Michigan Nat. Bank v. Department of Treasury

• Decision Date: 19 October 1983
• Docket Number: Docket No. 64087
• Citation: 127 Mich.App. 646,339 N.W.2d 515
• Parties: MICHIGAN NATIONAL BANK, a national banking association, Petitioner-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellee. 127 Mich.App. 646, 339 N.W.2d 515
• Court: Court of Appeal of Michigan — District of US

Page 515

339 N.W.2d 515

MICHIGAN NATIONAL BANK, a national banking association Petitioner-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellee.

Docket No. 64087.

127 Mich.App. 646, 339 N.W.2d 515

Court of Appeals of Michigan.

Submitted March 3, 1983.

Decided Aug. 1, 1983.

Released for Publication Oct. 19, 1983.

[127 MICHAPP 649] Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Richard R. Roesch and Thomas J. Kenny, Assts. Atty. Gen., for respondent-appellee.

Michigan National Bank by Roger D. Trana, Lansing, for petitioner-appellant.

Before R.B. BURNS, P.J., and BRONSON and ROBINSON, ^* JJ.

ROBINSON, Judge.

Respondent-appellee, Michigan Department of Treasury, undertook an audit of dealings in gold and silver conducted by petitioner-appellant, Michigan National Bank, through its international division, during the period from January 1, 1977, through July 31, 1980, and assessed a sales tax deficiency against petitioner on its dealings. The tax, with interest and penalties amounts to $46,701.55. Ninety-five percent of petitioner's dealings involved coins, primarily South African gold Krugerrands.

Typically, when a customer of the bank sought the bank's help in arranging for the purchase of gold, the bank, as a service to its customers, would, by telephone, contact an out-of-state dealer to determine the current rate of the items sought. If the rate was acceptable to the customer, he would so indicate, would advise the bank of the quantity to purchase, and would deposit part of the purchase price with the bank. The bank would then place the order with the dealer and pay the dealer with bank funds. After receipt of the items ordered (generally Krugerrands), the bank would call the customer who would pick up the coins from the bank and pay the balance due. For its services, the bank was paid a commission by its [127 MICHAPP 650] customer based on the amount paid by the bank for the coins.

The Krugerrand is a coin minted by the government of South Africa, containing one ounce of fine gold, and issued as part of the currency of South Africa.

The treatment of these transactions by the Treasury Department as subject to Michigan's sales tax presents an issue of first impression in this state and raises two issues which merit discussion.

I

IS THE SALE OF SOUTH AFRICAN KRUGERRANDS BY PETITIONER A

TRANSFER OF THE OWNERSHIP OF TANGIBLE PERSONAL

PROPERTY WITHIN THE MEANING OF

MICHIGAN'S GENERAL SALES TAX

ACT?

The General Sales Tax Act, 1933 P.A. 167, so far as it is applicable to this case, is imposed upon " * * * a transaction by which is transferred for consideration the ownership of tangible personal property * * * ". M.C.L. Sec. 205.51(1)(b); M.S.A. 7.521(1)(b). The act does not define "tangible personal property". However some indirect light is shed on the question by reference to the intangibles tax act, 1939 P.A. 301, which defines intangible personal property as:

" * * * moneys on hand or on deposit or in transit * * * ". MCL 205.131(1)(b); MSA 7.556(1)(b).

Michigan's Uniform Commercial Code, 1962 P.A. 174, defines "money" as follows:

" 'Money' means a medium of exchange authorized or adopted by a domestic or foreign government as a part of its currency." MCL 440.1201(24); MSA 19.1201(24).

The South African Mint and Coinage Act, No. 78 of 1964, provides:

[127 MICHAPP 651] "Sec. 12. Legal Tender --A tender of payment of money, if made in coins which are Republican coins or Transvaal coins of current mass, shall be legal tender--

"(a) in the case of gold coins, for the payment of any amount; * * * ".

Both parties to this litigation agree that the Krugerrand is a part of South Africa's currency.

As a general proposition, it would seem from the foregoing that anything which is part of the currency of this country or of any foreign country should not be subject to Michigan sales tax upon transfer of its ownership.

But the Krugerrand is a special breed. Unlike most currency coins, these coins do not possess an unfluctuating denominated value set by the issuer. Rather, they possess an intrinsic value in the form of one ounce of fine gold, the value of which fluctuates with the changes in the world-wide market in precious metals.

It is clear from the record in this case that petitioner's customers acquired Krugerrands as investments in gold; in other words, for their intrinsic value as dictated by the precious metals market.

