Opinion
No. 355670
01-13-2022
Larry BRUSKY, doing business as Brusky Construction, Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee.
Sullivan & Leavitt, PC (by Michael J. Leavitt, Northville, and George L. Howell ) for plaintiff. Dana Nessel, Attorney General, Fadwa A. Hammoud, Solicitor General, and Emily C. Zillgitt and Genevieve T. Fischré, Assistant Attorneys General, for defendant.
Sullivan & Leavitt, PC (by Michael J. Leavitt, Northville, and George L. Howell ) for plaintiff.
Dana Nessel, Attorney General, Fadwa A. Hammoud, Solicitor General, and Emily C. Zillgitt and Genevieve T. Fischré, Assistant Attorneys General, for defendant.
Before: K. F. Kelly, P.J., and Gadola and Redford, JJ.
Per Curiam. Plaintiff, Larry Brusky, doing business as Brusky Construction, appeals by right the Court of Claims opinion and order granting summary disposition in favor of defendant, the Department of Treasury. The court concluded that plaintiff engaged in retail sales under MCL 205.52(1) and that its tax base included "delivery charges" under the General Sales Tax Act (the GSTA), MCL 205.51 et seq. , because plaintiff incurred the charges before the transfer of ownership from plaintiff to its customers. Finding no error warranting reversal, we affirm.
I. BASIC FACTS AND PROCEDURAL HISTORY
Plaintiff is a licensed motor carrier that transports aggregate material, such as sand or gravel, in bulk quantities for its customers engaged in construction projects. For the tax period at issue, September 2013 through December 2016, plaintiff purchased aggregate material for its customers and billed them for both the material and delivery charges. In a typical transaction, a customer would solicit a bid for certain aggregate material. Plaintiff, in turn, would obtain quotes from multiple aggregate suppliers for the requested material. Plaintiff calculated delivery charges for the aggregate material on the basis of an hourly rate, taking time and distance into consideration. Although plaintiff calculated the cost of material and delivery separately for purposes of preparing the bid, plaintiff quoted a price to its customers in a single, whole number that included delivery charges and sales tax.
Plaintiff did not enter into contracts with its customers. Once a customer accepted a bid, however, a purchase order would be created reflecting the singular, agreed-upon price. While plaintiff's customers paid the sales tax on the aggregate material, neither plaintiff nor its customers paid sales tax on the delivery charges. Notably, for the tax period at issue, plaintiff claimed an exemption from sales tax on the delivery charges in its tax returns.
With respect to plaintiff's acquisition of the aggregate material to fulfill an accepted bid, plaintiff paid for the material itself but did not pay sales tax. Plaintiff provided a sales-tax-exemption certificate predicated on the fact that it would be reselling the material to its customers. At the time plaintiff took possession of the aggregate material at a supplier's aggregate pit, a load ticket was created showing the amount of aggregate material plaintiff received. The supplier would invoice plaintiff later for the material taken. Neither the load tickets nor the invoices identified the end user or specific project for which the aggregate material was ultimately intended. In August 2017, defendant initiated an audit of plaintiff for the tax years at issue and determined that a sales-tax deficiency of $192,273 existed for failure to remit sales taxes related to delivery charges. Relying on Revenue Administrative Bulletin (RAB) 2015-17, the auditor determined that the delivery charges were taxable because plaintiff bore the risk of loss during delivery, ownership of the aggregate material transferred after delivery, payment was due after delivery, and plaintiff's books and records did not separately identify delivery income to determine tax on the sales at retail or whether the delivery service was profitable. Plaintiff subsequently sought an informal conference to appeal the audit. After the hearing, the referee issued an informal conference recommendation upholding the assessments. The referee found that plaintiff failed to rebut the presumption that the assessment was valid by producing evidence showing that the delivery charges were wrongly assessed. Although plaintiff argued that it acted as a purchasing agent, the referee found that the evidence demonstrated that the delivery charges were taxable. Plaintiff's books and records did not separately invoice delivery charges and sales of aggregate material, thereby making it impossible to determine whether the deliveries themselves reflected a profit; no evidence supported that plaintiff never took ownership of the aggregate material before delivery; no evidence showed that plaintiff did not bear the risk of loss before delivery; and plaintiff collected and remitted sales tax. Defendant adopted the referee's recommendation and issued a decision and order of determination upholding the assessments. It then issued final assessments for each of the tax years at issue.
