Biographical Information Jamie L. Larson, Director of Taxes Meijer - - PDF document
28th Annual Tuesday & Wednesday, January 2930, 2019 Hya Regency Columbus, Columbus, Ohio Workshop V The Manufacturing Exemption Compared & Contrasted in the Midwest: The Application & Issues in States Other than Ohio
28th Annual
Tuesday & Wednesday, January 29‐30, 2019
Hya Regency Columbus, Columbus, Ohio
Tuesday, January 29, 2019 4:15 p.m. to 5:15 p.m.
Biographical Information Jamie L. Larson, Director of Taxes Meijer Great Lakes LP, 2929 Walker Ave, NW, Grand Rapids, MI 49544 616-791-5991 Fax: 616-791-5144 Jamie.Larson@meijer.com Jamie began her professional career in 1989 at Arthur Andersen in the Detroit office where she worked on a variety of expatriate and Canadian commuter tax returns. After transferring to the Grand Rapids office, she focused mainly on Federal and multistate corporate income tax returns. Jamie joined Amway Corporation in 1994 where she eventually led the domestic tax area. In 2001, Jamie came to Meijer as the Manager of Tax Compliance and was later promoted to Director of Taxes. Jamie successfully drives results throughout the tax life cycle – planning, research, tax accounting, compliance and audit controversy. Her responsibilities include income, sales and use, payroll, property and miscellaneous excise taxes. Jamie is a CPA and has held various leadership positions in the Western Michigan Chapter of Tax Executive Institute. Currently, she is the chairperson of the Tax and Regulatory Committee
Retail Federation, Retail Industry Leaders Association and the Michigan Chamber of Commerce. Jamie is a graduate of Central Michigan University with a BSBA in Accounting and holds an MBA from Grand Valley State University. June Summers Haas, Partner, Honigman Miller Schwartz and Cohn LLP 222 North Washington Square, Lansing,MI 488933 jhaas@honigman.com 517.377.0734 Fax 517.365.9534 June Summers Haas is a partner with Honigman Miller Schwartz and Cohn LLP in Lansing, Michigan where she specializes in advising clients on a nationwide basis on multistate tax strategies, resolving tax disputes and litigating state tax cases. She is a nationally recognized expert on nexus issues and has been in the forefront of litigation defining the parameters of the resale exemption, establishing the applicability of the unitary business principle to Michigan taxes, establishing Michigan’s casual transaction exclusion, and distinguishing between sales of services and sales of tangible property. In addition, Ms. Haas spearheaded efforts to enact procedural reform for Michigan tax administration and has been a consultant to the Michigan Chamber of Commerce and the Legislature in drafting the Michigan Business Tax and the Corporate Income Tax. She was a consultant to the California Commission on the 21st Century
Commissioner of Revenue, administering 23 taxes, managing an 800-person tax revenue
years as Director of the Multistate Tax Commission’s National Nexus Program. Ms. Haas also has over twenty years of private law practice experience, including extensive state tax litigation and appellate work. She is a member of the BNA State Tax Advisory Board and the Hartman State and Local Tax Forum Advisory Board. Ms Haas has been selected for inclusion in Best Lawyers in America and Michigan Super Lawyers since 2007. She is a frequent speaker and author on state tax topics throughout the country. She was named to “The All-Decade State Tax Team” by State Tax Notes in January 2010. She is the author of the chapter on Jurisdiction to Tax in the new IPT book, State Business Income Taxation. June Summers Haas is a graduate of the University of Virginia Law School and received a bachelor’s degree with distinction in economics from George Mason University in Virginia. She is an adjunct professor in Thomas M. Cooley Law School LLM in Taxation Program.
