant Attorney General, for the defendant.

Before: GLEICHER, P.J., and FITZGERALD and HOEKSTRA, JJ.

PER CURIAM.

Plaintiff Ameritech Publishing, Inc. (API), appeals as of right the Court of Claims order affirming the denial of API's request for a use tax refund for the years 1998 through 2000 (the refund period) by defendant Department of Treasury (the Department). Because API "used" the telephone directories in Michigan and the "price" of the directories is to be calculated without a deduction for the costs of materials or services, and because the costs of the directories is not subject to double taxation, we affirm.

I. FACTS AND PROCEDURAL BACKGROUND

API¹ and the Department submitted the case to the Court of Claims on the following stipulated facts. API published and distributed telephone directories to business and residential customers in Michigan. R.R. Donnelly & Sons Company (Donnelly) printed, bound, and cut the directories at its printing facility in Dwight, Illinois.

The publishing of the directories involved three steps. First, API developed the content to be published in the directories. After API completed creating the content, which consisted of a page-by-page presentation of the directories, API provided the content to Donnelly in electronic format. Second, API purchased the paper on which Donnelly was to print the directories. API entered into contracts with non-Michigan paper mills for the paper. Although the paper mills shipped the paper directly to Donnelly's printing facility in Dwight, Illinois, API took title of the paper before Donnelly used the paper to print any directories. Donnelly maintained API's paper separate from all other paper in its plant, and it was only allowed to use API's paper for the directories. Third, API procured printing services from Donnelly. After Donnelly printed the content supplied by API on the paper, Donnelly cut and bound the paper into finished directories.

API entered into an agreement with a contract carrier for transportation of the directories (carrier contract) and with a product development corporation (PDC) for distribution of the directories (distribution contract). The contract carrier transported the finished directories from Donnelly's printing facility in Dwight, Illinois, to the PDC's distribution centers located throughout Michigan. Then, over the course of several weeks, the PDC distributed the directories to local businesses and residences. In general, the PDC's distribution of the directories consisted of two phases: (1) the "initial distribution," where the PDC completed door-to-door distribution of the directories and mailed directories to remote and rural areas and to controlled-access locations, such as condominium complexes and gated communities; and (2) the "secondary distribution," which consisted, in part, of the PDC's delivering directories to new telephone users and to customers requesting additional directories.

During the refund period, API remitted use tax to the Department based on the cost of the paper it purchased from the paper mills and the cost of Donnelly's printing services. In February 2002, API sought from the Department a refund in the amount of $3,519,409.13, which equaled the amount of use taxes it alleged it had overpaid during the refund period. The Department denied the refund request, and the Court of Claims upheld the denial.

On appeal, API makes three arguments. First, API argues that, because it exercised no rights or powers over the directories while the directories were in the distribution channel, it did not "use" the directories in Michigan. Second, API argues that, even if the distribution of the directories is subject to the use tax, neither the cost of the paper nor the cost of Donnelly's printing services could be included in determining the "price" of the directories. Third, API argues that, because the directories are a "tie-in" item to the telecommunication services provided by its affiliated companies, the result of allowing defendant to tax its costs of producing the directories would be double taxation.

II. STANDARD OF REVIEW

This Court reviews questions of law de novo. Gen. Motors Corp. v. Dep't of Treasury, 466 Mich. 231, 236, 644 N.W.2d 734 (2002). This Court also reviews questions of statutory interpretation de novo. Herald Wholesale, Inc. v. Dep't of Treasury, 262 Mich.App. 688, 693, 687 N.W.2d 172 (2004).

