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

342 Mich.App. 388

994 N.W.2d 844

TOMRA OF NORTH AMERICA, INC., Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee.

Nos. 356950

356951

357493

Court of Appeals of Michigan.

Submitted July 13, 2022, at Lansing.

Decided July 21, 2022, at 9:20 a.m.

Honigman LLP (by Daniel L. Stanley, Lansing, and Christopher M. Jacobson, Detroit) for TOMRA of North America, Inc.

Dana Nessel, Attorney General, Fadwa A. Hammoud, Solicitor General, and Justin R. Call and Scott L. Damich, Assistant Attorneys General, for the people.

Before: Markey, P.J., and Boonstra and Riordan, JJ.

Per Curiam.

In these consolidated appeals, plaintiff, TOMRA of North America, Inc., appeals as of right three separate orders entered by the Court of Claims, each granting summary disposition in favor of defendant, the Department of Treasury. On appeal, plaintiff primarily argues that the Court of Claims erred by concluding that its machines and attendant repair parts do not qualify for the industrial-processing exemption to tax liability set forth in MCL 205.54t of the General Sales Tax Act (GSTA), MCL 205.51 et seq. , and MCL 205.94o of the Use Tax Act (UTA), MCL 205.91 et seq. Plaintiff also argues that the Court of Claims erred by affirming the Department of Treasury's decision to impose a negligence penalty under MCL 205.23(3). We affirm the Court of Claims on all of the issues before us.

I. BACKGROUND

In TOMRA of North America, Inc v Dep't of Treasury , 325 Mich App 289, 292, 926 N.W.2d 259 (2018) ( TOMRA II ), we described the machinery involved:

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.

This matter before us concerns the nature of the activities of the machines and how that activity should be considered for tax purposes. The dispute concerning the applicable tax classification has a long procedural history resulting in three separate appeals. Briefly stated, on May 8, 2014, plaintiff initiated LC No. 14-000091-MT in the trial court, requesting a refund of $2,458,452 from the Department of Treasury for sales tax paid for the tax period between October 1, 2003 and December 31, 2008, as it related to the sales of those machines and attendant repair parts. Next, on July 29, 2014, plaintiff initiated LC No. 14-000185-MT in the trial court, relatedly requesting a refund of $829,114.15 from the Department of Treasury for sales tax paid during the same tax period, as well as a refund of $58,502 for a negligence penalty that was imposed. The trial court dismissed both cases, but in November 2016, this Court reversed the dismissals and remanded to the trial court for further proceedings. TOMRA of North America, Inc. v. Dep't of Treasury , unpublished per curiam opinion of the Court of Appeals, issued November 17, 2016 (Docket Nos. 328545 and 329932), 2016 WL 6825243 ) ( TOMRA I ).

Meanwhile, on May 25, 2016, plaintiff initiated LC No. 16-000118-MT in the trial court, requesting a refund of $673,511.65 from the Department of Treasury for sales tax paid for the period between March 1, 2011 and December 31, 2011, as well as a refund of $24,992.95 for use tax paid during the same tax period.

On remand, after TOMRA I , the trial court granted summary disposition in favor of the Department of Treasury in LC Nos. 14-000091-MT and 16-000118-MT. The trial court reasoned that plaintiff was not entitled to the industrial-processing exemption in MCL 205.54t or MCL 205.94o because its machines perform activities before the "industrial process" commences, as that term is defined by MCL 205.54t(7)(a) and MCL 205.94o (7)(a), respectively. ¹ Plaintiff appealed, and this Court reversed and remanded to the trial court for further proceedings. TOMRA II , 325 Mich App 289, 926 N.W.2d 259. In our ruling, we reasoned that the specific "industrial processing" activities, as set forth in MCL 205.54t(3) and MCL 205.94o (3), respectively, may occur outside the general timeframe of "industrial processing" as set forth in Subsection (7)(a) of those statutory sections. Id. at 299-301, 926 N.W.2d 259. For example, this Court noted, Subsection (3)(e) of those statutory sections provides that "industrial processing" includes "[p]lanning, scheduling, supervision, or control of production or other exempt activities." Id. at 301, 926 N.W.2d 259 (quotation marks omitted; alteration in original). "Clearly, the activities of planning [and] scheduling ... are likely to predate tangible personal property beginning movement from raw-materials storage to begin industrial processing." Id. Therefore, we remanded that matter to the trial court to consider whether plaintiff was entitled to an exemption under that definition of industrial processing. Id. at 303, 926 N.W.2d 259.

