Brunt Associates Inc v. Department of Treasury
328253
| Mich. Ct. App. | Nov 17, 2016Background
- Brunt Associates, Inc. manufactured and installed custom office furnishings (cabinets, panels, desks) and performed on-site installation using its workforce; some items were screwed/bolted, others freestanding.
- Department of Treasury audited Brunt for Nov. 1, 2005–Dec. 31, 2009, and concluded Brunt was a real property contractor that affixed goods to customers’ realty; assessment: $305,234.52 in use tax (plus interest).
- Brunt petitioned the Michigan Tax Tribunal arguing it was a retailer/manufacturer selling tangible personal property at retail (some to tax-exempt customers) and alternatively an industrial processor exempt from use tax; it also claimed installed items remained personal property and removable.
- The Tax Tribunal found Brunt affixed products to real estate (actually or constructively), classified Brunt as a contractor required to remit use tax on inventory value, and rejected the industrial-processing exemption.
- Brunt appealed; the Court of Appeals reviewed factual findings for substantial evidence and legal questions de novo and affirmed the tribunal’s judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Brunt is a contractor (liable for use tax) or a retailer (liable for sales tax) | Brunt: manufactures tangible personal property for sale; installations are removable and retain character as personal property, so Brunt is a retailer | Treasury: Brunt affixes products to realty (actually or constructively) and thus qualifies as a contractor under administrative rule | Held: Brunt is a contractor; tribunal’s finding of actual or constructive affixation is supported by substantial evidence and controls classification |
| Whether Brunt qualifies for the industrial-processing exemption under MCL 205.94o | Brunt: converts/conditions tangible personal property for ultimate sale at retail, so qualifies for exemption; installed items are not structural | Treasury: Brunt does not manufacture for ultimate retail sale and thus does not meet statutory definition of industrial processor | Held: Brunt is not an industrial processor because it did not manufacture goods for ultimate sale at retail; exemption denied |
Key Cases Cited
- Michigan Bell Tel Co v. Dep’t of Treasury, 445 Mich 470 (agency factual findings conclusive if supported by substantial evidence)
- Dow Chem Co v. Dep’t of Treasury, 185 Mich App 458 (definition of substantial evidence)
- Devonair Enterprises, LLC v. Dep’t of Treasury, 297 Mich App 90 (deference to agency statutory interpretation with respectful consideration)
- Granger Land Dev Co v. Dep’t of Treasury, 286 Mich App 601 (use tax complements sales tax; resale exemption context)
- Mich Baptist Homes & Dev Co v. City of Ann Arbor, 396 Mich 660 (tax exemptions construed strictly in favor of taxing unit)
- Evanston YMCA Camp v. State Tax Comm’n, 369 Mich 1 (burden to establish exemption is strict)
- Miedema Metal Bldg Sys, Inc v. Dep’t of Treasury, 127 Mich App 533 (items bolted but removable still treated as affixed to realty)
- Velmer v. Baraga Area Sch, 430 Mich 385 (constructive affixation can arise from weight or function)
- Fradco, Inc v. Dep’t of Treasury, 495 Mich 104 (appeal period and requirement of actual notice to taxpayer and representative)