Don McCullagh, Inc. v. State

• Decision Date: 02 December 1958
• Docket Number: No. 9,9
• Citation: 93 N.W.2d 252,354 Mich. 413
• Parties: DON McCULLAGH, Inc., a Michigan Corporation, Plaintiff and Appellee, v. STATE of Michigan, Department of Revenue, Defendant and Appellant.
• Court: Michigan Supreme Court

Page 252

93 N.W.2d 252

354 Mich. 413

DON McCULLAGH, Inc., a Michigan Corporation, Plaintiff and Appellee, v. STATE of Michigan, Department of Revenue, Defendant and Appellant.

No. 9.

Supreme Court of Michigan.

Dec. 2, 1958.

Paul L. Adams, Atty. Gen., Samuel J. Torina, Sol. Gen., Lansing, T. Carl Holbrook, William D. Dexter, Asst. Attys. Gen., for appellant.

Anthony A. Vermeulen, Detroit, for appellee.

Before the Entire Bench, except KAVANAGH, J.

CARR, Justice.

The parties to this case have entered into a stipulation as to the material facts. It appears therefrom that the plaintiff, a Michigan corporation with its offices in the city of Detroit, was at the time of the occurrences out of which the case has arisen engaged in the sale of automobiles at retail, possessing a sales tax license issued by the State. During the period from January 14, 1954, to and including June 28th of the same year, it sold to General Car Leasing, Inc., 154 automobiles for a total consideration of $256,519.10. Prior to such purchases and under date of January 12, 1954, the purchaser had entered into a contract for the leasing of automobiles to Couture Motor Corporation, a Florida corporation engaged in renting automobiles and having its principal place of business at Miami in that State. The lease as originally made provided for the furnishing by General Car Leasing, Inc., of 50 new automobiles. Thereafter it was modified to include additional cars to the total number above indicated. The automobiles were taken to Florida by persons hired for that purpose, the drivers receiving the vehicles at plaintiff's place of business.

The leasing contract in question was for a period of one year with a right to lease the vehicles from year to year unless the agreement was terminated by written notice. The rental was payable monthly, the aggregate amount so paid being $102,189.10. All of the vehicles leased were licensed and titled in the State of Florida in the name of General Car Leasing, Inc. The department of revenue of the State took the position that plaintiff was liable for the payment of a tax on the sale of the cars to General Car Leasing, Inc., in the sum of $7,694.97. Said amount, together with interest in the sum of $860,78, was paid by plaintiff on December 19, 1956. Thereafter the present action was instituted in the circuit court of Wayne county to recover the sum so paid, with interest thereon.

In its declaration plaintiff alleged that the assessing and collecting of said tax operated to place an undue burden upon interstate commerce, such claim being based on the fact that a provision of the sales tax act of this State, in force at the time of the transactions in question, required the payment of the tax on the sale of tangible personal property to one leasing for seven days or more in a State other than Michigan, while exempting therefrom a sale made for leasing intrastate if rentals under the lease were subject to the Michigan use tax act, hereafter cited. Defendant by answer denied the right of plaintiff to recover, impliedly challenging the correctness of plaintiff's conclusions of law by averring that its claim was without merit. The trial judge, hearing the matter on plaintiff's motion for summary judgment, agreed with plaintiff's claim that the provision of the statute relating to a tax on sales made for leasing and consequent use of the tangible personal property sold, outside of the State, placed an undue burden on interstate commerce in view of the fact that such sales made for leasing in Michigan under circumstances requiring the payment of the use tax to this State were exempt from the sales tax. Judgment was entered accordingly, and defendant has appealed.

Section 1 of the Michigan sales tax act, ¹ as amended by P.A.1953, No. 204 (C.L.S.1954, § 205.51 [Stat.Ann.Cum.Supp. § 7.521]), in effect at the time of the transactions involved in this case, set forth the provision, claimed by plaintiff to be invalid, as follows:

'(b) The term 'sale at retail' means any transaction by which is transferred for consideration the ownership of tangible personal property, when such transfer is made in the ordinary course of the transferor's business and is made to the transferee for consumption or use, or for any other purpose than for resale, or for lease when the rental receipts are taxable under Act No. 94 of the Public Acts of 1937, as amended, * * * in the form of tangible personal property to a person licensed under this act, * * *'.