RAB 2015-17 states, in relevant part:
The tax base includes delivery or installation charges that are incurred prior to the completion of transfer of ownership of tangible personal property subject to the Act. Therefore, whether ownership of the property is transferred before or after the delivery or installation charges are incurred determines if those charges are subject to tax. The Department will consider all facts and circumstances of the transfer of ownership of the property to determine if delivery or installation charges are taxable, including, but not limited to:
1. Whether the customer has the option to either pick up the property or have the property delivered;
2. Whether the delivery or installation charge is separately negotiated and contracted for on a competitive basis;
3. Whether the property and delivery or installation charges are separately invoiced;
4. Whether the taxpayer's books and records separately identify the transactions used to determine the tax on the sale at retail;
5. Whether delivery or installation service records indicate a net profit (i.e., the delivery or installation service is a commercial endeavor separate from the retail business);
6. The time at which risk of loss transfers from seller to buyer;
7. The time at which title to the property passes from seller to buyer;
8. Any other information that is relevant in determining when ownership transfers.
None of the above factors, standing alone, conclusively determine the taxability of delivery or installation charges; the Department will look at the entire transaction when making its determination. [Citation omitted.]
On January 23, 2019, plaintiff filed a complaint seeking to enjoin defendant from enforcing the final assessments. Plaintiff asserted that it was not liable for the assessed sales tax on delivery charges under MCL 205.51(1)(d)(iv ) because plaintiff allegedly acted as a purchasing agent for its customers, not a seller of aggregate material. Plaintiff averred that the transfer of ownership occurred before the delivery charges were incurred and, thus, it was not liable for the assessed tax. Thereafter, the parties filed cross-motions for summary disposition under MCR 2.116(C)(10). In its motion, defendant argued that summary disposition in its favor was proper because the evidence established that plaintiff was a retailer that purchased aggregate material tax-free using an exemption certificate and resold it to its customers, charging its customers the sales tax for that material. Because plaintiff's customers "incurred" the delivery charges before transfer of ownership to the ultimate customer, defendant asserted that delivery charges should have been included in plaintiff's tax base.
Plaintiff countered that it was not primarily engaged in making retail sales and, therefore, it was not subject to sales tax. Relying on Midwest Power Line, Inc v. Dep't of Treasury , 324 Mich. App. 444, 921 N.W.2d 543 (2018), in which this Court construed the phrase "persons engaged in the business of" in the Use Tax Act (the UTA), MCL 205.91 et seq. , to mean that a taxpayer must be primarily engaged in a particular type of business to qualify for an exemption, plaintiff explained that because the GSTA uses the same language, plaintiff must be primarily engaged in retail sales to be subject to sales tax. Because plaintiff characterized its primary business as transportation services—given that it was hired to pick up and deliver aggregate material as a purchasing agent—it was not subject to sales tax. Additionally, plaintiff argued that it was engaged in the sale of a service (delivery) and, therefore, not subject to sales tax under the incidental-to-services test of Catalina Marketing Sales Corp. v. Dep't of Treasury , 470 Mich. 13, 678 N.W.2d 619 (2004).
The court granted summary disposition in favor of defendant, finding first that plaintiff failed to keep separate books and records reflecting its allegedly nontaxable delivery services business. Accordingly, the court determined that imposition of the tax was proper under MCL 205.52(3), which allows for imposition of sales tax on entire gross proceeds of plaintiff's business if separate books and records are not kept to show the separate transactions. The court otherwise found that the documentary evidence supported that the delivery charges were subject to tax. Focusing its analysis on whether ownership transferred after delivery under MCL 205.51(1)(d)(iv ) and RAB 2015-17, the court found that plaintiff's invoices, which included delivery charges and materials in a single document, as well as its trial balance showing "sales" without distinguishing delivery from materials, supported the determination that plaintiff's customers did not take ownership of the aggregate material until after delivery. The court found Catalina Marketing inapplicable because in that case, the Michigan Supreme Court expressly recognized that while there is a general rule that sales tax only applies to the sale of tangible personal property, some services may be subject to taxation if expressly prescribed by the Legislature. Finally, the court declined to apply Midwest Power Line ’s interpretation of language used in the UTA, noting that to do so would render nugatory provisions of the GSTA that impose tax on delivery charges even when the taxpayer is not primarily engaged in the business of delivery.
