Terco, Inc. v. Department of Treasury

• Decision Date: 15 September 1983
• Docket Number: Docket No. 66946
• Citation: 127 Mich.App. 220,339 N.W.2d 17
• Parties: TERCO, INC., Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee. 127 Mich.App. 220, 339 N.W.2d 17
• Court: Court of Appeal of Michigan — District of US

Page 17

339 N.W.2d 17

TERCO, INC., Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee.

Docket No. 66946.

127 Mich.App. 220, 339 N.W.2d 17

Court of Appeals of Michigan.

Submitted April 21, 1983.

Decided July 11, 1983.

Released for Publication Sept. 15, 1983.

[127 MICHAPP 221] Denfield, Timmer & Taylor by Clifford W. Taylor, Lansing, for plaintiff-appellant.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Richard R. Roesch and John W. Jackson, Jr., Asst. Attys. Gen., for defendant-appellee.

[127 MICHAPP 222] Before BRENNAN, P.J., and KELLY and KAUFMAN, ^* JJ.

PER CURIAM.

Plaintiff appeals as of right from the Michigan Tax Tribunal's September 10, 1982, order denying its request for a sales/use tax refund.

The underlying facts of this case are not in dispute. At all times relevant to this appeal, plaintiff was a Michigan corporation engaged in the computer leasing business. Plaintiff was not a sales tax registrant but was a use tax registrant. During early 1979, plaintiff sold a computer to Compu-Link Corporation, a Michigan corporation, in a casual and isolated transaction outside its usual business activities. On April 13, 1979, plaintiff paid $12,998 in tax on the gross sale of $325,000. In late 1979, plaintiff began its attempt to obtain a refund, realizing that a sales tax was not due and payable on the casual and isolated transaction. After defendant's repeated refusals to issue a refund, plaintiff filed a complaint for mandamus with this Court. In an order entered February 23, 1981, this Court denied the petition for lack of merit on the grounds presented, as it appeared that plaintiff had a plain, speedy, and adequate alternate remedy before the Tax Tribunal.

On April 4, 1981, plaintiff petitioned the Tax Tribunal for review, contending that defendant wrongfully withheld its sales tax overpayment. The case was submitted on briefs. On August 13, 1982, Tax Tribunal Hearing Officer Julianna B. Miller entered her opinion and judgment. Officer Miller determined that plaintiff's sale of the computer was not subject to sales tax as the [127 MICHAPP 223] sale was an isolated transaction. Officer Miller further concluded that the sale was not subject to use tax, as the use tax "was not intended to apply to in-state sales made outside the ordinary course of a transferor's business". Finally, Officer Miller ordered a hearing to determine whether the refund should be issued to plaintiff or Compu-Link Corporation. Defendant moved for reconsideration on August 26, 1982. On September 10, 1982, plaintiff filed a stipulation signed by plaintiff's vice president and the president of Compu-Link Corporation indicating that the refund referred to in Officer Miller's opinion should be issued to Compu-Link Corporation. On the same date, Officer Miller issued her order regarding defendant's motion for reconsideration, vacating the conclusions of law contained in her prior opinion. Officer Miller determined that the transaction was subject to use tax, as the computer was purchased for use in Michigan and the transaction was not specifically exempted from use taxation.

The sole issue raised for our consideration is whether the Tax Tribunal erred in determining that Compu-Link Corporation was liable for use tax as a result of its purchase of a computer from plaintiff in an isolated transaction.

Decisions of the Tax Tribunal are appealable to this Court by right. M.C.L. Sec. 205.753(1); M.S.A. 7.650(53)(1). In reviewing a decision of the Tax Tribunal that is not related to valuation or allocation under the property tax laws, this Court's review is limited to determining whether such decision is authorized by law and whether it is supported by competent, material and substantial evidence on the whole record. Const.1963, art. 6, Sec. 28.

[127 MICHAPP 224] The Use Tax Act was enacted for the purpose of levying a specific tax for the privilege of using, storing, or consuming tangible personal property in this state. See Goebel Brewing Co. v. State Bd. of Tax Administration, 306 Mich. 222, 226, 10 N.W.2d 835 (1943), and M.C.L. Sec. 205.93; M.S.A. Sec. 7.555(3). The use tax is also applicable to the use or consumption of certain services. M.C.L. Sec. 205.93a; M.S.A. Sec. 7.555(3a). The tax rate is 4% of the price of such property or service. M.C.L. Sec. 205.93; M.S.A. Sec. 7.555(3).

