Detroit Edison Co. v. Dep't of Treasury
| Decision Date | 22 July 2015 |
| Docket Number | Calendar No. 1.,Docket No. 148753. |
| Citation | 498 Mich. 28,869 N.W.2d 810 |
| Parties | DETROIT EDISON COMPANY v. DEPARTMENT OF TREASURY. |
| Court | Michigan Supreme Court |
Honigman Miller Schwartz and Cohn LLP (by Patrick R. Van Tiflin, John D. Pirich, Lansing, Lynn Gandhi, Detroit, and June Summers Haas, Lansing), for Detroit Edison Company.
Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, Matthew Schneider, Chief Legal Counsel, and Zachary C. Larsen and Michael R. Bell, Assistant Attorneys General, for the Department of Treasury.
Clark Hill PLC, Detroit (by Cynthia M. Filipovich ), for the Michigan Manufacturers Association.
James R. Holcomb, Lansing, for the Michigan Chamber of Commerce.
Foster, Swift, Collins & Smith, PC (by Richard C. Kraus, Lansing, and Todd W. Hoppe, Grand Rapids), for the Michigan Milk Producers Association.
Dykema Gossett PLLC (by Wayne D. Roberts, Elisa J. Lintemuth, Grand Rapids, and Shaun M. Johnson, Lansing), for International Transmission Company.
The Use Tax Act (UTA), MCL 205.91 et seq., imposes a 6% tax “for the privilege of using, storing, or consuming tangible personal property in this state....” MCL 205.93(1). However, the UTA exempts from the use tax property sold to “[a]n industrial processor for use or consumption in industrial processing.” MCL 205.94o(1)(a). At issue here is whether and to what extent, if any, an electric utility is entitled to the industrial-processing exemption for tangible personal property located outside its generation plants. The Court of Appeals held that plaintiff was entitled to the full industrial-processing exemption for the property.
We hold that the property here is simultaneously used for exempt “industrial processing” activity under MCL 205.94o(7)(a) and nonexempt “distribution” and “shipping” activities under MCL 205.94o(6)(b). In these circumstances, the taxpayer is entitled to the industrial-processing exemption based on the “percentage of exempt use to total use determined by a reasonable formula or method approved by the department [of Treasury].” MCL 205.94o(2). Accordingly, we affirm the judgment of the Court of Appeals in part, reverse in part, and remand to the Court of Claims for further proceedings.
Plaintiff, Detroit Edison Company (DTE), is an electric utility that is responsible for generating, transmitting, and distributing electricity to residential, commercial, and industrial consumers. The electricity is initially generated at approximately 15,000 to 25,000 volts within each of plaintiff's generation plants. However, to transmit electricity throughout the electric system, plaintiff must then “step up” the voltage to between 115,000 and 500,000 volts as the electricity is transmitted from the generation plant to substations from which the electricity is then distributed to consumers.
Electricity is not usable at the high voltage levels at which it exists when it is initially generated and as it moves throughout the electric system. For instance, most residential consumers use electricity at the 120/240 volt1 level. For this reason, the electric system employs tangible personal property, such as transformers, at the substations to “step down” the voltage as the electricity nears the consumer. In addition to transformers, the electric system employs a variety of other tangible personal property, including fuses, circuit breakers, cables, and poles, to monitor the voltage levels and ensure that the consumer receives a useable product.
Defendant conducted a use-tax audit for the period between January 1, 2003, and September 30, 2006, and determined that plaintiff had a deficiency because it had claimed the industrial-processing exemption from the use tax for tangible personal property located outside its generation plants.2 Accordingly, defendant issued a notice of intent to assess in the amount of $11,020,506 in tax plus interest—an amount that was subsequently corrected upward to $14,046,249 plus interest. Ultimately, defendant issued a final assessment in the amount of $13,102,133.54 plus interest. Plaintiff paid the deficiency under protest and filed suit in the Court of Claims, seeking a refund for the use tax and interest paid under protest, as well as statutory costs, interest, and attorney fees.3 The parties filed competing motions for summary disposition under MCR 2.116(C)(10). The Court of Claims eventually granted summary disposition in favor of plaintiff, reasoning that it was clear “that electricity is continuing to be processed up until the point at which it reaches the customer's meter, because the voltage and current levels are drastically changed multiple times at set points, the last being at or near the customer's meter....”
Defendant appealed, and the Court of Appeals affirmed. Detroit Edison Co. v. Treasury Dep't, 303 Mich.App. 612, 844 N.W.2d 198 (2014). The Court of Appeals held that the ” Id. at 630, 844 N.W.2d 198. We granted defendant's application for leave to appeal in this Court. Detroit Edison Co. v. Treasury Dep't, 497 Mich. 873, 853 N.W.2d 380 (2014). Oral arguments were heard on April 7, 2015.
“A trial court's ruling on a motion for summary disposition is a question of law, which this Court reviews de novo.” Shepherd Montessori Ctr. Milan v. Ann Arbor Charter Twp., 486 Mich. 311, 317, 783 N.W.2d 695 (2010). Questions of statutory interpretation are also reviewed de novo. Klooster v. Charlevoix, 488 Mich. 289, 295, 795 N.W.2d 578 (2011).
The UTA “imposes a 6% tax on a consumer's use, storage, and consumption of all tangible personal property in Michigan.” Andrie Inc. v. Treasury Dep't, 496 Mich. 161, 164, 853 N.W.2d 310 (2014). At the time relevant to this case, MCL 205.93(1) of the UTA provided in pertinent part:
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.... [As amended by 2002 PA 511.]
The UTA industrial-processing statute, MCL 205.94o, provided in pertinent part:
“The industrial processing exemption is, in part, the product of a targeted legislative effort to avoid double taxation of the end product offered for retail sale or, in other terms, to avoid ‘pyramiding the use and sales tax.’ ” Elias Bros. Restaurants, Inc. v. Treasury Dep't, 452 Mich. 144, 152, 549 N.W.2d 837 (1996), quoting Int'l Research & Dev. Corp. v. Revenue Dep't, 25 Mich.App. 8, 13, 181 N.W.2d 53 (1970). “Pyramiding occurs when both use and sales taxes are imposed on the production and sale of retail goods.” Elias Bros., 452 Mich. at 152, 549 N.W.2d 837. “[T]o determine whether the industrial processing exemption applies, it is necessary to consider the activity in which the equipment is engaged and not the character of the equipment-owner's business.” Id. at 157, 549 N.W.2d 837 (emphasis added).
MCL 205.92 of the UTA specifically provides that electricity constitutes “tangible personal property.” Effective July 23, 2002, MCL 205.92(l ) read as follows:
“Tangible personal property” beginning September 20, 1999, includes electricity, natural or artificial gas, or steam and also the transmission and distribution of electricity used by the consumer or user of the electricity, whether the electricity is purchased from the delivering utility or...
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