General Motors Corp. v. DEPT. OF TREASURY

• Decision Date: 04 June 2002
• Docket Number: Docket No. 116984, Calendar No. 1.
• Citation: 644 N.W.2d 734,466 Mich. 231
• Parties: GENERAL MOTORS CORPORATION, Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, REVENUE DIVISION, Defendant-Appellee.
• Court: Michigan Supreme Court

644 N.W.2d 734

466 Mich. 231

GENERAL MOTORS CORPORATION, Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, REVENUE DIVISION, Defendant-Appellee.

Docket No. 116984, Calendar No. 1.

Supreme Court of Michigan.

Argued January 23, 2002.

Decided June 4, 2002.

Honigman Miller Schwartz & Cohn, L.L.P. (by Alan M. Valade and Frederick M. Baker, Jr.), Lansing, MI, for the plaintiff-appellant.

Jennifer M. Granholm, Attorney General, Thomas L. Casey, Solicitor General, and Steven B. Flancher, Glenn R. White, and Ross H. Bishop, Assistant Attorneys General, Lansing, MI, for the defendant-appellee.

Robert S. LaBrant, Lansing, MI, for the Michigan Chamber of Commerce.

Barris, Sott, Denn & Driker, P.L.L.C. (by Eugene Driker), Detroit, MI, and Diann L. Smith, General Counsel, Stephen P.B. Krantz, Tax Counsel, and William D. Peltz, Chair Lawyers' Coordinating Subcommittee, Washington, DC, for the Committee on State Taxation.

Miller, Canfield, Paddock & Stone, P.L.C. (by Samuel J. McKimm, III and Joanne B. Faycurry), Detroit, MI, for Ford Motor Company.

Opinion

WEAVER, J.

Plaintiff, General Motors Corporation (GM), appeals from the Court of Appeals decision that defendant, Department of Treasury, could impose use tax¹ on the vehicle components and parts plaintiff provided to customers as part of plaintiff's goodwill adjustments policy. We reverse the decision of the Court of Appeals and hold that assessment of use tax on the goodwill adjustments was improper because they were taxed pursuant to the General Sales Tax Act² when customers purchased vehicles at retail.

I

When customers purchase new GM automobiles, they are provided with a GM limited manufacturer's warranty. These limited manufacturer's warranties provide, in pertinent part, for the replacement of defective parts of the automobile under certain circumstances. They also generally provide coverage for an expressly stated length of time, subject to earlier expiration, if the vehicle is driven for a certain number of miles. The department acknowledges that parts provided under these limited warranties are not subject to use tax because the customers paid for the right to replacement parts under the warranties at the time of the retail sale.

In addition to the limited warranties, GM provides a more open-ended "goodwill" adjustment policy under which GM will, on a discretionary basis, pay for replacement parts for GM vehicles even after the limited warranty period has expired. Although not referred to by name as a "goodwill adjustment policy," notice of this policy is contained in the General Motors warranty manual provided to customers at the time of sale. In this regard, the manual provides:

Should you ever encounter a problem during or after the warranty periods that is not resolved, talk to a member of dealer management. If the problem persists, follow the additional procedure outlined in "Owner Assistance," on page 16 of this booklet. [Emphasis added.]

The Owner Assistance section of the manual outlines a "Customer Satisfaction Procedure." It states that problems will "normally" be resolved by the dealer's sales or service departments.³ However, if a concern is not resolved at that level, the manual recommends first discussing the problem with the dealership management. If the problem is not resolved by the dealer management, customers are told to contact GM directly. A customer dissatisfied with the outcome of the procedure may elect arbitration. The manual states that, while a customer is not bound to accept the result of the arbitration proceeding, GM will "generally" agree to be bound by it even though it reserves the right to terminate its participation in the arbitration program.⁴

The department conducted an audit of GM's compliance with Michigan tax laws for the period of January 1, 1986, through December 31, 1992. As a result of the audit, the department assessed against GM use taxes and interest of $5.5 million on the vehicle components and parts provided by GM to customers as goodwill adjustments. The department had not previously assessed such a tax. During the audit period, GM customers in Michigan obtained $82 million in components and parts under the goodwill policy.

GM appealed the assessment to the Court of Claims. In pertinent part, GM alleged that the department lacked the statutory authority to impose use tax on goodwill adjustments because sales tax was imposed on the cost of the goodwill adjustments when vehicles were sold at retail. However, the Court of Claims disagreed with GM's position and granted summary disposition in favor of the department pursuant to MCR 2.116(C)(10), holding, in relevant part, that the transfer of parts under the goodwill program is subject to use tax. The Court of Appeals affirmed regarding this issue,⁵ concluding that "plaintiff's dealers were not obligated to provide all customers with goodwill adjustments" and, therefore, that the "value of the goodwill program was not included in the gross proceeds arising from the retail sales of plaintiff's vehicles."⁶ The Court of Appeals also emphasized its view that the purchasers of GM vehicles did not obtain "any enforceable rights in the goodwill program." We granted leave to appeal.