Biographical Information Michael J. Merkel, Partner State and Local Taxation Plante Moran PLLC, 27400 Northwestern Highway, Southfield MI 48034 248.223.3264 Fax: 248.603.5805 Michael.Merkel@plantemoran.com Mike has more than 25 years of tax and accounting experience in state and local tax issues. He provides actionable insights into complex tax issues for a broad base of clients including manufacturing and distribution, construction, retail dealers, the service industry, as well as software and technology companies. Mike is one of the practice leaders of Plante Moran’s State and Local Tax group. He brings an intuitive understanding of the challenges that accompany the complexity of state and local taxation changes and issues and how they affect our clients’ business operations. He often pinpoints a problem and the most beneficial solution through providing clients with multi-state tax consulting services, including implementation of solutions to minimize sales/use taxes, income/franchise taxes, property taxes, the Michigan Business Tax, and the Michigan Corporate Income Tax. Mike earned his B.S. in Accounting from Michigan State University, and M.S. in Taxation from Walsh College. He is a member of the Michigan Association of Certified Public Accountants (MICPA), serves on MICPA’s State and Local Task Force, the AGC Tax and Fiscal Affairs Policy Committee, and is a member of the State Treasurer’s Communication Workgroup. Mike is a frequent presenter at the Michigan Tax Conference along with other local and national seminars and webinars. A small sample of his past presentations include:
with PE Rules and Taxation of Nonresidents
Manufacturing Exemption – S
cope in the Midwest
Beginning and End Apportionment Computers and S
Chemicals Fuel/ Electricity S
ervice Providers
Packaging Recent Cases and Rulings
2
Illinois-
production of TPP
, whether a finished product or for use manufacturing or assembling
a different TPP Using procedures commonly regarded as manufacturing, processing,
fabricating or refining
That changes existing material or materials into a material with a
different form, use or name.
Changes must result from the process and be substantial and
significant.
Indiana-
Direct production, manufacture, fabrication, assembly or finishing of
TPP
as a business of integrated series of operations Changing TPP form, composition, or character different from
The change must be a substantial change, and must result in a
transformation of property into a different product with distinctive name, character, and use.
Examples: compounding, fabricating, or assembling may qualify
under this definition.
3
Michigan – called Industrial Processing
Converting, conditioning TPP By changing form, composition, quality, combination or character Of property for ultimate sale at resale Begins with movement from raw material storage and ends at finished
goods storage
Wisconsin -
Production by machinery of a new TPP With a different form, use, and name from existing materials, By a process popularly regarded as manufacturing, That begins with conveying raw materials and supplies from plant
inventory to the place where work is performed in the same plant
And ends with conveying finished units of tangible personal property or
item or property to first storage in the same plant.
4
Machinery directly used in manufacturing Repair parts Machine foundations in MI or IN, but not IL or WI Primary use in IL > 50% Materials that become a component part of or
ingredient in manufactured product
5
Illinois -
The lease
rental
tangible personal property is not subj ect to sales tax in Illinois. Instead, the lessor is considered the consumer of the tangible personal property and must pay tax when the property is purchased.
IN/MI/WI - The lease of equipment without an operator
is subj ect to tax. Indiana taxes retail transactions. Leases
tangible personal property are retail transactions. Therefore, the rental
lease
equipment is subj ect to sales/ use tax in IN/ MI/ WI unless it qualifies for a separate exemption such as Industrial Processing.
6
IL
Raw material storage
Construction of Improvement of Real Estate
Finished good conveyance or storage
Transport between plants
Fire protection or employee protective equipment
General heating, cooling, or lighting not required by manufacturing
Food or beverage preparation equipment
Machinery used in last step of retail sale (Paint mixer at hardware store)
IN
Administrative office furniture and equipment;
Protective clothing if not essential to participate in production process;
Electrical distribution system and equipment to supply electricity to administrative offices.
S team equipment providing heat to building in general.
Fire prevention equipment
General lighting for plant area;
Equipment to move raw materials to production process or to move finished goods from last step of production.
7
Michigan
Purchasing, receiving, or storing raw materials;
S ales, distributions, warehousing or shipping or advertising;
Administrative, accounting or personal services;
Design, engineering, construction or maintenance of real property;
Plant security, fire prevention or medical or hospital services.
