Trugreen Ltd. P'ship v. Dep't of Treasury

332 Mich.App. 73

955 N.W.2d 529

TRUGREEN LIMITED PARTNERSHIP, Plaintiff-Appellant,

v.DEPARTMENT OF TREASURY, Defendant-Appellee.

No. 344142

Court of Appeals of Michigan.

Submitted August 13, 2019, at Detroit.

Decided April 10, 2020, 9:00 a.m.

Bursch Law PLLC, Caledonia (by John J. Bursch ) and Honigman Miller Schwartz and Cohn LLP (by June Summers Haas ) for TruGreen Limited Partnership.

Dana Nessel, Attorney General, Fadwa A. Hammoud, Solicitor General, and Emily C. Zillgitt and Justin R. Call, Assistant Attorneys General, for the Department of Treasury.

Before: Shapiro, P.J., and Gleicher and Swartzle, JJ.

Gleicher, J. Michigan's use tax exempts property consumed in the tilling, planting, caring for or harvesting things of the soil, or in the breeding, raising or caring of livestock, poultry or horticultural products for further growth. These words conjure images of our state's bean fields, dairy farms, and cherry orchards. The question presented is whether the Legislature intended that a lawn-care company would reap the fruits of this exemption. The statutory vocabulary describes a tax subsidy aimed at growing Michigan's agricultural economy, not ornamental grass and shrubs. The Court of Claims reached the same conclusion. We affirm.

I

The history of the statute at issue dates back to 1935, when the Legislature first exempted from "sale at retail" under the General Sales Tax Act "any transaction ... of tangible personal property ... for consumption or use in industrial processing or agricultural producing[.]" 1929 CL 3663-1(b.1), as amended by 1935 PA 77. Two years later, the Legislature exempted the same transactions from the use tax. 1929 CL 3663-44(g), as amended by 1937 PA 94.

Between 1937 and 2012 the Legislature revised the use-tax language several times. For more information regarding the amendments, see Legislative Service Bureau, MCL 205.94 < http://bit.ly.ezproxy.lib.ntust.edu.tw/2Rc7zG5> [https://perma.cc/T9JV-WH2K]. The version of the statute in effect during the tax years relevant here exempts from the use tax:

Property sold to a person engaged in a business enterprise and using and consuming the property in the tilling, planting, caring for, or harvesting of the things of the soil or in the breeding, raising, or caring for livestock, poultry, or horticultural products, including transfers of livestock, poultry, or horticultural products for further growth. This exemption includes machinery that is capable of simultaneously harvesting grain or other crops and biomass and machinery used for the purpose of harvesting biomass. This exemption includes agricultural land tile, which means fired clay or perforated plastic tubing used as part of a subsurface drainage system for land used in the production of agricultural products as a business enterprise and includes a portable grain bin, which means a structure that is used or is to be used to shelter grain and that is designed to be disassembled without significant damage to its component parts. This exemption does not include transfers of food, fuel, clothing, or similar tangible personal property for personal living or human consumption. This exemption does not include tangible personal property permanently affixed to and becoming a structural part of real estate. As used in this subdivision, "biomass" means crop residue used to produce energy or agricultural crops grown specifically for the production of energy. [ MCL 205.94(1)(f), as amended by 2012 PA 474 (emphasis added).]

Our task is to determine whether the italicized language applies to plaintiff, TruGreen Limited Partnership.

TruGreen offers its customers lawn- and ornamental-plant-care services. An affidavit submitted by TruGreen's director of technical operations describes that TruGreen's business is built around seasonal or annual service subscriptions entered into by residential homeowners and commercial, institutional, and private landowners. For a set fee, the company cares for grass, trees, and shrubbery at a variety of locations in addition to homes, including schools, parks, athletic fields, business parks, malls, airports, roadways, and pastures not used for agricultural production. TruGreen utilizes fertilizers, herbicides, and insecticides to care for its customers’ turfs and ornamental plants, providing nutrients, controlling weeds, and preventing insects. Sometimes TruGreen must "amend" the soil after testing it by adding additional ingredients (such as lime, sulfur, gypsum, or iron) to enhance the health of grass, trees, or shrubs. It also aerates lawns and adds additional seed to remedy bare spots. TruGreen does not offer services to nurseries, tree or nut farms, or individuals or entities engaged in fruit or vegetable production. The affidavit elucidates: "Our branch location business licenses are specific to turf and ornamental plant care only."

