Beckman Production Services, Inc. v. Department of Treasury

• Decision Date: 01 November 1993
• Docket Number: Docket No. 131200
• Parties: BECKMAN PRODUCTION SERVICES, INC., Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 178

508 N.W.2d 178

202 Mich.App. 342

BECKMAN PRODUCTION SERVICES, INC., Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee.

Docket No. 131200.

Court of Appeals of Michigan.

Submitted Jan. 6, 1993, at Lansing.

Decided Nov. 1, 1993, at 10:00 a.m.

Released for Publication Dec. 3, 1993.

Schwendener & Valade, P.C. by Benjamin O. Schwendener, Jr., Alan M. Valade, and David R. Brinks, Mason, for plaintiff-appellant.

Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., and Russell E. Prins and Ross H. Bishop, Asst. Attys. Gen., for defendant-appellee.

Before MURPHY, P.J., and MICHAEL J. KELLY and WAHLS, JJ.

MURPHY, Presiding Judge.

Plaintiff appeals from the order of the Court of Claims granting defendant's request for dismissal pursuant to MCR 2.116(C)(10) and MCR 2.116(I)(2) of plaintiff's challenge to a use tax assessment. We affirm.

Plaintiff provides oil and gas extraction services to owners and operators of oil and gas wells in mid-Michigan. One service that plaintiff provides is the removal of sediment that inhibits the flow of oil or gas in well tubing and piping. For the period of November 1978 through March 1982, plaintiff was assessed use taxes on equipment and vehicles that plaintiff purchased to perform this service. Plaintiff paid the assessed taxes, but protested to defendant that the equipment used in its oil and gas production services was exempt from taxation under the "industrial processing" exemption to the Use Tax Act, M.C.L. § 205.94(g); M.S.A. § 7.555(4)(g). Plaintiff therefore sought a refund of a portion of the use taxes from defendant in the amount of $67.655. Defendant denied plaintiff's request for a refund and plaintiff filed its complaint in the Court of Claims, which subsequently dismissed the action pursuant to defendant's request.

Plaintiff contends that the Court of Claims erred in holding that the industrial processing exemption of M.C.L. § 205.94(g); M.S.A. § 7.555(4)(g) does not apply to equipment and vehicles purchased by plaintiff for the purpose of cleaning and unclogging the wells of oil and gas producers. We conclude that the Court of Claims accurately interpreted the exemption provided by M.C.L. § 205.94(g); M.S.A. § 7.555(4)(g) at the time applicable to this case.

In Michigan, a four percent use tax is imposed upon the use, storage, or consumption of tangible personal property. M.C.L. § 205.93; M.S.A. § 7.555(3). At the time relevant to this case, M.C.L. § 205.94(g); M.S.A. § 7.555(4)(g) exempted from use taxation property sold to a person for use or consumption in industrial processing. Earlier cases construing this section broadly defined the term "industrial processing" for purposes of the exemption to permit any person to take advantage of the exemption if the person provided a service essential to the industrial process of a manufacturer or a producer. See Minnaert v. Dep't of Revenue, 366 Mich. 117, 113 N.W.2d 868 (1962); Int'l Research & Development Corp. v. Dep't of Revenue, 25 Mich.App. 8, 12-13, 181 N.W.2d 53 (1970). The amendment of this section by 1970 P.A. 15 more narrowly defined the term, however, to explicitly exclude "services performed upon property owned by others where the services do not transform, alter, or modify the property so as to place it in a different form, composition or character." The amendment did not make an exception for those services that are "absolutely essential" to the industrial process of a manufacturer or producer.

Our goal when interpreting a statute is to discern and give effect to the intent of the Legislature. Great Lakes Sales, Inc. v. State Tax Comm., 194 Mich.App. 271, 275, 486 N.W.2d 367 (1992). We presume that the Legislature intended the meaning that it plainly expressed in the statute. Frasier v Model Coverall Service, Inc., 182 Mich.App. 741, 744, 453 N.W.2d 301 (1990). We also presume that a change in a statutory phrase reflects a change in meaning. In re Childress Trust, 194 Mich.App. 319, 326, 486 N.W.2d 141 (1992). Further, if the meaning of the statutory language is clear, then judicial construction of the language is not necessary or permitted. Lorencz v. Ford Motor Co., 439 Mich. 370, 376, 483 N.W.2d 844 (1992). When amending the statutory language of section 4(g), the Legislature had the opportunity to follow the courts' previous definition of "industrial processing" and did not do so, choosing instead to more narrowly define the term. We can only conclude that this was a conscious choice by the Legislature. Therefore, as the Court of Claims reasoned in its opinion, it is no longer pertinent that plaintiff can prove that its services are essential to the industrial process of its customers. Rather plaintiff must prove that it services transform, alter, or modify the property so as to place it in a different form, composition, or character.

Plaintiff, as the party asserting the right to a tax exemption, had the burden of proving entitlement to that exemption. Edison v. Dep't of Revenue, 362 Mich. 158, 162, 106 N.W.2d 802 (1961); Tercheck v. Dep't of Treasury, 171 Mich.App. 508, 510, 431 N.W.2d 208 (1988). Tax exemption statutes are strictly construed in favor of the government. Great Lakes Sales, Inc., supra, 194 Mich.App. at 276, 486 N.W.2d 367. In this case, plaintiff failed to prove that the use of its equipment to clean and unclog oil wells is a service that transforms, alters, or modifies the property so as to place it in a different form, composition, or character.

With respect to the holding of the Court of Claims that the exemption does not apply to plaintiff's vehicles, plaintiff, in its brief on appeal,...