Tomra of N. Am., Inc. v. Dep't of Treasury

325 Mich.App. 289

926 N.W.2d 259

TOMRA OF NORTH AMERICA, INC., Plaintiff-Appellant,

v.DEPARTMENT OF TREASURY, Defendant-Appellee.

Tomra of North America, Inc., Plaintiff-Appellant,

v.Department of Treasury, Defendant-Appellee.

No. 336871

No. 337663

Court of Appeals of Michigan.

Submitted April 4, 2018, at Lansing.

Decided July 17, 2018, 9:10 a.m.

Honigman Miller Schwartz & Cohn LLP (by June Summers Haas and Daniel L. Stanley ) for plaintiff.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, Laura Moody, Chief Legal Counsel, and Scott L. Damich, Assistant Attorney General, for defendant.

Before: Gadola, P.J., and K.F. Kelly and Riordan, JJ.

Gadola, P.J.

In these consolidated cases, plaintiff, Tomra of North America Inc., appeals as of right the orders of the Court of Claims granting summary disposition to defendant, the Department of Treasury. In its opinion, the Court of Claims concluded that plaintiff’s beverage-container-recycling machines did not qualify for the industrial-processing exemption to tax liability as set forth in the General Sales Tax Act (GSTA), MCL 205.51 et seq ., and the Use Tax Act (UTA), MCL 205.91 et seq . We reverse and remand.

I. FACTS

The facts relevant to this appeal are largely undisputed. Plaintiff sells and leases the container-recycling machines commonly found in grocery stores and also sells repair parts for those machines. These machines accept aluminum cans, glass bottles, and plastic bottles for recycling. When a can or bottle is placed in the machine, the machine reads the universal product code (UPC) and then sorts the accepted cans and bottles. Aluminum cans are crushed; plastic bottles are sorted by color, punctured, and compacted; and glass bottles are sorted by color. All containers are then moved to collection bins and thereafter transported to a recycling facility. At the recycling facility, the containers are dumped onto conveyor belts. Glass bottles are stored, while aluminum cans and plastic bottles are compacted into bales. The recycling facility sells the cans and bottles to manufacturers who remanufacture the materials into other products.

In this case, the parties dispute plaintiff’s obligation to pay sales and use tax with respect to the container-recycling machines for the period of March 1, 2011 through December 31, 2011. During that tax period, plaintiff collected sales tax from customers to whom they sold or leased container-recycling machines, and plaintiff paid the sales tax collected to defendant. Similarly, during that tax period, plaintiff paid use tax to defendant related to parts used in repairing the container-recycling machines sold or leased by plaintiff.¹

Plaintiff thereafter sought a refund of these amounts on the basis that its sales of recycling machines and repair parts were exempt from taxation under the GSTA and UTA. After defendant failed to respond to the refund request, plaintiff filed this action in the Court of Claims. Plaintiff thereafter moved for summary disposition pursuant to MCR 2.116(C)(10), seeking a ruling on the question whether plaintiff’s container-recycling machines and repair parts perform, or are used in, an industrial-processing activity under the GSTA and UTA. The Court of Claims denied plaintiff’s motion, and pursuant to MCR 2.116(I)(2), instead granted defendant summary disposition, holding that plaintiff’s container-recycling machines and repair parts are not used in an industrial-processing activity under the GSTA and the UTA and that plaintiff therefore is not entitled to exemption from sales and use tax for the sale and lease of the machines and their repair parts. Plaintiff now appeals.

II. DISCUSSION

Plaintiff contends that the Court of Claims erred by holding that plaintiff’s container-recycling machines and repair parts are not used in an industrial-processing activity under the GSTA and the UTA, and therefore erred by granting summary disposition to defendant. We agree.

We review de novo a trial court’s grant or denial of summary disposition.

Hoffner v. Lanctoe , 492 Mich. 450, 459, 821 N.W.2d 88 (2012). In reviewing a decision on a motion for summary disposition under MCR 2.116(C)(10), we review the record in the same manner as the trial court, considering the pleadings, affidavits, depositions, admissions, and any other evidence in favor of the party opposing the motion. Maiden v. Rozwood , 461 Mich. 109, 120, 597 N.W.2d 817 (1999). A motion for summary disposition under MCR 2.116(C)(10) tests the factual sufficiency of a claim and is appropriately granted when, except as to the amount of damages, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Joseph v. Auto Club Ins. Ass’n , 491 Mich. 200, 206, 815 N.W.2d 412 (2012). We also review de novo the proper interpretation of statutes such as the GSTA and the UTA. See Fradco, Inc. v. Dep’t of Treasury , 495 Mich. 104, 112, 845 N.W.2d 81 (2014) ; see also Granger Land Dev. Co. v. Dep’t of Treasury , 286 Mich. App. 601, 608, 780 N.W.2d 611 (2009).

