Purchases from A Michigan Vendor Not Taxable to the Michigan Purchaser
In Andrie, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 301615, April 26, 2012, a Michigan Department of Treasury Motion for Reconsideration was denied making the Published opinion the law of the land pending an appeal to the Michigan Supreme Court.
The Department of Treasury argued in Andrie that the Court of Claims erred when it failed to impose the Michigan use tax on purchases of tangible personal property from a Michigan vendor. The seller was required to be licensed under the General Sales Tax Act. The property was purchased in Michigan. The Court of Appeals disagreed.
Here, plaintiff purchased certain items from Michigan retailers. After plaintiff failed to prove that any sales tax was paid on the purchases, defendant assessed use tax on those items. The trial court determined that since they were sold within the state, the transaction was only subject to sales tax.
The General Sales Tax Act, MCL 205.51 et seq., imposes a tax on retail sales of "tangible personal property" within the state of Michigan. World Book v Dep't of Treasury, 459 Mich 403, 407-408; 590 NW2d 293 (1999). The sales tax is imposed on the retailer for "the privilege of engaging in the business of making retail sales." Combustion Eng'g, 216 Mich App at 467. The retailer is not obligated to include the sales tax in the property's selling price, although the retailer has this option. Id. Thus, while the sales tax is "ordinarily passed on to the purchaser at retail, the retailer is obligated to pay the tax due and bears the direct legal incidence of the General Sales Tax Act." Id. Additionally, "the use tax exempts from taxation property on which a sales tax is paid." Id. at 468, citing MCL 205.94(a).
Our Supreme Court and this Court have held on multiple occasions that the mere fact that a transaction is subject to sales tax necessarily means that the transaction is not subject to use tax. See, e.g., Elias Bros Restaurants v Dep't of Treasury, 452 Mich 144, 146 n 1; 549 NW2d 837 (1996) ("The Use Tax Act, as amended, is an ?excise' or ?privilege' tax that covers transactions not subject to the general sales tax."); Fisher & Co v Dep't of Treasury, 282 Mich App 207, 209; 769 NW2d 740 (2009) ("The Use Tax Act is complementary to the Michigan General Sales Tax Act . . . and is designed to cover those transactions not subject to the sales tax.").
In the present case, there is no dispute that the transactions in question involved Michigan retailers and transfers of title within the state of Michigan. Because the retailer has the ultimate responsibility to pay any sales tax, it is erroneous to place a duty on a purchaser to show that the sales tax was indeed paid to the state. Combustion Eng'g, 216 Mich App at 469. Thus, the transactions are not subject to use tax, and the trial court properly held in favor of plaintiff on this issue.
Any Michigan taxpayer currently undergoing a use tax audit, appealing at informal conference, the Tax Tribunal or the courts should be aware of the published opinion and their cases should be settled accordingly.