Purchasers of Property from Licensed Michigan Vendors Cannot Assume Sales Tax Paid
Following is a synopsis provided by the Supreme Court. The synopsis is followed by the conclusion paragraph. In the next few days the entire opinion as well as the dissenting opinion will be studied.
ANDRIE INC v DEPARTMENT OF TREASURY
Docket No. 145557. Argued November 6, 2013 (Calendar No. 1). Decided, June 23, 2014.
Andrie Inc. brought an action in the Court of Claims, seeking a refund of use taxes it had paid under protest for the years 1999 through 2006 after an audit by the Department of Treasury determined that Andrie had understated the taxes it owed for that period under the Use Tax Act (UTA), MCL 205.91 et seq., by $398,755. To arrive at this amount, the department’s 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 due under the General Sales Tax Act (GTSA), MCL 205.51 et seq., was paid, either by Andrie or the retail seller, on items that were determined to be subject to use tax, applying the exemption in MCL 205.94(1)(a) if Andrie did so and assessing Andrie use tax for those items if not. The department ultimately imposed 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, Paula J. M. Manderfield, J., 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. The department appealed. The Court of Appeals, FITZGERALD, P.J., and WILDER and MURRAY, JJ., affirmed on this issue, holding 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. 296 Mich App 355 (2012). The Supreme Court granted the department’s motion to stay the precedential effect of the Court of Appeals opinion and also granted the department’s application for leave to appeal. 493 Mich 900 (2012).
In an opinion by Chief Justice YOUNG, joined by Justices MARKMAN, KELLY, MCCORMACK, and VIVIANO, the Supreme Court held:
In order to be entitled to the exemption from the use tax found in MCL 205.94(1)(a), one 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 use and sales taxes are complementary and supplementary, and their potential applications are not mutually exclusive. The UTA imposes a 6% tax on the use, storage, and consumption of all tangible personal property in Michigan, while the GSTA imposes a 6% tax on the sale of all tangible personal property in Michigan. 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. The retail seller is authorized to pass the economic burden of the sales tax by collecting the tax at the point of sale from the consumer, but whether the consumer remits sales tax to the retail seller or the seller pays the sales tax from another source, the seller is responsible for remitting the sales tax to the department. 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. Therefore, the department properly assessed use tax on those in-state purchases for which Andrie failed to submit evidence that sales tax was actually paid at the time of sale.
- 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. However, a purchaser was not entitled to a presumption that it paid the sales tax at the point of sale. The burden of proving entitlement to an exemption rests on the party asserting the right to the exemption, and a presumption of sales tax payment would shift this burden to the department. Furthermore, a presumption that sales tax is always included in an item’s purchase price would effectively entitle a purchaser to the exemption whenever sales tax is merely due without having to satisfy its burden to show the tax was paid, which would render superfluous the requirement in MCL 205.94(1)(a) that sales tax be both due and paid. 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.
- MCL 205.73(1), which states that a retail seller may not state or imply that an item’s purchase price does not include sales tax, did not relieve Andrie of its duty to prove that sales tax was paid. MCL 205.73(1), as an advertising statute, was only a restriction on retail sellers’ representations to the public; it did not purport to define the actual components of an item’s purchase price.
Court of Appeals judgment reversed in part.
Justice CAVANAGH concurred in the result only.
Justice ZAHRA, dissenting, stated that because MCL 205.52(1) places the burden of paying sales tax only on retailers and not on consumers, the Court should have afforded consumers a presumption that retailers had actually paid sales tax if it was evident that sales tax was due under the statute. He would have permitted the state to rebut this presumption by producing evidence that the tax was not paid or that the consumer transacted with an erroneous belief that, if true, would have entitled the transaction to be exempted from sales tax. Once the presumption was rebutted, the burden would return to the consumer to present evidence that the sales tax was actually paid or to establish that the consumer was properly entitled to some other exemption.
In order to be entitled to the exemption from the use tax found in MCL 205.94(1)(a), one 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 this tax exemption rests on the taxpayer seeking the exemption. Accordingly, because Andrie has not submitted any evidence that sales tax was paid, Andrie has not carried its burden and is not entitled to the exemption delineated in MCL 205.94(1)(a). We reverse that portion of the Court of Appeals’ judgment which held that the use tax can never be levied on property if the purchase of that property was subject to sales tax.