Customers Were Given Cash Refunds Which Including Sales Tax
In Discount Tire Co. v. Department of Treasury, Michigan Court of Appeals, No. 307038, November 6, 2012, the Michigan Court of Appeals has held that a tire retailer was entitled to a returned goods sales tax credit on previously remitted sales tax because it conveyed cash refunds, including sales tax, to customers who returned damaged tires. The taxpayer's customers had the option of purchasing a certificate that entitled them to a full cash refund on irreparably damaged tires within three years of purchase. Also, at the customer's request, the taxpayer was required to offer the customer the opportunity to purchase a replacement tire at a price equal to the price of the original tire. When a replacement tire was sold pursuant to a certificate, the taxpayer remitted sales tax and also use tax to the Department of Treasury. Though the department claimed that goods must be returned within a certain time frame and in the same condition as they were sold, in order to qualify for a returned goods tax credit, the applicable statute, MCL 205.56b, contains no such requirements. Moreover, Rule 16, issued by the department to clarify the meaning of "returned goods" is invalid, as it contains more restrictive language than MCL 205.56b and narrows the returned goods credit.
As the replacement tires were purchased with the cash refunds, these tires were retail goods subject to sales tax only. The taxpayer was therefore entitled to a refund of use taxes as the two taxes cannot be imposed on the same transaction.