Garfield Mart Inc v. Department of Treasury
333094
| Mich. Ct. App. | Aug 8, 2017Background
- Garfield Mart, a convenience store, sold prepaid wireless calling arrangements (EPINs and PINless "top-up" minutes) via an electronic Marceco PayGo system and retained a commission on sales.
- EPIN purchases print a PIN on the receipt that the customer must enter to add minutes; PINless top-ups wirelessly download minutes to the phone immediately and require no PIN to access the purchased minutes.
- Michigan Department of Treasury audited Garfield Mart for July 2007–June 2011, using an indirect sampling method because Garfield Mart failed to maintain requested daily sales records; assessment found unpaid sales tax plus penalty and interest (total ~$236,591).
- Department treated both EPINs and PINless top-ups as taxable under MCL 205.52(2)(b) (sale or reauthorization of prepaid telephone calling cards or prepaid authorization numbers); hearing referee recommended taxing EPINs but not PINless top-ups; Department assessed tax on both.
- Michigan Tax Tribunal adopted the ALJ’s view that receipts/PINs function as modern calling cards or authorization numbers and upheld the assessment and negligence penalty; Garfield Mart appealed to the Court of Appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether EPIN and PINless top-up sales are taxable under MCL 205.52(2)(b) | EPINs and PINless top-ups are not "prepaid telephone calling cards" or "prepaid authorization numbers"; statute targets physical cards or code-based access | Both transactions effect sale or reauthorization of prepaid authorization numbers and thus are taxable | EPINs are taxable as prepaid authorization numbers; PINless top-ups are not taxable under §205.52(2)(b) |
| Whether the Department's indirect audit and sampling were valid | Audit was inaccurate and deviated from guidelines; adjustments (food deduction, rebates, inventory) were improper | Audit used best available information after taxpayer failed to provide records; assessment is prima facie correct | Audit affirmed as prima facie correct; Garfield Mart failed to rebut accuracy or show material error |
| Whether a reference number on PINless receipts or the phone number constitutes a "prepaid authorization number" | Reference number/phone number are not authorization numbers and do not grant access to minutes | Tribunal/Department treated receipts and phone-number-based top-ups as reauthorization of prepaid accounts | Reference/reference number and phone number are not prepaid authorization numbers; PINless top-ups not within statute |
| Whether negligence penalty applies to PINless top-up portion of liability | Penalty should not apply to non-taxable PINless top-ups | Penalty appropriate because taxpayer failed to exercise ordinary care and maintain records | Negligence penalty must be adjusted on remand to exclude liability attributable to PINless top-ups |
Key Cases Cited
- Drew v. Cass Co., 299 Mich. App. 495 (discussing standard of review for MTT decisions)
- Liberty Hill Housing Corp. v. City of Livonia, 480 Mich. 44 (standard for reviewing tribunal misapplication of law)
- Leahy v. Orion Twp., 269 Mich. App. 527 (definition of "substantial evidence")
- One's Travel, Ltd. v. Mich. Dep't of Treasury, 288 Mich. App. 48 (statutory interpretation and taxing statutes guidance)
- Ford Motor Co. v. Dep't of Treasury, 496 Mich. 382 (use of dictionary definitions to determine statutory meaning)
- Mich. Bell Tel. Co. v. Dep't of Treasury, 445 Mich. 470 (tax statutes construed against taxing authority and practical construction)
- By Lo Oil Co. v. Dep't of Treasury, 267 Mich. App. 19 (taxpayer cannot demand audit method after failing to provide records)