In November 2015, TruGreen requested a use-tax refund in the amount of $4,745.39 for the fertilizer, grass seed, and other products it used in its commercial lawn-care business during a 31-day period in 2012. Defendant, the Department of Treasury, denied the refund claim, and TruGreen requested an informal conference. Before the conference could be held, TruGreen submitted another use-tax refund claim for a longer period (four and a half years) in the amount of $1,168,333.49.

A referee concluded that TruGreen had established its eligibility for the exemption and was entitled to a refund. The referee reasoned that "there are only two requirements for this exemption, (1) that a person be engaged in a business enterprise, and (2) the tangible personal property be used and consumed in the ... planting [or] caring for ... things of the soil ...." (Alteration in original.) In 2004, the referee noted, the Legislature removed language from the statute requiring that an entity be engaged in "agricultural or horticultural production."¹ The referee concluded: "Petitioner is engaged in a business enterprise (servicing lawns) and used and consumed the tangible personal property purchased (grass seed and fertilizer) in the planting and caring for of [sic] things of the soil. As such, the grass seed and fertilizer it purchased meets the two requirements set forth in [ MCL 205.94(1)(f) ] for exemption from use tax in Michigan."

The department issued a "Decision and Order of Determination" denying the refund claim, reasoning that "the statute and administrative rules requiring tangible personal property to be used within agricultural production remained valid notwithstanding [the 2004] amendment." According to the department, caselaw following the amendment continued to construe the exemption as implicating "agricultural production." "In giving proper meaning to the undefined phrase ‘things of the soil,’ " the department advocated, "it is important to consider that Michigan follows the doctrine ‘that a word or phrase is given meaning by the context of its setting.’ " The department concluded that other words in the statutory "setting" support that the Legislature envisioned that "things of the soil" meant growing, cultivating, or extracting crops or comparable things.

TruGreen appealed in the Court of Claims, where the parties filed cross-motions for summary disposition. TruGreen raised two arguments in support of its eligibility for the exemption. First, TruGreen contended, its activities satisfy the plain language of the statute, as the company is engaged in " ‘tilling, planting ... [and] caring for ... things of the soil ....’ " (Alteration in original.) Second, TruGreen argues that this Court's opinion in William Mueller & Sons, Inc. v. Dep't of Treasury , 189 Mich. App. 570, 571, 473 N.W.2d 783 (1991), compels the same conclusion, asserting that it stands for the proposition "that agricultural production is not required by the statute."

The Court of Claims rejected both arguments, ruling that the statute required the claimant to create or contribute to an agricultural or horticultural product. Citing several of this Court's cases interpreting MCL 205.94(1)(f), the Court of Claims observed that all "support the conclusion that production of horticultural or agricultural products is necessary." The Court of Claims denied TruGreen's motion for reconsideration, and TruGreen now appeals as of right.

II

Because this case presents a purely legal question, our review is de novo.

Gen. Motors Corp. v. Dep't of Treasury , 290 Mich. App. 355, 369, 803 N.W.2d 698 (2010). A few tax principles, combined with a couple of interpretive precepts, inform our analysis.

"Tax exemptions are the antithesis of tax equality," and therefore, they must be "strictly construed," generally "in favor of the taxing authority." Canterbury Health Care, Inc. v. Dep't of Treasury , 220 Mich. App. 23, 31, 558 N.W.2d 444 (1996). Justice COOLEY explained the underlying rationale for considering tax exemptions cautiously and conservatively as follows:

"Exemptions are never presumed, the burden is on a claimant to establish clearly his right to exemption, and an alleged grant of exemption will be strictly construed and cannot be made out by inference or implication but must be beyond reasonable doubt. In other words, since taxation is the rule, and exemption the exception, the intention to make an exemption ought to be expressed in clear and unambiguous terms; it cannot be taken to have been intended when the language of the statute on which it depends is doubtful or uncertain; and the burden of establishing it is upon him who claims it. Moreover, if an exemption is found to exist, it must not be enlarged by construction, since the reasonable presumption is that the State has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the statute the favor would be extended beyond what was meant." [ Detroit v. Detroit Commercial College , 322 Mich. 142, 149, 33 N.W.2d 737 (1948), quoting 2 Cooley, Taxation (4th ed.), § 672, p. 1403.]

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