Wisconsin
S toring raw materials or finished units;
Research or development;
Delivery to or from the plant; or
Repairing or maintaining plant facilities.
8
IL: S tart and end of production cycle.
IN: Direct consumption in production begins when the raw material reaches the first operation or activity of an integrated production process, and ends at the point that production has altered the item to its completed form, including any packaging. Transportation of materials by industrial processor to industrial process within location are exempt.
MI: Movement from raw material storage though the point at which materials come to rest as finished goods. What if there is no raw material storage or finished good storage?
WI: Conveying raw materials and supplies from plant inventory to conveying finished goods to the point of first storage in the same plant.
9
IL - No apportionment and no partial exemption for any
item of machinery and equipment will be allowed. Ill.
tangible personal property for sale, a portion of which is diverted by the manufacturer of the property to use as sales samples or as the subj ects of quality control testing that renders the articles unfit for sale, will nevertheless be deemed to be production for sale, provided this diversion represents
a small portion
the production of the articles of tangible personal property or
IN – No apportionment. Exemption for direct production. MI – Exempt to the extent used for exempt purposes.
All exemptions may be apportioned by reasonable formulas
WI
– Machines must be exclusively used, no partial
10
IL: Taxable. IN:
Exempt after 6/ 30/ 2013 for research and development activities devoted to experimental or laboratory research and development for new products, new uses
existing products,
improving or testing existing products.
MI: Exempt. WI: Taxable.
11
IL - S
machinery and equipment.
IN – S
Indiana as manufacturing equipment. In
to qualify, the software must be used directly in the manufacturing process and must have an immediate effect on the process. Indiana Department
referring to machinery printing tapes to control computerized production. S
phases is not exempt.
MI – S
may qualify for exemption if it is used in manufacturing which includes engineering and design of exempt machinery.
WI
used in manufacturing is generally taxable in
because it is not a "machine," nor specific processing equipment. Regarding computers used in manufacturing, computers used exclusively and directly to control the flow of materials on the production line qualify for the exemption. We assume that software is treated similarly when it enables a computer to control the flow
materials and is therefore exempt in those limited circumstances.
12
IL – Taxable.
Illinois does not provide an exemption for equipment (including software) used in research and development .
IN – Computer software may be exempt from tax in Indiana.
S
any purpose, and, the research and development activities must be devoted directly to experiments and research creating new products, new uses for existing products, or improving or testing existing products.
MI – S
research and development. "Research
experimental activity" is activity incident to the development, discovery, or modification of a product or a product-related process. It also includes activity necessary for a product to satisfy a government standard or to receive government approval. It does not, however, include ordinary testing or inspection of materials or products for quality control purposes, efficiency surveys, management surveys, market or consumer surveys, advertising or promotions, or research in connection with literacy, historical, or similar proj ects.
13
WI – Generally exempt. S ales of software to persons both engaged in "qualified research" and are either:
(1) in a location assessed as manufacturing property for the purpose of the state property tax,
(2) engaged primarily in biotechnology, or
(3) a combined group member who is performing research for a person that satisfies the first or second requirement.
This exemption applies to sales of (1) machinery and equipment, including software, attachments, parts, and accessories, used exclusively and directly in qualified research and (2) tangible personal property that is consumed or destroyed or loses its identity while being used exclusively and directly in qualified research.
Wisconsin defines "qualified research" by cross referencing that term in section 41(d) of the Internal Revenue Code (26 U.S .C. sec. 41(d) so that a research activity must be (1) in connection with the taxpayer's trade or business, (2) R&D in the experimental
laboratory sense, (3) undertaken for the purpose of discovering information which is technological in nature, (4) intended t o be useful in the development of a new or improved business component of the taxpayer, and (5) constitute an element of a process
Excludes (1) research that relates to style, taste, cosmetic, or seasonal design factors, (2) the
testing
inspection for quality control,
(3) efficiency surveys, management studies, consumer surveys, advertising, promotions,
research in connection with literary, historical, or similar proj ects.