But is the question resolved by saying that we look to the physical character of the item transferred--its precious metal content? What about the numismatist who values coins perhaps not for their content but for their scarcity (few of a kind), or for their appearance (a minting defect) which makes them peculiar. These transactions have been taxed as commodity transactions. Losana Corp. v. Porterfield, 14 Ohio St.2d 42, 236 N.E.2d 535 (1968).

On the other hand, few would seriously urge that a sales tax should be assessed on the conversion[127 MICHAPP 652] of United States currency into Krugerrands by a visitor from this country to the Republic of South Africa when the intended use of the coins is as a medium of exchange while in South Africa.

These exercises lead inevitably to the conclusion reached by the United States Supreme Court in Comm'r v. Court Holding Co., 324 U.S. 331, 334, 65 S.Ct. 707, 708, 89 L.Ed. 981 (1945), that,

"The incidence of taxation depends upon the substance of a transaction."

Applying this standard to the transfer of coins, it appears that transactions involving the same type of coins can in one instance be free from tax and in another instance be subject to tax. The Losana Court, supra, agreed that money is intangible personal property and not subject to tax so long as the statutory definition of money (defined in the Ohio Code as " * * * circulating or intended to circulate as currency". Sec. 5701.04 Ohio Revised Code) is strictly respected.

So, too, where Krugerrands are transferred as a medium of exchange (Michigan Uniform Commercial Code, supra ), the coins remain intangible personal property, not subject to tax. But where, as here, they are transferred as an investment commodity, they become tangible personal property within the meaning of the General Sales Tax Act.

Applying this reasoning to a similar factual situation in Smith v. Dep't of Revenue, 376 So.2d 421 (Fla.App.1979), cited by appellant, we would reach a different conclusion from that reached by the Florida court. We believe that the better reasoning is found in Losana, supra, which treats money as such only when it is transferred as a medium of exchange.

[127 MICHAPP 653]

II

WAS PETITIONER ENGAGED IN MAKING SALES AT RETAIL WITHIN THE

MEANING OF THE GENERAL SALES TAX ACT?

Petitioner argues that, since it maintains no inventory of coins and since it was not an agent for the out-of-state coin dealers but was merely a conduit through which the customers' orders were transmitted to the dealers, it was not engaged in sales as a retailer and is not liable to collect or pay the tax.

The General Sales Tax Act, 1933 P.A. 1967, establishes the basis for the tax as follows:

"There is hereby levied upon and there shall be collected from all persons engaged in the business of making sales at retail, as hereinbefore defined, an annual tax for the privilege of engaging in such business equal to 4% of the gross proceeds thereof, plus the penalty and interest when applicable * * *." M.C.L. Sec. 205.52; M.S.A. Sec. 7.522.

and further defines the term "sale at retail" as:

" * * * a transaction by which is transferred for consideration the ownership of tangible personal property, when 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 other purpose than for resale." M.C.L. Sec. 205.51(1)(b); M.S.A. Sec. 7.521(1)(b).

The typical transaction which effectuated a Krugerrand purchase followed this scenario:

1. Customer approaches petitioner bank to inquire about purchase of coins.

2. Bank contacts out-of-state dealer to determine the then market price and relays this information to customer.

[127 MICHAPP 654] 3. If satisfied with the price, customer places order for coins with bank and leaves a deposit with the bank to cover the price or a portion thereof.

4. The bank places coin order with out-of-state dealer and pays for it with bank funds.

5. When the bank receives the coins from the dealer, it delivers them to the customer at the bank, and the customer pays the balance due.

6. For its role in the transaction, the bank charges the customer a commission based on the purchase price of the coins.

At the time of the transactions involved in this case the General Sales Tax Act also contained this provision:

"(2) When it shall be determined by the department that it is necessary for the efficient administration of this act to regard an unlicensed person, including salesmen, representatives, peddlers or canvassers as the agents of the dealers, distributors, supervisors or employers under whom they operate or from whom they obtain the tangible personal property sold by them, irrespective of whether they are making sales on their own behalf or on behalf of the dealers, distributors, supervisors or employers, the department may so regard them and may regard the dealers, distributors, supervisors or employers as making sales at retail at the retail price for the purposes of this act." M.C.L. Sec. 205.51(2); M.S.A. Sec. 7.521(2), as amended by 1976 P.A. 70.

The Tax Tribunal reads this provision as imposing liability on the bank for the tax as agent for the coin dealer. We do not so read it. In our view, it is nothing more than a restatement of the law that the principal (dealer) can be held liable, tax-wise, for the acts of its agent. It does not impose liability upon the agent for acts of his principal and is not relevant to this case.

[127 MICHAPP 655] This is not to say, however, that the...