II. STANDARD OF REVIEW
This Court reviews de novo a decision of the Court of Claims granting summary disposition. GMAC LLC v. Dep't of Treasury , 286 Mich App 365, 372, 781 N.W.2d 310 (2009). This Court reviews a motion under MCR 2.116(C)(10) by considering "the affidavits, pleadings, depositions, admissions, and other documentary evidence submitted by the parties in the light most favorable to the nonmoving party. Summary disposition is appropriate if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law." Uniloy Milacron USA Inc. v. Dep't of Treasury , 296 Mich App 93, 96, 815 N.W.2d 811 (2012) (quotation marks and citations omitted).
Questions of statutory interpretation are also reviewed de novo. Ford Motor Co. v. Dep't of Treasury , 288 Mich App 491, 494, 794 N.W.2d 357 (2010). "The primary goal of judicial interpretation of statutes is to ascertain and give effect to the Legislature's intent." Guardian Photo, Inc. v. Dep't of Treasury , 243 Mich App 270, 276, 621 N.W.2d 233 (2000). "Where the language poses no ambiguity, this Court need not look outside the statute, nor construe the statute, but need only enforce the statute as written." Ammex, Inc. v. Dep't of Treasury , 273 Mich App 623, 648, 732 N.W.2d 116 (2007).
III. ANALYSIS
The GSTA imposes a tax on the privilege of making retail sales of tangible personal property in the state of Michigan. Andrie Inc. v. Dep't of Treasury , 496 Mich. 161, 168-169, 853 N.W.2d 310 (2014). Specifically, under MCL 205.52(1) :
[T]here is levied upon and there shall be collected from all persons engaged in the business of making sales at retail , by which ownership of tangible personal property is transferred for consideration, an annual tax for the privilege of engaging in that business equal to 6% of the gross proceeds of the business.... [Emphasis added.]
The GSTA defines "gross proceeds" to mean "sales price." MCL 205.51(1)(c). "Sales price," in turn, is defined, in relevant part, as "the total amount of consideration ..., for which tangible personal property or services are sold...." MCL 205.51(1)(d). The definition of "sales price" includes a specific list of items that are included or excluded from the definition of sales price. See MCL 205.51(1)(d). "Delivery charges" are included within the meaning of "sales price" and are defined as follows:
Delivery charges incurred or to be incurred before the completion of the transfer of ownership of tangible personal property subject to the tax levied under this act from the seller to the purchaser. A seller is not liable under this act for delivery charges allocated to the delivery of exempt property. [ MCL 205.51(1)(d)(iv ).]
Accordingly, the sales tax base for "all persons engaged in the business of making sales at retail" includes "delivery charges," so long as such charges are incurred "before the completion of the transfer of ownership of tangible personal property ... from the seller to the purchaser."
A. RETAIL SALES
On appeal, plaintiff asserts that the Court of Claims erred when it granted summary disposition in defendant's favor because it disregarded the agency relationship between plaintiff and its customers. According to plaintiff, only persons making sales at retail are liable for sales tax under the GSTA, including sales tax on delivery charges. Plaintiff contends that it was acting as a purchasing agent—not a seller at retail—and is, therefore, not liable for the tax on delivery charges.
Even assuming that a purchasing agent is not liable for sales tax under the GSTA, the evidence submitted to the court does not demonstrate a genuine question of material fact that plaintiff acted as a purchasing agent. "Under the common law of agency, in determining whether an agency has been created, we consider the relations of the parties as they in fact exist under their agreements or acts and note that in its broadest sense agency includes every relation in which one person acts for or represents another by his authority." Wigfall v. Detroit , 504 Mich. 330, 340, 934 N.W.2d 760 (2019) (quotation marks and citation omitted). "Fundamental to the existence of an agency relationship is the right of the principal to control the conduct of the agent." Id. (quotation marks and citation omitted).
The undisputed facts demonstrate a simple buyer-seller transaction between plaintiff and its customers. Nothing in the record shows that plaintiff's customers had any control over where plaintiff purchased aggregate material or the delivery routes that plaintiff chose to deliver the material. Plaintiff's customers sought only to procure the best price of the aggregate material needed for the projects on a timely basis. Moreover, plaintiff's business was to offer to resell aggregate material that it could procure from a third party and deliver to its customers. That plaintiff bought the material upon request and resold it to its customers does not transform plaintiff into a purchasing agent, given that plaintiff's customers did not control plaintiff's conduct and there was no evidence plaintiff represented its customers as an agent in transactions with the aggregate suppliers. In short, the record does not support that plaintiff acted as a purchasing agent for its customers.
