Purchases From Michigan Vendors Exempt as the Seller Is Liable for the Sales Tax
In Andrie, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 301615, April 26, 2012, a marine transportation business was not able to claim an exemption from Michigan use tax for fuel and supplies used by its tugs, as the tugs were not vessels of 500 tons or more used in interstate commerce. The taxpayer argued that each tug was connected and in "dedicated service" to a barge that was registered at over 500 tons and that these tug-barge units constituted a single vessel for purposes of the Use Tax Act. However, the Court of Appeals held that the plain language of the relevant statute did not permit multiple vessels serving as a single vessel to qualify for exemption. The exemption applied only to single watercraft of 500 or more tons, and, in this instance, each tug and barge was registered individually as a separate vessel, with each tug having a tonnage of less than 500 tons.
In regard to the apportionment of the taxpayer's foreign commerce, the court ruled that all of the fuel and supplies used for foreign commerce that were used, consumed, or stored in Michigan were subject to use tax. The ruling modifies the trial court's decision that only tangible personal property used in Michigan by the taxpayer while engaged in foreign commerce was taxable.
The barges' intrastate trips between Michigan ports qualified as interstate commerce, as a vessel is still considered to be used in interstate commerce when it never leaves the state "if it carries goods moving in a continuous stream from an origin in one state to a destination in another." Fuel and supplies used by the taxpayer's barges while making trips in Michigan therefore qualified for exemption. Use tax was also not due on certain purchases the taxpayer made in Michigan, as these sales were properly subject to the sales tax. It was not permissible to place the duty on the purchaser because retailers have the ultimately responsibility for the payment of sales tax.