Levy of the use tax is limited by 23 exemptions contained in M.C.L. Sec. 205.94; M.S.A. Sec. 7.555(4). Most importantly, the tax is not levied upon property on which a tax was paid under the General Sales Tax Act, M.C.L. Sec. 205.51 et seq.; M.S.A. Sec. 7.521 et seq.:

"The tax levied shall not apply to:

"Property sold in this state on which transaction a tax is paid under Act No. 167 of the Public Acts of 1933, as amended, being sections 205.51 to 205.78 of the Michigan Compiled Laws, if the tax was due and paid on the retail sale to a consumer." M.C.L. Sec. 205.94(a); M.S.A. Sec. 7.555(4)(a).

Application of the use tax is also limited by M.C.L. Sec. 205.93; M.S.A. Sec. 7.555(3), where three nontaxable transfers are described.

In the instant case, plaintiff sold a computer to Compu-Link Corporation. It is not contested that the computer was purchased for use in this state. The transaction was not a nontaxable transfer, as described in M.C.L. Sec. 205.93; M.S.A. Sec. 7.555(3). Thus, unless an exemption contained in M.C.L. Sec. 205.94; M.S.A. Sec. 7.555(4) is applicable, Compu-Link Corporation became liable for a use tax in connection with its acquisition of the computer from plaintiff. The sales tax exemption is inapplicable, because the transaction was an isolated sale by a person not [127 MICHAPP 225] engaged in the business of retail sales and, thus, not subject to sales tax. See M.C.L. Sec. 205.51(b); M.S.A. Sec. 7.521(b) and 1979 AC R 205.13. Plaintiff did not assert that the transaction fell within an enumerated exemption to the applicability of the use tax before the Tax Tribunal and does not argue the applicability of any express exemptions on appeal. Accordingly, the Tax Tribunal did not err in its determination that Compu-Link Corporation was liable for a use tax as a result of its acquisition of the computer from plaintiff. Because the appropriate use tax was collected from Compu-Link Corporation by plaintiff and remitted to defendant, no refund is required.

Although plaintiff has not specifically claimed that the transaction is within an express exemption to imposition of the use tax, it advances several arguments that should be addressed. Plaintiff first contends that the use tax only applies to isolated transactions involving vehicles, airplanes, snowmobiles, and watercraft. In support of its argument, plaintiff points to M.C.L. Sec. 205.93; M.S.A. Sec. 7.555(3) and 1979 AC R 205.13. See also 1979 AC R 205.135. The statute and administrative rules do not provide an exclusive list of tangible personal property subject to the use tax upon transfer in an isolated transaction. Instead, they describe the method for collecting use tax on the transfer of certain tangible personal property requiring a vehicle title or registration. The Use Tax Act does not contain an exemption for property acquired in an isolated transaction.

Plaintiff also argues that application of the use tax to the instant transaction renders meaningless the isolated transaction exemption in the General Sales Tax. This argument ignores the different purposes served by the sales and use taxes. The [127 MICHAPP 226] sales tax is imposed upon the seller for the privilege of engaging in the business of making sales of tangible personal property at retail within this state. See Detroit & Cleveland Navigation Co. v. Dep't of Revenue, 342 Mich. 234, 238, 69 N.W.2d 832 (1955), and 1979 AC R 205.4. The retailer may include the amount of the tax in the selling price, but is not required to do so. See Swain Lumber Co. v. Newman Development Co., 314 Mich. 437, 441, 22 N.W.2d 891 (1946), and Laurentide Leasing Co. v. Schomisch, 382 Mich. 155, 160, 169 N.W.2d 322 (1969). Thus, although the sales tax is ordinarily paid by the purchaser, the direct legal incidence of the General Sales Tax Act falls upon the retailer. See generally, National Bank of Detroit v. Dep't of Revenue, 334 Mich. 132, 138-139, 54 N.W.2d 278 (1952). In contrast, the purpose of the use tax is to impose a tax on the privilege of using, storing, or consuming tangible personal property in this state. The legal incidence of the use tax falls on the consumer or purchaser. Because the use tax exempts from taxation property on which a sales tax is paid, the two acts have been deemed complimentary. See generally, National Bank of Detroit, supra, p. 141, 54 N.W.2d 278. By imposing the use tax on the consumer in a transaction involving an isolated transaction, the isolated transaction exception to the sales tax is not rendered meaningless. Indeed, the sales tax exception's purpose has been fulfilled, as the nonretailer-seller is not burdened with the legal incidence of a tax imposed on the privilege of engaging in...