Relatedly, plaintiff also asserts that it was not engaged in retail sales under the GSTA because, as a purchasing agent, it did not "agree[ ]" to be a seller. In support, plaintiff explains that the GSTA does not define "sale" and that Black's Law Dictionary (8th ed) defines that term, in part, as an agreement for the transfer of property that includes mutual assent. By plaintiff's logic, because it is a purchasing agent, it never mutually assented to sell property and, thus, transfer of ownership passed to the purchasers when the supplier delivered the material to plaintiff. This argument is without merit.
First, plaintiff's argument fails at the outset because, as explained, the facts do not support a finding that plaintiff acted as a purchasing agent. Second, the GSTA does not require mutual assent to engage in sales at retail. The GSTA identifies the taxable transaction and the person liable for the tax; it does not require mutual assent between a buyer and seller for imposition of the tax. See MCL 205.52(1). Third, the factual realities of plaintiff's business practices belie that plaintiff did not agree to sell aggregate material: plaintiff purchased the aggregate material with the purpose of reselling it, as reflected by plaintiff's use of the resale exemption certificates and the fact that plaintiff remitted sales tax for the material to defendant. Plaintiff's argument disregards both the plain language of the GSTA and the factual realities of its business model.
The conclusion that plaintiff is not a purchasing agent renders immaterial plaintiff's remaining arguments related to its theory that purchasing agents are not liable for sales tax (and delivery charges).
In sum, the undisputed evidence demonstrates that plaintiff engaged in sales at retail. Thus, plaintiff, as a seller of tangible personal property, is liable for sales tax, which includes delivery charges incurred before the transfer of ownership of the property. MCL 205.52(1) ; MCL 205.51(1)(d)(iv ).
B. APPLICABILITY OF MIDWEST POWER LINE
Alternatively, plaintiff argues that if it is engaged in retail sales under MCL 205.52(1), it is not subject to sales tax (and hence tax on delivery charges) because it is not primarily engaged in the business of retail sales. In support, plaintiff relies on this Court's decision in Midwest Power Line , in which this Court construed language used in the rolling-stock exemption of the UTA, i.e., the phrase "engaged in the business of," which is identical to the language used in MCL 205.52(1) of the GSTA. According to plaintiff, Midwest Power Line interpreted that language to mean that the activity referred to in the statute must be the primary purpose of the business. Plaintiff argues, therefore, that because its primary business purpose is transportation services, it is not "engaged in the business of making sales at retail" and is not subject to sales tax on delivery charges.
In Midwest Power Line , we considered a dispute concerning the rolling-stock exemption of the UTA, which provides that a person is exempt from taxation if the person satisfies the definition of "interstate fleet motor carrier," which means, in relevant part, "a person engaged in the business of carrying persons or property, other than themselves, their employees, or their own property, for hire across state lines...." MCL 205.94k(6)(d) (emphasis added). In that case, the petitioner provided repair and maintenance services to electrical utilities but would sometimes pick up its customer's materials and transport them to out-of-state repair sites. Midwest Power Line , 324 Mich App at 445, 921 N.W.2d 543. In determining that the petitioner was not an "interstate fleet motor carrier," we held that the term means "a business that is particularly engaged in providing transportation for hire." Id. at 448, 921 N.W.2d 543. Because the customers hired the petitioner to repair power lines, and interstate transportation was incidental to that service, this Court concluded that the petitioner was not an "interstate fleet motor carrier" and did not qualify for the exemption. Id. at 447-448, 921 N.W.2d 543.