II

Because the essential facts are not in dispute, we are presented with a question of law: whether replacement parts provided to customers at GM's expense through the goodwill program are independently subject to Michigan's use tax in connection with the transfer of the parts. We review questions of law de novo. Kelly v. Builders Square, Inc., 465 Mich. 29, 34, 632 N.W.2d 912 (2001). This is the same standard of review applicable to the grant of a motion for summary disposition. MacDonald v. PKT, Inc., 464 Mich. 322, 332, 628 N.W.2d 33 (2001).

III

The sales tax and the use tax are interrelated. Sales tax is imposed by the General Sales Tax Act (GTA) on the gross proceeds of a business. MCL 205.52(1). The GTA defines "[g]ross proceeds" as the "amount received in money, credits, subsidies, property, or other money's worth in consideration of a sale at retail...." M.C.L. § 205.51(1)(i). In contrast, pursuant to the Michigan Use Tax Act (UTA), use tax is generally imposed on the privilege of "using, storing, or consuming tangible personal property." MCL 205.93(1).

GM contends that the cost of its goodwill adjustments is exempt from use tax under § 4(1)(a) of the UTA. M.C.L. § 205.94(1)(a) provides that "[p]roperty sold in this state on which transaction a tax is paid under the general sales tax act" is exempt from the use tax "if the tax was due and paid on the retail sale to a consumer." Thus, our inquiry is whether "tax was due and paid" pursuant to the GTA on the cost of the goodwill adjustments when vehicles were sold at retail.

The sales and use taxes, while imposed in different ways, do not operate in isolation. Rather, provisions of the UTA and the GTA are supplementary and complementary. World Book, Inc. v. Treasury Dep't, 459 Mich. 403, 408, 590 N.W.2d 293 (1999); Elias Bros. Restaurants, Inc. v. Treasury Dep't, 452 Mich. 144, 153, 549 N.W.2d 837 (1996). UTA § 4(1)(a)'s exemption is an expression of a legislative intent to avoid pyramiding of sales and use tax. Elias Bros., supra. In other words, a transfer of property that has already been subjected to Michigan's sales tax is not subject to this state's use tax. As directed by § 4(1)(a), we examine the provisions of the GTA to determine whether tax was paid on the goodwill adjustment at the retail sale to a customer or whether the department's assessment of use tax was appropriate.

The GTA defines a "sale at retail" as "a transaction by which the ownership of tangible personal property is transferred for consideration, if the 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 purpose other than for resale...." M.C.L. § 205.51(1)(b). The question is thus whether the goodwill adjustment policy is consideration flowing to customers when they purchase a GM vehicle or merely an illusory promise. Stated otherwise, we examine whether the cost of the goodwill adjustment policy is included in the retail price of GM vehicles as something that is purchased by customers.

At the time of retail sale, GM customers receive an owner's manual. The manual invites customers to initiate a dialogue with the dealership when a defect arises, "during or after the warranty periods." The manual states the goal of resolving the defect to the "customer's satisfaction." GM admits that its customers are not guaranteed that requested after-warranty goodwill adjustments will be made. Indeed, GM suggests its dealers negotiate with customers for copayment on goodwill adjustments case by case.⁷ Nevertheless, GM's goodwill policy is a promise to hear and address customer complaints even after the written warranty expires.

To have consideration there must be a bargained-for exchange. Higgins v. Monroe Evening News, 404 Mich. 1, 20-21, 272 N.W.2d 537 (1978). There must be "`a benefit on one side, or a detriment suffered, or service done on the other.'" Plastray Corp. v. Cole, 324 Mich. 433, 440, 37 N.W.2d 162 (1949). Courts do not generally inquire into the sufficiency of consideration, Harris v. Bond & Mtg. Corp., 329 Mich. 136, 145, 45 N.W.2d 5 (1950). It has been said "[a] cent or a pepper corn, in legal estimation, would constitute a valuable consideration." Whitney v. Stearns, 16 Me. 394 (1839). The owner's manual provided at the time of sale invites customers to voice complaints even after the warranty period ends, with the goal of resolving the complaint to the customer's satisfaction. We hold that this opportunity for dialogue and possible resolution of complaints—even outside the warranty period—is a benefit flowing to purchasers of GM vehicles at the time of retail sale and, therefore, is consideration for the sale.⁸ Therefore, replacement parts provided...