For the purpose of our answer, we have assumed that the person is (1) engaged in qualified research and, (2) fits within one of the three listed categories.
14
IL – Taxable. The Illinois manufacturing exemption does not apply to cleaning compounds.
IN – Taxable. Indiana exempts cleaning chemicals that are used during a production process if the use of the chemicals (1) occurs during the production process and (2) is integral to the production process. For example, the Indiana Tax Court ruled that chemicals used to clean exempt equipment that was rotated in and out of the production process were
stop to perform the cleaning. Instead, the equipment was cleaned while production was ongoing, and production only "halted momentarily" to rotate the equipment in and out when necessary.
MI – Exempt. Michigan exempts tangible personal property used to maintain industrial processing equipment. Guidance from the Michigan Department
clean industrial processing equipment.
WI – Exempt. Wisconsin exempts supplies that are used up in the manufacturing process, including cleaning chemicals used on manufacturing machinery.
Cleaning Chemicals used to clean the Manufacturing Facility are taxable in all the states being discussed.
15
IL – S
ales of utilities and fuels to manufacturers are generally subj ect to transaction-based taxes in Illinois.
IN
– Exempt. Indiana exempts fuel used in manufacturing. It also exempts water, gas,
electricity necessary for manufacturing. When a manufacturer uses water, gas, or electricity partly for manufacturing and partly for non-exempt uses, it is taxable unless it is mainly used for manufacturing.
MI – Charges for fuel or energy used or consumed in
the manufacturing of tangible personal property for sale are exempt from tax.
WI – Charges for power or fuel used in manufacturing
are exempt from tax when that power or fuel is directly used in the act of manufacturing.
16
IL – Electricity generation does not qualify for the
manufacturing exemption.
IN – Indiana considers the generation of electricity
a manufacturing activity.
MI – Michigan considers the generation of energy
to be a manufacturing activity.
WI
generation is a manufacturing activity.
17
IL – Taxable. The manufacturing exemption does not include equipment used to transmit or distribute electricity.
IN – Transmission and distribution equipment do not qualify for the manufacturing exemption. The manufacturing exemption excludes transmission and distribution equipment.
MI – No apportionment. Partial Exemption. Michigan's industrial processing exemption partially applies to electrical distribution
distribution systems as follows: (1) stations, substations, transformers, and related components are 90% exempt; (2) monitoring equipment, quality control equipment, safety equipment, distribution tools, and distribution supplies are 50% exempt; (3) wires, cabling, poles, pole top equipment, customer meters, and related equipment are 25% exempt. To illustrate, a transformer that costs $1,000 is taxable, but tax only applies to $100 because 90%of the charge is exempt.
WI – Taxable. The exemption
applies to machinery and equipment used exclusively and directly in manufacturing the electricity.
18
IL – Exempt. Manufacturing services with no tangible personal property provided by the manufacturer are not subj ect to tax. Illinois only taxes services if they are specifically enumerated as taxable. This service is not enumerated, therefore it is exempt.
IN – Exempt. The definition of a retail sale excludes transactions where a manufacturer acquires property belonging to another, performs industrial processing, and transfers it back to that person. Note that Indiana also allows industrial processors to use the same exemptions as
from manufacturers, perform some part of the manufacturing process, and send it back to the original manufacturer.
MI – Exempt. The service of manufacturing tangible personal property by a service provider for an on behalf of a manufacturer is exempt. Michigan only taxes sales of services that are specifically enumerated as taxable.
WI – Taxable. Manufacturing services with no tangible personal property supplied by the manufacturer are taxable in Wisconsin. Wisconsin taxes the service of fabricating tangible personal property for consumers who directly or indirectly furnish the materials used. This is a taxable fabrication service.
19
IL – Exempt. Packaging and containers that are transferred with a sale of tangible personal property are considered sales for resale when (1) the item is not returnable to the seller, or (2) the buyer must place a deposit on returnable containers. An Illinois regulation states that pallets are included in this provision. Therefore, because these pallets are not returnable, they are not taxable as sales for resale. Please note, if the seller does not transfer the pallets to the buyer, but instead retains and discards them, they are not sales for resale and will be taxable.