The Department of Treasury then filed an application for leave to appeal in our Supreme Court, and the Supreme Court affirmed our ruling. TOMRA of North America, Inc v Dep't of Treasury , 505 Mich. 333, 952 N.W.2d 384 (2020) ( TOMRA III ). The Supreme Court "agree[d] with the Court of Claims that the tasks that TOMRA's machines perform occur before the industrial process begins under the general definition in Subsection (7)(a)" but concluded that "the temporal limitation in Subsection (7)(a) does not apply to the industrial-processing activities in Subsection (3)." Id. at 348, 351, 952 N.W.2d 384.

The Supreme Court remanded, and the trial court granted summary disposition in favor of the Department of Treasury in all three of plaintiff's cases. The trial court explained that plaintiff TOMRA was not entitled to the industrial-processing exemption for three independent reasons. First, neither plaintiff nor its customers were "an industrial processor" for the purposes of Subsections (1)(a) to (c) of MCL 205.54t and MCL 205.94o . Second, the machines did not perform an "industrial processing" activity under Subsection (3) of those statutory sections. Finally, plaintiff was procedurally not entitled to a refund in the manner requested under MCL 205.73(4). Additionally, in case LC No. 14-000185-MT, the trial court concluded that the Department of Treasury did not err by imposing a negligence penalty against plaintiff under MCL 205.23(3).

In Docket No. 356950, plaintiff appeals the trial court's order in LC No. 14-000185-MT. In Docket No. 356951, plaintiff appeals the trial court's order in LC No. 14-000091-MT. In Docket No. 357493, plaintiff appeals the trial court's order in LC No. 16-000118-MT. In all three appeals, plaintiff argues that its machines and attendant repair parts are subject to the industrial-processing exemption. In addition, in Docket No. 356950, plaintiff argues that the Department of Treasury erred by imposing the negligence penalty under MCL 205.23(3). We consolidated the three appeals. TOMRA of North America, Inc v Dep't of Treasury , unpublished order of the Court of appeals, entered November 9, 2021 (Docket Nos. 356950, 356951, and 357493). For the reasons set forth in this opinion, we conclude that plaintiff's machines do not perform an industrial-processing activity under Subsection (3) of MCL 205.54t and MCL 205.94o . We also conclude that the Department of Treasury did not err by imposing the negligence penalty against plaintiff under MCL 205.23(3).

II. STANDARD OF REVIEW

"We review de novo a court's decision on a motion for summary disposition...." TCF Nat'l Bank v Dep't of Treasury , 330 Mich App 596, 604, 950 N.W.2d 469 (2019). "We also review de novo questions of statutory interpretation." Id. at 605, 950 N.W.2d 469.

III. DISCUSSION

A. INDUSTRIAL-PROCESSING ACTIVITIES

MCL 205.52(1) of the GSTA generally imposes a 6% tax upon "sales at retail," and MCL 205.93(1) of the UTA generally imposes a 6% tax upon "using, storing, or consuming tangible personal property...." However, both the GSTA and the UTA allow multiple exemptions from the respective taxes they impose. Relevant here, "the industrial-processing exemption is, in part, the product of a targeted legislative effort to avoid double taxation of the end product offered for retail sale or, in other terms, to avoid pyramiding the use and sales tax."

Detroit Edison Co v Dep't of Treasury , 498 Mich. 28, 37, 869 N.W.2d 810 (2015) (cleaned up). "To determine whether the industrial processing exemption applies, it is necessary to consider the activity in which the equipment is engaged and not the character of the equipment-owner's business." Id. (cleaned up).

MCL 205.54t of the GSTA sets forth the industrial-processing exemption from the sales tax. It provides, in relevant part, as follows:

(1) The sale of tangible personal property ... [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.

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(3) Industrial

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