Taxable Sale of Property Subject to Both the Sales Tax and The Use Tax Unless the Purchaser Can Prove Sales Tax was Due and Paid
In Andrie, Inc. v Department of Treasury, Docket No. 145557, June 23, 2014; the Michigan Supreme Court turned upside down the decades long presumption that a purchaser could presume sales tax was included in the purchase price of taxable tangible personal property if purchased from a Michigan vendor. The ruling opens up the possibility of both a sales tax and a use tax being imposed on the same transaction.
Andrie Inc. appealed a Department of Treasury use tax audit. The Treasury auditor had reviewed Andrie’s purchases of fuel and other tangible items, some of which Andrie had purchased in Michigan from Michigan sellers, for use in its business of shipping asphalt and other products across the Great Lakes. The auditor requested that Andrie provide proof that sales tax was paid, either by Andrie or the retail seller, on items that were determined to be subject to use tax. Treasury ultimately imposed the use tax on fuel and supply purchases Andrie made in Michigan, from Michigan-based retail sellers, if the invoice did not list sales tax as a separate line item and establish that sales tax had been paid.
Andrie filed suit in the Court of Claims, arguing that it was entitled to rely on an alleged requirement of the GSTA that the sales tax be included in the price of the goods purchased regardless of whether the sales tax was separately stated.
The Court of Claims held that Andrie was entitled to a partial refund of use tax for those purchases that were subject to sales tax, reasoning that because Andrie was entitled to a presumption that sales tax was included in the price of goods purchased, Andrie was not required to provide proof that the retail sellers had remitted sales tax to the Department of Treasury.
Treasury appealed to the Court of Appeals.
The held that because the retailer was responsible for paying sales tax, it was erroneous to place a duty on the purchaser to show that the sales tax had been paid.
Treasury appealed to the Supreme Court.
The Supreme Court held that in order to be entitled to the exemption from the use tax found in MCL 205.94(1)(a), a taxpayer must show that the sales tax was both due and paid on the sale of that tangible personal property. The burden of demonstrating entitlement to the use tax exemption rested on the taxpayer seeking it. Because Andrie did not submit any evidence that sales tax had been paid, Andrie was not entitled to the use tax exemption. The Court of Appeals judgment was reversed to the extent it held that the use tax could never be levied on property if the purchase of that property was subject to sales tax.
The Supreme Court said:
“Absent an exception, tangible personal property sold and used in Michigan is subject to both use and sales tax. The text of each taxing statute indicates that they may be levied on the same property, as long as the respective predicate taxable events have taken place. The legal responsibility for the use tax falls solely on the consumer, while the legal responsibility for the sales tax falls on the retail seller.”
“Under MCL 205.94(1)(a), property sold in Michigan on which tax was paid under the GSTA is exempt from use tax if the tax was due and paid on the retail sale to a consumer. This provision unambiguously requires payment of the sales tax before the exemption applies.”
“Taxpayers are not entitled to a presumption that sales tax was included in the prices paid to retailers when their receipts to do not list sales tax as a separate line item. A taxpayer is entitled to the use tax exemption in MCL 205.94(1)(a) when it proves that it paid sales tax to the retail seller, even if the retail seller, who bears the legal responsibility for payment of the sales tax, did not remit the tax to the department.”
“Because Andrie submitted no evidence that it paid sales tax to the retail seller, or that the seller remitted sales tax to the department on that sale, it did not meet its burden, and it was not entitled to the exemption.”
The MICPA Sales and Use Tax seminars scheduled for October 2014 will include expanded coverage of the Andrie Supreme Court decision addressing the impact on Michigan business.
Register on line at the MACPA website:
Michigan Sales and Use Tax (30696 - MSUTEM)
Wednesday, October 22, 2014
Best Western PLUS Sterling Inn - Sterling Heights, MI
Michigan Sales and Use Tax (30681 - MSUTTC)
Monday, October 27, 2014
Prince Conference Center Calvin College - Grand Rapids, MI