IN – Exempt. Products are not "sold at retail" when the purchaser intends to resell them. This rule extends to some types of packaging and containers, including pallets. When nonreturnable containers are sold empty, they are not taxable when the purchaser intends to use them to package property and resell that property.
MI – Exempt. A Michigan regulation states that manufacturers, wholesalers, and retailers may purchase containers for resale if (1) they will be used to transfer goods held out for sale, and (2) the seller will not retain legal right of ownership over the container. This regulation states that pallets are considered containers. These pallets are used to deliver goods and they are not returnable to the
WI – Exempt. Wisconsin exempts pallets used to transfer tangible personal property to customers.
20
IL – Taxable. Only packaging and containers that are
transferred with a sale of tangible personal property are exempt on sales for resale.
IN – Taxable. There are no product-based exemptions
for pallets. When returnable containers are sold empty, the sale to the first user is always taxable. Therefore, when a manufacturer purchases returnable shipping pallets to package goods, those pallets are taxable to the manufacturer.
MI –Taxable. WI – Exempt.
Wisconsin exempts pallets used to transfer tangible personal property to customers. The exemption applies regardless of if the pallets are returnable or non-returnable.
21
IL
– Taxable. Illinois exempts machinery used directly in manufacturing. The Department
Revenue has indicated that pollution control equipment is unlikely to qualify as manufacturing equipment.
IN – Exempt. Pollution control equipment is exempt
from tax.
MI – Exempt. Pollution control equipment is exempt
from tax when an exemption certificate is issued by the state tax commission for the equipment being used.
WI – Exempt. The sale, storage, use or consumption
waste reduction or recycling is exempt.
22
IL – Taxable. Protective equipment is taxable in Illinois.
There is no exemption for this item.
IN – Exempt. Protective equipment is generally exempt if
it is required (1) to allow the worker to participate in the production process without inj ury or (2) to prevent contamination
the manufactured product during production.
MI – Exempt. The Department of Revenue states that a
manufacturer's purchases of gloves for use in industrial processing qualify for this exemption.
WI – Taxable. Protective equipment and apparel are only
exempt from tax if they are used to prevent contamination
the product while its being manufactured. S afety equipment used to protect employees from inj ury, is taxable.
23
Horsehead Corp. v. Dep’t. of Revenue, 14 TT 227 (Ill. Tax Trib.
Held: Coke used to heat EAF Dust to produce carbon in zinc production process non-exempt because it does not cause a direct and immediate change.
The process is as follows: 1.) Petitioner obtains EAF Dust from steel mill producers, 2.) the EAF Dust is heated with coke in Waelz kilns over several hours which produces carbon, 3.) the carbon and oxygen combine to form carbon monoxide, 4.) the carbon monoxide reduces the zinc oxide and iron oxide in the EAF Dust to zinc and iron 5.) the resulting zinc and iron are sold to third parties.
Because the coke does not have a direct and immediate effect
meaning of the statute, Petitioner is not exempt from paying sales and use tax on the coke.
Court of Appeals affirmed.
25
IL Private Letter Ruling No ST 14-0001-PLR, 1/2/2014. Held: Chemicals acting as catalysts qualify for exemption if
have a direct and immediate change on product being assembled.
The taxpayer manufactures food ingredients for use in dry
and wet applications.
Taxpayer uses bulk liquid nitrogen to freeze-dry the
materials.
The exemption includes chemicals, or chemicals acting as
catalysts, if the chemicals have a direct and immediate change on a product being assembled for sale or lease
The liquid nitrogen qualifies for
the manufacturing machinery and equipment exemption.
26
Merch. Warehouse Co., Inc., v. Dep’t. of Revenue, 87
NE3d 12 (Ind. 2017).
Held:
Blast freezing is crucial final step in producing distinct marketable product.
MWC requested exemption for electricity and equipment
used to blast freeze its customers’ food products.