Even assuming that Midwest Power Line created a primary-purpose test for the rolling-stock exemption on the basis of the "engaged in the business of" language of MCL 205.94k(6)(d), it is improper to simply insert this meaning into the language of the GSTA without regard to its larger context. When construing particular words in a statute, this Court "must consider both the plain meaning of the critical word or phrase as well as its placement and purpose in the statutory scheme." Herman v. Berrien Co. , 481 Mich. 352, 366, 750 N.W.2d 570 (2008) (quotation marks and citation omitted). "Unless defined in the statute, every word or phrase of a statute should be accorded its plain and ordinary meaning, taking into account the context in which the words are used." In re Smith Estate , 252 Mich App 120, 124, 651 N.W.2d 153 (2002). And while it is true that "[s]tatutes that relate to the same subject or that share a common purpose are in pari materia and must be read together as one law," Belcher v. Ford Motor Co. , 333 Mich App 717, 723, 963 N.W.2d 423 (2020) (quotation marks and citation omitted), we will "avoid a construction that would render any part of the statute surplusage or nugatory," In re Smith Estate , 252 Mich App at 124, 651 N.W.2d 153 (quotation marks and citation omitted).
Reading MCL 205.52(1) in context of the GSTA evinces no intent that only persons who engage primarily in retail sales are subject to sales tax. For example, MCL 205.52(3) requires a person engaged in business activities aside from retail sales to maintain separate books and records for that activity. That section also mandates that the failure to do so will subject the person's entire gross proceeds to sales tax. This provision makes no distinction for a person whose primary business is something other than retail sales. To subject only persons whose primary business is retail sales to sales tax under plaintiff's interpretation would render MCL 205.52(3) meaningless.
MCL 205.52(3) states:
Any person engaged in the business of making sales at retail who is at the same time engaged in some other kind of business, occupation, or profession not taxable under this act shall keep books to show separately the transactions used in determining the tax levied by this act. If the person fails to keep separate books, there shall be levied upon him or her the tax provided for in subsection (1) equal to 6% of the entire gross proceeds of both or all of his or her businesses. The taxes levied by this section are a personal obligation of the taxpayer.
Likewise, MCL 205.54d(i) provides that a person is exempt from sales tax if the "sale [is] made outside of the ordinary course of the seller's business." Consequently, all sales at retail are subject to taxation, regardless of whether a person's primary business is retail sales, so long as the sales are made within the person's ordinary course of business. Under plaintiff's interpretation, only a person that is primarily engaged in retail sales would be subject to taxation, which would also render MCL 205.54d(i) meaningless.
In sum, nowhere does the GSTA require that a person be primarily engaged in the business of retail sales to be subject to tax. To agree with plaintiff would be contrary to the Legislature's intent as manifested in the plain language of the GSTA. Rather, when read as a whole and in context, the GSTA recognizes that a person engaged in more than one business activity will be subject to sales tax so long as the sale was within the person's ordinary course of business and an exemption does not otherwise apply.
C. INCIDENTAL-TO-SERVICES TEST
Finally, plaintiff claims that if it is deemed to be involved in the transfer of tangible personal property, then under the incidental-to-services test of Catalina Marketing , it is engaged in the provision of a service (procurement and delivery of aggregate material) and, thus, not subject to tax.
Contrary to plaintiff's argument, the Court of Claims correctly found that Catalina Marketing is irrelevant to the facts of this case. In Catalina Marketing , which involved the sales-tax liability of a person engaged in providing advertising research and related paper coupons (the transfer of tangible personal property), the Michigan Supreme Court articulated a general rule that "sales tax applies only to sales of tangible personal property, not sales of services." Catalina Marketing , 470 Mich. at 19, 678 N.W.2d 619. As a consequence, the Court recognized that "[w]hen a single transaction, as here, involves both the provision of services and the transfer of tangible personal property, it must be categorized as either a service or a tangible property transaction." Id. The Court, however, recognized instances in which services may be subject to sales tax. Specifically, the Court noted that exceptions to the general rule may exist that will make the rendition of a service taxable, citing as an example the statutory imposition of sales tax on sales of electricity and its related service distribution. Id. at 19, 678 N.W.2d 619 n.4.
At issue in this case is the taxability of delivery charges. The Legislature expressly included delivery charges related to the sale of tangible personal property within the definition of "sales price," to which
sales tax applies. MCL 205.51(1)(d)(iv ). Hence, the Legislature expressed a clear intent that delivery services related to the transfer of ownership of tangible personal property are taxable. See MCL 205.52(1) ; MCL 205.51(1)(d)(iv ). Consequently, Catalina Marketing ’s incidental-to-services test is not applicable because the Legislature expressly mandated that such delivery services be subject to sales tax.
Affirmed. Defendant, as the prevailing party, may tax costs.
K. F. Kelly, P.J., and Gadola and Redford, JJ., concurred.