Farnell Contracting Inc v. Department of Treasury
334667
| Mich. Ct. App. | Dec 19, 2017Background
- Farnell Contracting, Inc. supplies and installs fixed institutional furniture and related fixtures rather than manufacturing; installs per customer specifications and may install on customer premises.
- An April 2012 audit covered March 2008–February 2012 and found no use tax remitted on materials used, with exemption certificates obtained from customers.
- Respondent issued a Bill for Taxes Due for $282,312.45 in unpaid use tax, including interest.
- The Michigan Tax Tribunal found Farnell generally a contractor subject to use tax but reduced the assessment by $25,375 after considering additional job information.
- On appeal, Farnell argues the remaining sales were retail not subject to use tax; the appellate court affirms the tribunal’s use-tax classification and the adjusted amount.
- The tribunal’s decision concluded Farnell both acted as a contractor (fixtures attached to realty) and as a retailer for other transactions; the net tax due was reduced accordingly.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Farnell is a contractor subject to use tax or a retailer under GSTA | Farnell is a retailer subject to sales tax | Farnell is a contractor using materials to improve real property and liable for use tax | Farnell is a contractor subject to use tax for applicable fixtures |
| Whether the fixture test supported tribunal’s contractor finding | Record does not show fixtures; tribunal erred | Evidence shows installation of fixtures attache to realty; contractor classification correct | Substantial evidence supports tribunal’s contractor finding based on fixture attachments |
| Whether Farnell could receive sales tax treatment due to consistency or exemption certificates | IPD 2005-3 allows consistent retailers to treat as retailer; exemption certificates support sales tax | IPD 2005-3 exemptions do not apply where state revenue would be compromised; exemption certificates irrelevant for fixtures | Petitioner's arguments fail; contractor use tax applies and exemptions are not applicable for these transactions |
| Whether the Tribunal properly conducted de novo review and did not rubber-stamp audit | Tribunal rubber-stamped respondent’s audit; failed independent review | Tribunal conducted independent de novo review and adjusted based on petitioner's records | Tribunal conducted proper de novo review; affirmed with appropriate adjustment |
Key Cases Cited
- Granger Land Dev Co v Dep’t of Treasury, 286 Mich App 601 (2009) (fixture test and contractor-consumer statutory framework)
- Drew v Cass County, 299 Mich App 495 (2013) (limiting standard of review for Tax Tribunal decisions)
- Liberty Hill Housing Corp v City of Livonia, 480 Mich 44 (2008) (statutory interpretation of use vs sales tax)
- Leahy v Orion Twp, 269 Mich App 527 (2006) (definition of substantial evidence; standard of review)
- Yee v Shiawassee County Bd of Comm’rs, 251 Mich App 379 (2002) (legal argument development and abandonment principles)