Section 4t of the GSTA, MCL 205.54t, sets forth the industrial-processing exemption from the sales tax.² The statute provides, in relevant part:

(1) The sale of tangible personal property to the following ... is exempt from the tax under this act:

(a) An industrial processor for use or consumption in industrial processing.

(b) A person, whether or not the person is an industrial processor, if the tangible personal property is intended for ultimate use in and is used in industrial processing by an industrial processor.

(c) A person, whether or not the person is an industrial processor, if the tangible personal property is used by that person to perform an industrial processing activity for or on behalf of an industrial processor.

* * *

(3) Industrial processing includes the following activities:

* * *

(d) Inspection, quality control, or testing to determine whether particular units of materials or products or processes conform to specified parameters at any time before materials or products first come to rest in finished goods inventory storage.

* * *

(g) Remanufacturing.

* * *

(i) Recycling of used materials for ultimate sale at retail or reuse.

(j) Production material handling.

(k) Storage of in-process materials.

(4) Property that is eligible for an industrial processing exemption includes the following:

* * *

(b) Machinery, equipment, tools, dies, patterns, foundations for machinery or equipment, or other processing equipment used in an industrial processing activity and in their repair and maintenance.

* * *(6) Industrial processing does not include the following activities:

(a) Purchasing, receiving, or storage of raw materials.

(b) Sales, distribution, warehousing, shipping, or advertising activities.

* * *

(7) As used in this section:

(a) "Industrial processing" means the activity of converting or conditioning tangible personal property by changing the form, composition, quality, combination, or character of the property for ultimate sale at retail or for use in the manufacturing of a product to be ultimately sold at retail. Industrial processing begins when tangible personal property begins movement from raw materials storage to begin industrial processing and ends when finished goods first come to rest in finished goods inventory storage.

(b) "Industrial processor" means a person who performs the activity of converting or conditioning tangible personal property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail.

Entitlement to an exemption under the GSTA is determined by what use the customer makes of the product sold by the taxpayer. Elias Bros. Restaurants, Inc. v. Treasury Dep’t , 452 Mich. 144, 154, 156, 549 N.W.2d 837 (1996) ; accord Detroit Edison Co. v. Dep’t of Treasury , 498 Mich. 28, 37, 869 N.W.2d 810 (2015). Tax exemptions are disfavored, and the burden of proving entitlement to a tax exemption is upon the party asserting the right to the exemption. Elias Bros. , 452 Mich. at 150, 549 N.W.2d 837. Further, tax exemptions are strictly construed against the taxpayer and in favor of the taxing unit. Ladies Literary Club v. Grand Rapids , 409 Mich. 748, 753, 298 N.W.2d 422 (1980) (citation omitted).

As set forth under MCL 205.54t(1)(c), the sale of tangible personal property is exempt from sales tax if the tangible personal property is used by the buyer to perform an industrial-processing activity for or on behalf of an industrial processor. Under MCL 205.54t(4)(b), property that is eligible for an industrial-processing exemption includes "[m]achinery, equipment, tools, dies, patterns, foundations for machinery or equipment, or other processing equipment used in an industrial processing activity and in their repair and maintenance." In this appeal, the question is whether the container-recycling machines plaintiff sells and leases are machinery used by plaintiff’s customers in an "industrial processing activity" within the meaning of the statute.

An "industrial processing activity" is not defined by the statute, but the statute does define "industrial processing" as "the activity of converting or conditioning tangible personal property by changing the form, composition, quality, combination, or character of the property for ultimate sale at retail or for use in the manufacturing of a product to be ultimately sold at retail." MCL 205.54t(7)(a). MCL 205.54t also specifies activities that are considered to be industrial processing, including, under Subsection (3)(d), the "[i]nspection, quality control, or testing to determine whether particular units of materials or products or processes conform to specified parameters at any time before materials or products first come to rest in finished goods inventory storage"; under Subsection (3)(g), remanufacturing; under Subsection (3)(i), recycling of used materials for ultimate sale at retail or reuse; under Subsection (3)(j), production material handling; and...