Auto-Owners Ins. Co. v. Dep't of Treasury
| Decision Date | 27 October 2015 |
| Docket Number | Docket No. 321505. |
| Citation | 313 Mich.App. 56,880 N.W.2d 337 |
| Parties | AUTO–OWNERS INSURANCE COMPANY v. DEPARTMENT OF TREASURY. |
| Court | Court of Appeal of Michigan — District of US |
Honigman Miller Schwartz and Cohn LLP (by John D. Pirich, June Summers Haas, Lansing and Brian T. Quinn, East Lansing) for Auto–Owners Insurance Company.
Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, and Scott L. Damich, Assistant Attorney General, for the Department of Treasury.
Before: GADOLA, P.J., and JANSEN and BECKERING, JJ.
Defendant appeals as of right a final order for the refund of use taxes. We affirm.
Plaintiff is a Michigan corporation headquartered in Lansing, Michigan. Plaintiff provides insurance services and is represented by more than 35,000 independent agents in 26 states. Plaintiff entered into a variety of contracts between December 1, 2006, and December 31, 2010. Many of these contracts used complex and modern computing arrangements between plaintiff and the third-party companies, which led to the instant controversy regarding whether these contracts were subject to Michigan's Use Tax Act (UTA), MCL 205.91 et seq.
The six main categories of contracts include (1) insurance industry specific contracts, (2) technology and communications contracts, (3) online research contracts, (4) payment remittance and processing support contracts, (5) equipment maintenance and software customer support contracts, and (6) marketing and advertising contracts.
Plaintiff entered into six contracts in this category. First, plaintiff entered into a contract to use the services of Marshall & Swift/Boeckh (MSB). MSB provides building information to plaintiff. Plaintiff's agents submit building factors to MSB through the Internet. MSB then analyzes the data and provides plaintiff a valuation number to aid it in determining the appropriate value for building insurance. There is no indication in the record that plaintiff used MSB's software or had MSB software on its computers during the years at issue. Plaintiff also entered into a contract to use the services of Valen Technologies, Inc. Valen provides services to help plaintiff evaluate risks and underwrite insurance policies. Valen works with plaintiff to develop a model specifically tailored to plaintiff. With regard to the model, an agent for plaintiff enters information and data on the Internet through plaintiff's custom interface. The data is submitted to Valen, which runs the data through the model. The result is a score from 1 to 20, with 1 representing the best account to underwrite and 20 representing the worst account to underwrite. Valen operates its own software to run the model, and plaintiff did not receive, license, or have access to Valen's software.
Plaintiff also contracted with the Association for Cooperative Operations Research and Development (ACORD), which is a nonprofit organization that aids in the development of open consensus data standards and standard insurance forms. ACORD provides national insurance standards that create a common coding system for data fields in insurance data transmissions. The ACORD standards create the ability to employ a standard format for the flow of information to and from insurance agencies and to governmental agencies. Plaintiff paid a membership fee to ACORD during the tax years at issue and received ACORD's data standards. According to plaintiff, it did not purchase, receive, or license software from ACORD.
Plaintiff also contracted with CoreLogic's Proxix Solutions (Proxix) with regard to its business in Kentucky. Proxix provides a geospacial system that identifies and verifies the municipality in which a specific piece of property is located. In response to a database query, plaintiff provides longitude and latitude information to Proxix. Proxix verifies and identifies where property is located. Plaintiff also contracted with IVANS, Inc., which is an electronic communication service that aids in managing the confidentiality of data. This system allows parties using different technology infrastructures to communicate. IVANS uses a data exchange service to translate data from plaintiff to an agent system while plaintiff and the agent system use their own technology infrastructure. When an agency writes a new automobile insurance policy, the agency compiles information on its computers, and then that information is sent via the IVANS data exchange system to plaintiff. Plaintiff uses the same secured data line to send back the information that comprises the policy report. Plaintiff uses the IVANS system by sending encrypted data to an IP (Internet protocol) address. Plaintiff also uses the IVANS system to report information to governmental agencies, including delivering automobile policy information to whichever department in a state is involved with registering and licensing motor vehicles. Plaintiff did not receive or download any software in regard to its use of the IVANS system.