Direct production = process during which TPP undergoes
substantial change that transforms it into a distinct product.
Tax Court held: freezing services do not culminate in the
production of new, distinct marketable goods.
However,
freezing is crucial final step in creating a distinct marketable product
Taxpayers
need not engage in separate production process to qualify
27
Wisconsin
News for Tax Pract it ioners No. 12/ 07/ 2010 (S ales-Use Tax Exempt ion: Propert y Consumed, Dest royed,
Losing It s Ident it y In Manufact uring), 12/ 07/ 2010.
As of 8/ 1/ 2009, TPP consumed, destroyed or loses
its identity in manufacture is exempt if used exclusively and directly in manufacturing by manufacturer.
Use by 3rd party processors now taxable Processing room cleaning agents now taxable
28
IL Private Letter Ruling No ST 17-0002-PLR 2/09/17.
Held: Taxpayer considered a de minimis serviceman entitled to the same manufacturing exemption as its customers on the purchase of pan glaze chemicals (glaze) used in refurbishing pans for commercial baking industry customers.
Industrial bakers are exempt from tax on purchases of refurbished pans.
Taxpayer reglazes for the bakers.
Customers do not incur tax liability since they do not use the transferred tangible personal property
A de minimis serviceman may utilize exemptions claimed by the customer pursuant to Ill. Admin. Code 86 § 140.108(a)(2)(B).
Because the baking pans are exempt equipment utilized in the manufacturing process by the taxpayer's customers, the taxpayer's purchases of the glaze are exempt from sales tax.
29
PMFC Holding, LLC v. Dep’t. of Revenue, 16-S
(Wis. Tax App. Comm’ n Oct. 13, 2017).
Held: Air make-up units added to building air pollution
system and electricity to fuel were exempt.
Department argued: 1.) that the statute requires equipment to be
installed as a unit and excludes after installed units;
2.) units were not used directly to remove, store or
cause a physical change in industrial waste or air contaminants; and
3.) units were not used exclusively to remove air
contaminants
Court disagreed. Installation can occur at anytime as
long as all units work as a whole and units did not provide heat, only removed air contaminants
30
IN Revenue Ruling No ST 09-06, 6/10/2009. Wind turbines parts used to generate electricity are
exempt manufacturing equipment.
As part of wind turbines, the foundation, tower,
nacelle, gearbox, generator, yaw motor, blades and related component parts will be acquired for direct use in the direct production of electricity, and each of these parts is an essential and integral part of an integrated process which will produce the electricity sold.
Transformers are part of electrical interconnection
system and not for direct use in direct production and thus are taxable.
31
Detroit Edison Company v Dep't of Treasury, ___ Mich ___ (2015).
Held: transmission and distribution equipment used for both taxable and exempt purposes qualifies for a partial sales and use tax exemption.
DTE sold electricity to residential, commercial, and industrial customers. The electricity was delivered from DTE’s generation plants to customers through its transmission and distribution system – a network of machinery and equipment including transformers, fuses, circuit breakers, and poles.
To transmit and deliver the electricity, DTE’s system increased and decreased the electricity’s voltage and current.
DTE claimed that all transmission and distribution equipment qualified for the exemption.
The Department
Treasury, however, disallowed the exemption in full and issued an assessment against DTE.
32
The Court of Claims held:
“ that electricity is continuing to be processed up until the point at which it reaches the customer’s meter, because the voltage and current levels are drastically changed multiple times at set points, the last being at or near the customer’s meter.”
The Court of Claims held that DTE’s equipment was fully exempt.
The Court of Appeals affirmed, holding that the “ machinery and equipment are concurrently used in a unified system for purposes of both distributing and industrial processing. In such a situation, the ‘ industrial processing’ exemption applies to the machinery and equipment in full.”
In a 4-3 decision, the Michigan S upreme Court upheld the Court of Appeals decision that industrial processing of electricity – i.e., voltage and current changes as electricity flows through the system – occurs throughout DTE’s system, and the system therefore qualifies for the industrial processing exemption.
