Andrie Inc. v. Dep't of Treasury

Decision Date23 June 2014
Docket NumberCalendar No. 1.,Docket No. 145557.
Citation853 N.W.2d 310,496 Mich. 161
PartiesANDRIE INC. v. DEPARTMENT OF TREASURY.
CourtMichigan Supreme Court

Honigman Miller Schwartz and Cohn LLP, Lansing (by June Summers Haas, John D. Pirich, and Brian T. Quinn ) for plaintiff.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, Richard A. Bandstra, Chief Legal Counsel, and Jessica A. McGivney, Assistant Attorney General, for defendant.

James R. Holcomb, Lansing, for the Michigan Chamber of Commerce.

Opinion

YOUNG, C.J.

Michigan's Use Tax Act (UTA)1 imposes a 6% tax on a consumer's use, storage, and consumption of all tangible personal property in Michigan.2 The UTA exempts the use of property from imposition of the use tax when “the [sales] tax was due and paid on the retail sale to a consumer.”3 Concurrently, Michigan's General Sales Tax Act4 (GSTA) imposes a 6% tax on a retailer's gross proceeds, to be remitted by the retailer to the Department of Treasury (the department).5 At issue before this Court is whether a purchaser and user of tangible personal property may avail itself of the use tax exemption when it is unable to prove payment of sales tax, either by itself to the retail seller at the point of sale or by the retail seller to the department.

The burden of proving entitlement to the exemption rests on the party asserting the right to the exemption.6 Under the plain language of the use tax exemption, MCL 205.94(1)(a), we hold that when the retail seller does not admit that sales tax was collected or paid on a particular sale of tangible personal property, the user of that property must show that it paid sales tax on the purchase of that property before the user can claim an exemption from the use tax. Accordingly, we reverse the portion of the Court of Appeals' decision that held that the use tax can never be levied on property if the purchase of that property was merely subject to sales tax.

FACTS AND PROCEDURAL HISTORY

Plaintiff Andrie Inc. is a Michigan corporation engaged in marine construction and transportation. Andrie's marine transportation division transports asphalt and other products throughout the Great Lakes to customers in the Midwest and Canada using tugboats and barges. Andrie purchases fuel and other supplies for its business, some of which are purchased in Michigan from Michigan sellers.

The department conducted a use tax audit of Andrie covering November 1, 1999, through July 31, 2006. The department's auditor reviewed Andrie's purchases of tangible items, including the in-state fuel and supply purchases. Where the auditor determined an item was subject to use tax, the auditor requested that Andrie provide proof that sales tax was paid. If Andrie produced a receipt showing that it had paid sales tax to the retail seller, the department applied the exemption in MCL 205.94(1)(a) and did not assess use tax. But if Andrie could not prove that sales tax had been paid, either by itself or the retail seller, the department assessed Andrie the use tax for that property.

The department ultimately imposed use tax on fuel and supply purchases Andrie made in Michigan, from Michigan-based retail sellers, where the invoice did not list sales tax as a separate line item, i.e., where Andrie was unable to prove that sales tax had been paid on those transactions as required by MCL 205.94(1)(a). Notably, the department concedes that it is unaware whether any of these Michigan retail sellers had, in fact, remitted sales tax to the department.

As a result of the audit, the department determined that Andrie understated its use tax in the amount of $398,755.00. Andrie paid the assessments under protest and filed suit in the Court of Claims. In its complaint, Andrie alleges that it was entitled to rely on an alleged requirement of the GSTA that the sales tax be included in the price of the goods purchased regardless of whether the sales tax was separately stated.

