International Research & Development Corp. v. Department of Revenue

Decision Date26 June 1970
Docket NumberNo. 2,Docket No. 8087,2
Citation25 Mich.App. 8,181 N.W.2d 53
CourtCourt of Appeal of Michigan — District of US

Ross F. Stancati, Troff, Lilly, Bonow, Piatt & File, Kalamazoo, for plaintiff-appellant.

Frank J. Kelley, Atty. Gen., Robert A. Derengoski, Sol. Gen., James B. Saunders, Asst. Atty. Gen., for defendant-appellee.

Before LESINSKI, C.J., and QUINN and ROOD, * JJ.

ROOD, Judge.

International Research and Development Corporation, a Michigan corporation, is engaged in the business of testing compounds for its customers, who are manufacturers. The customer furnishes the compounds which Internation tests in the manner desired by the customer under contract, then submits a report.

During the month of December 1964, and in January and February 1965, International, pursuant to contract, purchased quantities of rats and mice which were used in the process of testing compounds. The purchases were reported to the Department of Revenue as exempt from sales and use taxes by virtue of P.A.1937, No. 94, § 4(g).

It is conceded that International is not a retailer or a wholesaler of any ultimate products. International does not know whether the research which it does and the tests it makes for customers are related to any products which will be subsequently sold at retail.

An assessment dated April 12, 1965, was issued by the department for use tax of $253.30, plus a penalty of $53.85, under the provisions of the use tax act. The assessment was upheld by the State Board of Tax Appeals in an order made January 19, 1967. International filed a complaint in the Court of Claims in which it sought to recover the amount of tax penalty paid under protest. The Court of Claims granted an order for summary judgment to the Department of Treasury. A claim of appeal was filed with this Court on September 9, 1969.

The tax was enforced under § 3 of the Use Tax Act, M.C.L.A. § 205.93 (Stat.Ann.1969 Cum.Supp. § 7.555(3)).

International claims an exempt status under § 4(g) of the Act which provides:

'The tax hereby levied shall not apply to:

(g) Property sold to persons for use or consumption in industrial processing:

Provided, That the term 'industrial processing' shall not be deemed to include tangible personal property permanently affixed and becoming a structural part of real estate.'

International claims that as a contractor it is entitled to the exemption for items purchased and used in carrying on testing and experimental work for the manufacturer as a part of 'industrial processing'.

The Department contends that research expenditures are not a part of industrial processing. It cites Kress v. Department of Revenue (1948), 322 Mich. 590, 593, 34 N.W.2d 501; also Edison v. Department of Revenue (1961) 362 Mich. 158, 160--162, 106 N.W.2d 802, and Bay Bottled Gas Co. v. Department of Revenue (1955), 344 Mich. 326, 74 N.W.2d 37.

In the Kress Case, the plaintiff rented a large number of water softeners to patrons in the city of Jackson. Ninety per cent of the patrons were residential users, the remaining users were industrial. The Court says that the softening of water is a process, but points out that the question as to whether it is an industrial process depends upon the purpose for which used by the 'patron'. The Court says on p. 593, of 322 Mich., p. 503 of 34 N.W.2d, 'We can infer that by the words 'industrial processing' in section 4(g) in question, the legislature meant processing of commodities to condition the same for a later sale.'

The Kress case, we believe, holds that the right to an exemption should not be decided upon what type of business the taxpayer is engaged in, but rather upon what use his patron or customer makes of the product which the taxpayer sells.

The case of Edison v. Department of Revenue, Supra, makes a like holding. The decision rests upon a finding that the processing by the plaintiff was not done on a product for later sale. The Court says on p. 161 of 362 Mich., p. 804 of 106 N.W.2d, 'The processing referred to in the act, however, held the court, citing an earlier case, was the preparation of 'raw material * * * for the market."

If the foregoing cases were the only interpretation made by our Supreme Court, we would have no hesitation to adopt the reasoning of the Department that the exemption can only be granted to persons who actually do work on a product to process it industrially into marketable form for later sale.

The Supreme Court, however, has ruled on this question since the cases reviewed above in the case of Minnaert v. Department of Revenue (1962), 366 Mich. 117, 113 N.W.2d 868. In this case plaintiff was a contractor, not a manufacturer, who contracted his services to White Pine Copper Company on a continuing basis to construct, heighten, enlarge, and compact White Pine's dam and pond as well as a new dam and pond being constructed. Minnaert acquired heavy earth-moving equipment such a bulldozers and earth movers. It was proposed to tax the use of such property. This case holds that such property is exempt as part of the industrial processing of copper. This case does not hold that the plaintiff was required to show that he worked directly on a product to process it industrially into marketable form for later sale. The case does hold that a contractor is entitled to...

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4 cases
  • Elias Bros. Restaurants, Inc. v. Treasury Dept.
    • United States
    • Michigan Supreme Court
    • July 2, 1996" See full text supra at 5-6.14 1979 AC, R. 205.6.15 See n. 25 and corresponding text.16 Int'l Research & Development Corp. v. Revenue Dep't, 25 Mich.App. 8, 13, 181 N.W.2d 53 (1970). In Int'l Research, the Court of Appeals held that the industrial processing exemption applied to the c......
  • Detroit Edison Co. v. Dep't of Treasury
    • United States
    • Michigan Supreme Court
    • July 22, 2015
    ...” 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 goo......
  • People v. Casper, Docket No. 7836
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    ... ... of the Sterling Township Police Department observed an automobile matching the description ... ...
  • Beckman Production Services, Inc. v. Department of Treasury
    • United States
    • Court of Appeal of Michigan — District of US
    • November 1, 1993
    ...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 ex......

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