Because the system was simultaneously used for a non-exempt purpose it was necessary to determine the percentage of exempt use to total use based on a “ reasonable formula or method approved by the department.”
Remanded to the Court of Claims for the Department to approve such “ reasonable formula or method.”
33
Tomra of North America, Inc. v Dep’t of Treasury,
__Mich App__ ; __NW2d__ (2018) (Docket No. 336871, July 17, 2018). Application for Leave to Appeal filed 8/ 28/ 18
Held:
Bottle return machines perform inspection, quality control, or testing” . . . “ remanufacturing” . . . “ recycling of used materials for ultimate sale at retail” and are entitled to the exemption.
The Department of Treasury argued (and still does)
that it does not matter whether Tomra’s machines perform an industrial processing type
activity because they do it before industrial processing starts. Machines are only raw material storage.
Court
Claims agreed stating, taxpayers did not demonstrate raw material storage occurred other than at the machines.
34
The Court of Appeals reversed. The storage of raw materials is not industrial
processing, and the language Treasury relies upon was not meant as a temporal limit to manufacturing but only to be clear that once TPP begins movement from raw materials storage to begin industrial processing
The statute does not foreclose the possibility that
industrial processing could occur without raw materials storage..
35
Brandenburg Industrial Service Co v Indiana Dep’ of Revenue, Ind Tax Ct, 60 NE3d 300 (2016).
Held: Production exemption includes producer of scrap steel into marketable product.
Dep’ t denied exemption to steel demolition co because activity not listed as manufacturing.
Ct held that list is exemplary, not exclusive.
Dep’ t further contended taxpayer's seven-step process for processing the metal fails to create “ other tangible personal property” as required by statutes and characterized the taxpayer's process as a single-step demolition process.
Process involved more activities than merely demolition. No genuine issue that the taxpayer's process substantially transformed the metal from obsolete, valueless, and unmarketable debris into newly marketable scrap steel.
Taxpayer's seven-step process transformed non-marketable metal into marketable scrap steel that it sold.
36
Brunt Associates, Inc. v Dep’t of Treasury, 318 Mich App 449 (2017)
Held: Production of custom office furnishings was not exempt because property was installed and became a part of real property.
The Taxpayer produced and installed custom office furnishings, such as reception desks, nurse’s stations and cabinets. The Taxpayer fabricated all the furnishings at its shop and then installed them at its customers’ locations. The furnishings were generally affixed with bolts, screws or clips but some of them, such as workstations, were held in place only by their weight, and all could be removed without damaging the customer’s building.
Treasury determined that the Taxpayer affixed its products to real estate and was therefore liable for use tax on the inventory value of its products, including labor. The Taxpayer claimed it was a manufacturer/ retailer that was liable for sales tax on the price paid by the customer and was entitled to the industrial processing exemption.
The Court of Appeals affirmed. The Court held that the Taxpayer’s products were affixed to real estate, even though some items that were not attached to the building became even those items were “ constructively” affixed.
37
MidAmerican Energy Co. v Department of Treasury, 308
Mich App 362 (12/ 4/ 2014)
Held: Telecommunication signal
is service not TPP even though comprised of electricity. Manufacturing exemption does not apply to taxable services.
Electricity
providers and telecommunications companies j ointly argued that the telecommunications companies’ purchase of electricity should be exempt.
The
telecommunications signals produced should be considered “ tangible personal property” as both electricity and as property that can be “ seen, weighed, measured, felt,
touched… .” The electricity was modified into telecommunications signals and sold to consumers.
The Court found that a telecom signal is neither electricity
nor tangible personal property, and therefore the electricity used to create and power production of telecommunications signals is not exempt.
Only production of
TPP qualifies for the manufacturing exemption, not taxable services.
38
Jamie Larson, Meij er Inc.
Jamie.Larson@ Meij er.com
Mike Merkel, Plante Moran
michael.merkel@ plantemoran.com
June S
ummers Haas, Honigman LLP j haas@ Honigman.com
39