Plaintiff also used Lexis–Nexis Choicepoint, which provides data on motor vehicle records and sends electronic notices regarding motor vehicle coverage to secured parties. With regard to the data program, an independent agent inputs information over the Internet or uses an electronic form to conduct a search. Plaintiff's computer system then sends data to Lexis– Nexis, which uses its in-house database to provide more detailed information to plaintiff. Plaintiff then forwards the results to the independent agent. Plaintiff cannot access the database. Only plaintiff sent data to Lexis–Nexis, and Lexis–Nexis delivered information on the basis of the input data. With regard to the electronic notices, Lexis–Nexis provides a web-based electronic mailing service. Plaintiff collects information and sends the information through an FTP (file transfer protocol) to Lexis–Nexis. Lexis–Nexis uses the information to send notices to secured parties or lienholders.
Plaintiff entered into two contracts that fall under this category. The first contract was with Cisco WebEx, LLC (WebEx). WebEx provides videoconferencing services, webinar services, and online-meeting services. The services work through a link to WebEx's website. According to plaintiff, there was no licensing involved, and only the meeting organizer was required to have a license. WebEx also provides a support center, which several members of plaintiff's Automation Support Unit downloaded. The support center is downloaded through a click box, which opens a session on the user's computer and works with WebEx in fixing any problems.
Plaintiff also contracted with LogMeIn, which provides remote access so that an employee can work on a home computer as if the employee were sitting at his or her desk at work. The employee accesses LogMeIn through a website or a portal hosted by LogMeIn and inputs a password. In order for the system to work, an incidental local client, or desktop agent, must be installed locally on each personal computer using the system. LogMeIn also provides thumb and flash drives that can be used to access the system from a third-party computer. According to plaintiff, it did not receive any additional property or software from LogMeIn.
Plaintiff also contracted with West, a Thomson Reuters business, to conduct legal research by using its online database service. West provides its services through the Internet, and plaintiff did not receive any disks or software from West. Plaintiff also contracted with Wolters Kluwer for an online subscription to Insource Services (NILS). The subscription includes insurance-specific laws, filing guidelines, attorneys general opinions, and bulletins. The online services are housed with Wolters Kluwer, and not with plaintiff. Although plaintiff received a portion of the NILS materials (excluding insurance filing guidelines) in book and print materials, it argues that it subscribed with the intention of obtaining online access, not the printed materials.
Plaintiff contracted with RT Lawrence (RTL) for payment-processing services. RTL's system uses scanners to capture images of checks and stubs, and software to validate data and compare amounts. RTL's software was loaded onto plaintiff's computers. The software uses plaintiff's scanners to process information. The scanners capture images of both the check and the stub and use plaintiff's internal codes to minimize user verification by comparing amounts and validating data. Plaintiff also contracted for support and maintenance of the scanners, training, and customer support. According to plaintiff, the transaction that was taxed was solely for software maintenance and support.
Plaintiff also contracted with several companies with regard to software it had already purchased, including with Data Center Management Systems, Duck Creek, GT Software, and Software AG USA. Plaintiff contends that all the transactions that were taxed involved support and maintenance of existing software. The invoice that Data Center sent to plaintiff states that plaintiff was billed for maintenance. The invoice related to Duck Creek provides that plaintiff was billed for maintenance. The invoice at issue with regard to GT Software indicates that plaintiff was billed a “Software Fee” in relation to a software upgrade. However, the contract between plaintiff and GT Software provides that 12% of the software licensing fee is for maintenance and support. Plaintiff sought a refund for the use tax paid on the amount that constituted maintenance and support. Software AG's invoices do not clarify whether Software AG billed plaintiff for software or for maintenance. However, the contract between Software AG and plaintiff provides that $73,210 of the software price is for technical services. Pla...
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