Tax Law Blog

The Use Tax Act imposes a tax for the privilege of using, storing, or consuming tangible personal property.  The legal obligation of the use tax is imposed on the purchaser.  In contrast, the Sales Tax Act imposes a tax on retail sales of tangible personal property.  The sales tax is imposed on retailers.  Retailers often pass the tax along to the purchasers, but the legal incidence of the sales tax always rests with the retailer.

In Andrie, Inc. (a case involving tug boats), the plaintiff purchased personal property from a Michigan retailer.  The Michigan retailer did not remit sales tax on the plaintiff's purchase.  As a result, the Department of Treasury imposed a use tax on the plaintiff, arguing that the plaintiff was not eligible for an exemption from use tax under MCL 205.94(a).  MCL 205.94(a) exempts from the use tax "property on which a sales tax is paid." Since no sales tax was paid, the Department of Treasury contended that the plaintiff owed use tax.

The Court of Appeals clarified that the use tax is complementary to the sales tax.  Specifically, the use tax is designed to cover only those transactions not subject to the sales tax.  Since the disputed sales were at retail, the Andrie, Inc. court held that the tax liability rested with the retailer under the Sales Tax Act. In general, a purchaser does not become liable for use tax if a Michigan retailer fails to pay sales tax.

Existing precedent supports the Andrie, Inc. decision.  Nevertheless, the Department of Treasury plans to appeal the Andrie, Inc. decision to the Michigan Supreme Court.