sales and use tax
Michigan high court finds that consumer must prove retailer paid sales tax on purchase in order to qualify for use tax exemption
Use taxes are the consumer counterpart to sales taxes. For example, Michigan imposes a 6% use tax on the “use, storage, and consumption of all tangible personal property.” This use tax may be offset by any sales tax paid to the retailer at the time of purchase. But what if a customer cannot prove the sales tax was paid? The Michigan Supreme Court recently addressed that question.
Andrie Inc. is a Michigan-based company that transports asphalt products across the Great Lakes. Andrie purchases fuel for its vessels in Michigan. The 6% tax is due on all of these purchases, whether as a sales tax paid to the fuel retailer or as a use tax paid by Andrie directly to the state. When the Michigan Department of the Treasury audited Andrie for a seven-year period dating back to 1999, however, it claimed the company failed to pay nearly $400,000 in back use and sales taxes.
The problem for Andrie was that many of its invoices for fuel purchases did not contain a line-item expressly stating whether sales tax was assessed as part of the purchase price. For its part, the Department of the Treasury could not say whether or not the retailers had paid any sales taxes to the state. But as far as the department was concerned, the burden was on Andrie, not the state, to prove the tax was paid.
Andrie understandably disagreed with this position. It paid the use tax under protest and sued the department in the Michigan Court of Claims for a refund. That court, and later the Michigan Court of Appeals, agreed with Andrie that since gasoline purchases are subject to sales tax, the burden should be on the retailer, not the customer, to prove the tax was paid.
The Michigan Supreme Court disagreed. In an opinion issued on June 23 of this year, the court voted 6 – 1 to reverse the two lower courts. Chief Justice Robert P. Young, Jr., writing for the majority, said the sale of property is subject to both sales and use tax. Each is a “separate taxable event,” and Andrie is only entitled to a use tax exemption if it can prove the sales tax was paid. Whether the sales tax should have been collected is irrelevant; the chief justice said Michigan law clearly states any sales tax must be “due and paid” before a use tax exemption is granted.
S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.