The Court of Claims held that Andrie was entitled to a partial refund of use tax for those purchases that were subject to sales tax. That court reasoned that Andrie was entitled to a presumption that sales tax is included in the price of goods purchased, and therefore Andrie did not have the obligation to provide proof that the retail sellers remitted sales tax to the department. The department appealed. The Court of Appeals affirmed on this issue, holding that “the mere fact that a transaction is subject to sales tax necessarily means that the transaction is not subject to use tax.”7 It further stated that, [b]ecause the retailer has the ultimate responsibility to pay any sales tax, it is erroneous to place a duty on the purchaser to show that the sales tax was indeed paid to the state. Thus, the transactions are not subject to use tax, and the trial court properly held in favor of plaintiff on this issue.”8

STANDARD OF REVIEW

Statutory interpretation is a question of law that we review de novo.9 When interpreting a statute, courts must “ascertain the legislative intent that may reasonably be inferred from the words expressed in the statute.”10 This requires us to consider “the plain meaning of the critical word or phrase as well as ‘its placement and purpose in the statutory scheme.’11

DISCUSSION

As a preliminary matter, we note that the use and sales taxes are complementary and supplementary.12

Contrary to the Court of Appeals' conclusion, their potential applications are not mutually exclusive.13 The two taxing statutes relate to entirely separate taxable events: the use and the sale of tangible personal property. The UTA imposes a 6% tax on the use, storage, and consumption of all tangible personal property in Michigan:

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 personal property in this state at a rate equal to 6% of the price of the property or services specified in section 3a or 3b.[ 14 ]

Meanwhile, the GSTA imposes a 6% tax on the sale of all tangible personal property in Michigan:

[T]here is levied upon and there shall be collected from all persons engaged in the business of making sales at retail, by which ownership of tangible personal property is transferred for consideration, an annual tax for the privilege of engaging in that business equal to 6% of the gross proceeds of the business, plus the penalty and interest if applicable as provided by law, less deductions allowed by this act.[ 15 ]

Absent an exception, tangible personal property sold and used in Michigan is subject to both use and sales tax. It is plain to see from the text of each taxing statute that they are capable of being levied upon the same property, as long as the respective predicate taxable events (i.e., use and sale) take place.

Just as each tax is triggered by a separate taxable event, the legal responsibility for each tax falls upon a separate entity. The legal responsibility for the use tax falls solely on the consumer.16 By contrast, the legal responsibility for the sales tax falls on the retail seller, with the tax being levied for the privilege of making sales at retail.17 The retail seller is authorized—but not obligated—to pass the economic burden of the sales tax by collecting the tax at the point of sale from the consumer.18 But whether the consumer remits sales tax to the retail seller or the seller pays the sales tax from another source, the seller is responsible for remitting the sales tax to the department, which tax is calculated as a percentage of the seller's gross proceeds in a taxable period.19

Although the use and sales taxes potentially apply to the same tangible personal property, a taxpayer otherwise subject to use tax is entitled to an exemption if it complies with any of the conditions delineated by MCL 205.94. One of these exemptions involves payment of the sales tax:

(1) The following are exempt from the tax levied under this act ...:
(a) Property sold in this state on which transaction a tax is paid under the general sales tax act, 1933 PA 167, MCL 205.51 to 205.78, if the tax was due and paid on the retail sale to a consumer.[ 20 ]

The exemption statute unambiguously requires payment of the sales tax before it exempts the taxpayer from the use tax. It is not enough that the sales tax was due on the retail sale of the property; rather, sales tax must be both “due and paid” before the exemption applies. Thus, the department properly assessed use tax on in-state purchases where Andrie failed to submit evidence that sales tax was actually paid at the time of sale.

Our conclusion that the terms of the use and sales taxes render them capable of being applied to the same property does no violence to the “targeted legislative effort to avoid double taxation.”21 Pursuant to MCL 205.94(1)(a), payment of the sales tax is mutually exclusive with payment of the use tax, but the same cannot be said of the potential applicability of the respective taxes to a given article of tangible personal property. In case law discussing double taxation, the threat of double taxation was a real consequence of the department's position;22 here, double taxation is at best a hypothetical reality, and at worst a straw man. The taxpayer, as the beneficiary of the exemption, has the tools to ensure that it is not double-taxed. It may, as part of its freedom to contract with retail sellers, demand proof at the point of sale that the sales tax was paid. Even if it misses that opportunity (which would be its responsibility alone), after the fact, the taxpayer can request an affidavit from the retailer averring that the tax was either collected at the point of sale or remitted to the department.23 In short, any double taxation that could occur in this situation is traceable to the taxpayer's recordkeeping and not, as seen in other cases, the statutory scheme.

As an alternative to its argument that the use tax can never apply to property on...

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