Use Tax Base Includes Evaluation Reports Included in Price of Motor Vehicle Subleases
In Ford Motor Company v. Department of Treasury, Michigan Court of Appeals, No. 294411, February 17, 2011, the price upon which Michigan use tax was based in motor vehicle subleases between Ford Motor Company (Ford) and its employees included the value of testing and evaluation reports provided by these employees because Michigan law does not allow a deduction of any service promised by the consumer in the complete performance of a transaction from the definition of "price." The value of the testing and evaluation services, however, was a matter of fact, and, therefore, the Court of Appeals reversed the lower court's order granting summary disposition to the Department of Treasury.
During the relevant time period, Ford sold vehicles to Ford Credit Company (Ford Credit) and Ford Credit leased the vehicles back to Ford at a yearly lease rate of 28.8% of the wholesale price. Ford subleased the vehicles to its employees and retirees at a yearly rate of 20.8% of the wholesale price. As a condition of the sublease agreements, the sub leasees were required to provide testing and evaluation reports on the motor vehicles. As the failure to provide the reports served as a default under the agreements, the reports qualified as part of the consideration for the subleases.
However, the conclusion that provision of the testing and evaluation reports constituted part of the "price" of the sublease agreements did not necessitate a finding that Ford was liable for use tax based on the 28.8% rate. The department asserted that the value of the reports was equivalent to the difference between the sublease rate (20.8%) and the lease rate (28.8%). However, the sublease and lease rates are based on a percentage of the wholesale vehicle prices. Accepting this argument, the court concluded, would lead to the illogical result that the value of providing testing and evaluation reports for a luxury vehicle would be greater than the value of a sub leasee's reports on an economy vehicle.