The enactment referred to in the language quoted is commonly cited as the Michigan use tax act. ² Said act exempts from the payment of the tax provided for thereby the use, storage or consumption of tangible personal property sold in the State if a sales tax has been paid on the transaction. A like exemption is provided for in instances in which the State is prohibited from taxing under the State Constitution or the Constitution or laws of the United States, and also if the sale or use of the property involved has been subjected in another jurisdiction to a sales tax or use tax equal to or in excess of the Michigan tax, such exemption being subject to a reciprocity clause.

For obvious reasons this State was not entitled to a tax on the use in Florida of the leased automobiles. It does not appear that at the time of such use the latter State had by statute provided for such a tax. It does appear that the transaction out of which this case had arisen did not actually involve the payment of sales tax and also a use tax. On behalf of plaintiff, however, it is contended that because the State of Florida may impose such an exaction interstate commerce is exposed to multiple burdens in violation of the pertinent provision of the Federal Constitution. The circuit judge agreed with such claim, also pointing out that in the instant case the amount of the sales tax was materially higher than would have been imposed under the use tax act had the sale by plaintiff been made for leasing the automobiles for use in Michigan.

The basic question involved in the case is whether the provision of the sales tax act of Michigan, above quoted, discriminates in the obnoxious sense of the term against interstate commerce. As noted, plaintiff's claim in this respect is based on the exemption from the payment of the tax if the sale is made for leasing and use in Michigan so that the rental receipts are taxable under the use tax act. Concededly a State may not impose a tax on interstate commerce, nor may it enforce legislation resulting in unjust discrimination. In determining whether such discrimination obtains by virtue of the legislative enactment here in question consideration may properly be given to the fact that the sales tax act and the use tax act are closely relaed, to such an extent that each may be said to be complementary to the other. Each is designed to raise revenue from taxation of the privilege of engaging in certain business transactions. That the legislature in the enactment of said statutes, and subsequent amendments thereto, had in mind the practical situation presented is obvious. The provision of the sales tax act here involved is an expression of such recognition, indicating that the general policy of the State was not to impose a double burden on the basis of the taxes provided for by said acts.

This Court has previously recognized that the sales tax act and the use tax act are related and complementary. In Banner Laundering Co. v. State Board of Tax Administration, 297 Mich. 419, 298 N.W. 73, 77, in which the validity of the use tax act was sustained, it was said:

'In support of their contention that the use tax act 'is discriminatory in terms,' appellants advert to the fact that the act in section 4 provides numerous exemptions, including the following: (1) Property merged into the common mass which was not acquired at retail sale in the State of purchase, (2) property upon which a retail sales tax was paid in the State of purchase, (3) a great mass of property which, after merger, is devoted to industrial processing, to agricultural producing, or to be resold. But nowhere in appellants' brief is it persuasively pointed out that the exemptions contained in the statute are not justifiable exemptions, or that in consequence of the exemptions the act is rendered unconstitutional in that it does not operate uniformly or that it deprives appellants or others like situated of due process or equal protection of the law. Instead we think it is plain, at least the contrary is not demonstrated by appellants, that certain of the exemptions contained in the statute are justified by an obvious attempt on the part of the legislature to produce uniformity in the taxation imposed by the use tax act when considered in connection with the closely related sales tax act. Other exemptions contained in section 4 of the act are of a type frequently embodied in taxation statutes, such as property sold to governmental units for public use, property sold to religious organizations, benevolent, charitable, scientific institutions and the like. But exemptions which render the operation of a taxation measure more just and uniform, or save institutions of the character above noted from the burden of the particular tax, do not render the act invalid for lack of uniformity or deprive persons subject to the tax of due process or equal protection of law, and this is true both of a specific tax and of a direct property tax.'

Citing the above case, among other prior decisions of the Court, it was said in Western Electric Co. v. Department of Revenue, 312 Mich. 582, 20 N.W.2d 734, 738:

'The essential elements of the use tax and the underlying principles of taxation on which it is based distinguish it from the tax imposed by Act No. 179, Pub.Acts 1899. The use tax was enacted for the purpose of levying and collecting a specific tax for the privilege of using, storing or consuming tangible personal...