Construction of the Use Tax Act (UTA), MCL 205.91 et seq., is subject to the general rules of statutory interpretation. Brunswick Bowling & Billiards Corp. v. Dep't of Treasury, 267 Mich.App. 682, 684, 706 N.W.2d 30 (2005). The primary goal of judicial construction of a statute is to ascertain and give effect to the intent of the Legislature. Neal v. Wilkes, 470 Mich. 661, 665, 685 N.W.2d 648 (2004). If the language employed by the Legislature is unambiguous, the Legislature is presumed to have intended the meaning clearly expressed, and this Court must enforce the statute as written. Rowland v. Washtenaw Co. Rd. Comm., 477 Mich. 197, 219, 731 N.W.2d 41 (2007). However, when interpreting a tax statute, this Court must keep in mind that the authority to tax must be expressly provided. See Molter v. Dep't of Treasury, 443 Mich. 537, 543, 505 N.W.2d 244 (1993). Tax laws will not be extended in scope by implication or forced construction. Sharper Image Corp. v. Dep't of Treasury, 216 Mich.App. 698, 702, 550 N.W.2d 596 (1996). "When there is doubt, tax laws are to be construed in favor of the taxpayer." Id.

III. THE UTA

The use tax is complementary to the sales tax. WPGP1, Inc. v. Dep't of Treasury, 240 Mich.App. 414, 416, 612 N.W.2d 432 (2000). The UTA is designed to cover those transactions not covered by the General Sales Tax Act (GSTA), MCL 205.51 et seq. WPGP1, supra at 416, 612 N.W.2d 432. The UTA provides:

There is levied upon and there shall be collected from every person in this state a specific tax for the privilege of using, storing, or consuming tangible personable property in this state at a rate equal to 6% of the price of the property. . . ." [MCL 205.93(1).]²

"It is the use [of the property] in Michigan that is taxed under the [UTA]." WMS Gaming, Inc. v. Dep't of Treasury, 274 Mich.App. 440, 443, 733 N.W.2d 97 (2007).

A. "USE"

The UTA defines "use" as "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" to another. MCL 205.92(b). API claims that, because it did not exercise any rights or powers over the directories while the directories were transported by the contract carrier and distributed by the PDC, it did not "use" the directories in Michigan. In addition, API argues that this Court's decision in Sharper Image, supra, suggests that a distribution of tangible personal property does not fall within the definition of "use" under MCL 205.92(b).

In Sharper Image, the plaintiff conducted business in Michigan through mail-order catalogs. The catalogs, produced by a printer in Nebraska, were shipped to Michigan residents through the mail from the printer's place of business. The plaintiff retained no control over the catalogs after the catalogs were delivered to the postal service. The Court of Claims held that the plaintiff's distribution of the catalogs in Michigan was a "use" subject to the UTA because it found that the definition of "distribution" was synonymous with the definitions of "give" and "transfer," two terms within the statutory definition of "use."

This Court disagreed:

We conclude the trial court erred in two respects. First, under the plain wording of the statute, in order to be taxed under the UTA, a taxpayer must perform in Michigan one of the activities listed in the definition of "use." MCL 205.93(1); MSA 7.555(3)(1). Here, plaintiff's exercise of a right or power over the catalogs ended when the catalogs were delivered to the postal service in Nebraska.

Second, we find no provision in the statutory definition of "use" to allow defendants to tax the distribution of catalogs. Had the Legislature intended for distributions to be taxed, it could have easily done so by expressly providing it in the definition of use. Indeed, the legislatures of other jurisdictions have done this. See, e.g., Collins v. J.C. Penney Co., Inc., 218 Ga.App. 405, 461 S.E.2d 582 (1995), and J.C. Penney Co., Inc. v. Olsen, 796 S.W.2d 943 (Tenn., 1990).³ Our Legislature, however, did not include distribution in the definition of use, and we will not extend the tax to that activity absent the statutory authority to do so. Michigan Bell [Tel. Co. v. Dep't of Treasury, 445 Mich. 470, 477, 518 N.W.2d 808 (1994)].

* * *

We find support for our conclusion from a review of case law from other states. The cases from states in which a use tax has been applied in situations similar to that presented here are dissimilar in two important ways. First, in many of the other jurisdictions, the relevant statute specifically provides for the taxation of distributions. See, e.g., Collins, supra, and Olsen, supra.

Also, the facts before the courts in the other jurisdictions indicated that the taxpayer enjoyed indicia of control over the material not here present. Such indicia of control included the power to determine in what publications the advertisements were to be placed and at what time they would be distributed. See Mervyn's v. Arizona Dep't of Revenue, 173 Ariz. 644, 845 P.2d 1139 (1993),...