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145557 - Andrie v Treasury

Andrie, Inc.,
June  Summers Haas  
(Appeal from Ct of Appeals)
(Ct Claims – Manderfield, P.) 
Department of Treasury,
Jessica A. McGivney


This case concerns the interplay between Michigan’s sales tax and Michigan’s use tax. Michigan imposes a 6 percent sales tax on goods sold at retail in the state. MCL 205.52(1). The sales tax “shall be collected from all persons engaged in the business of making sales at retail,” and the tax is paid “for the privilege of engaging in that business.” Under MCL 205.73(1), a retailer cannot suggest to a customer that sales tax is not applicable to a retail sale in Michigan; the retailer may add the sales tax to the retail price. Michigan’s use tax is also a 6 percent tax, see MCL 205.93(1). It is levied upon and to be collected from every person in this state, and it is paid for the privilege of using, storing, or consuming tangible personal property in this state. There are numerous exemptions to the use tax, including an exemption for property sold in Michigan on which sales tax was due and paid on the retail sale. MCL 205.94(1)(a).


In this case, plaintiff Andrie, Inc., contested a tax assessment for unpaid use tax on goods that were purchased by Andrie from various retailers in the state of Michigan. There is no question that the sales were subject to Michigan’s sales tax, MCL 205.51. But the Department of Treasury (DOT) determined that, if Andrie could not provide a receipt or other documentation showing that the sales tax was actually paid, or that the price included sales tax, then Andrie was obligated to pay use tax.


The Court of Claims rejected the DOT’s position that Andrie was obligated to pay use tax. Andrie was entitled to a presumption that the retailer had paid the sale tax; it was not the purchaser’s burden to prove that sale tax was paid to the state, the Court of Claims ruled. The items were subject to sales tax, the court held, and therefore the tax liability fell on the retailer rather than Andrie. Andrie was entitled to rely on the presumption that sales tax was included in the price of the purchased items, and was “not to be held personally liable subsequently for payment of back taxes.” The Court of Claims ruled that the DOT “improperly reversed the burden of proof, placing it on [Andrie] to prove that the sales tax had been paid,” and assessing use tax against Andrie for any of those items where Andrie was unable to meet the burden of proof.


The Court of Appeals affirmed the Court of Claims in a published opinion. The sales tax is imposed on retailers, and that retailers have the option of including the sales tax in an item’s selling price, the appellate court observed. The use tax exempts property on which a sales tax is paid. The Court of Appeals concluded that it would be erroneous to place a duty on a purchaser to show that a sales tax was paid, in light of the fact that the retailer has the “ultimate responsibility to pay any sales tax.” Accordingly, the Court of Appeals agreed with the trial court that the transactions at issue were not subject to use tax.


The DOT appealed to the Supreme Court, arguing that the Court of Appeals opinion dramatically changed the law regarding the administration of tax statutes, by placing the burden on the DOT to prove that a taxpayer is not entitled to a claimed exemption, instead of placing the burden on the taxpayer to show entitlement to a claimed exemption. Andrie was unable to show that the sales tax was paid on the goods that Andrie purchased, the DOT argued. As a result, Andrie cannot prove that it is entitled to the sales-tax exemption from the use tax. Under these circumstances, the DOT argued, the use tax is owed.


Andrie responded that, as a taxpayer, it is entitled to presume that the retailers paid the sales tax, and that the use tax is inapplicable to any retail sale in Michigan that is subject to the sales tax. There is no question that the retail sales involved in this case were subject to Michigan’s sales tax. Therefore, Andrie contended, both lower courts correctly determined that the DOT could not assess Andrie with use tax for those same sales. The use tax, argued Andrie, covers transactions that are “not subject to the general sales tax,” see Elias Bros Restaurants v Treasury Dep’t, 452 Mich 144, 146, n 1 (1996); the sales tax and the use tax are mutually exclusive and cannot be imposed on the same transaction.


On December 5, 2012, the Supreme Court granted leave to appeal. The parties are directed to address “(1) whether the Court of Appeals correctly determined that a retail transaction in Michigan subject to the sales tax, MCL 205.51 et seq., is not subject to the use tax, MCL 205.91 et seq.; (2) whether a retail purchaser is entitled to a presumption that sales tax is paid on retail transactions in Michigan; and (3) whether the exemption in MCL 205.94(1)(a) applies in this case.” The Supreme Court also granted the DOT’s motion to stay the precedential effect of the published Court of Appeals opinion.