*1 Cоrp Dep’t MOTORSCORPORATIONv DEPARTMENT GENERAL OF TREASURY January Argued 23, (Calendar 1). Docket No. 116984. No. Decided June 2002. Corporation brought Motors in General action the Court of Claims Department Treasury, against appealing an assessment of components parts provided use taxes and interest on vehicle and gm goodwill adjustments. Carolyn court, Stell, customers as The gm’s J., Appeals, P.J., dismissed claim. The Court of and Smolensk, JJ., unpublished opinion per and affirmed in an Griffin Neff, curiam, concluding provide obligated that its dealers were not goodwill adjustments that, therefore, all customers with and adjustment gross proceeds value of the was not included in the gm’s arising (Docket 213186). from retail sales of vehicles. No. plaintiff appeаls. opinion by joined by In an Justice Chief Justice Weaver, Supreme and Justices Taylor, and Corrigan, Young, Markman, Court held: goodwill adjustments The assessment of use tax on the was improper adjustments pursuant because the were taxed to the Gen- purchased eral Sales Tax Act when customers vehicles at retail. Property Michigan general 1. in sold a transaction in on which paid exempt sales tax is from the use tax if the tax is due and 205.51(l)(b), on the retail sale to a consumer. Under MCL ownership tangible sale at retail is a transaction which the personal property consideration, is transferred for if the transfer is ordinary made in the course of the transferor’s business and is consumption use, any purpose made to the transferee for or for other than for resale. bargained-for exchange 2. To have consideration there must be a side, with a benefit one or a detriment suffered or service done opportunity dialogue possible on the other. The and resolution complaints—even warranty period—is outside the a benefit flowing purchasers to the vehicles at the time of retail sale and, therefore, promise pursuant is consideration for the sale. Gm’s discretionary policy, respect to its while any adjustment, discretionary to whether there be is not 466 Mich reasonably regarding obligation good its to act faith response complaint. to a customer Reversed and remanded. Cavanagh,joined by Kelly, dissenting, Justice Justice stated that *2 exchange good-
retail new car customers do not consideration for policy parts purchasing when vehicles manufactured plaintiff. essence, given opportunity the consumer to ask for free repair parts, legal right any specific repair but has no and knows nothing goodwill policy program general, specific of the or of its Though plaintiff may subject agree terms. itself to arbitration proceedings, gain legally consumers no enforceable aas program. requires bargained-for legal result of this Consideration detriment, plaintiff’s good-faith discretionary and the exercise of its power permit finding bargained-for is insufficient con- sideration. Although goodwill policy parts the cost of the has been factored car, goodwill parts into the retail cost of a and to that extent the tax, are both to use and sales because the use tax statute exempts only sale, costs transferred for consideration in a retail Legislature essentially pyramiding failed to avoid taxes where product, actually part costs factored into a but are not paid. consideration Honigman, Miller, Cohn, Schwartz & L.L.P. (by Alan M. Valade and Baker, Frederick M. Jr.), for the plaintiff-appellant. M. Granholm, Attorney General, Thomas
Jennifer L. Casey, Solicitor General, Flancher, and Steven B. Glenn R. White, and Ross H. Bishop, Assistant Attor- neys General, defendant-appellee. for the Amici Curiae:
Robert S. Michigan LaBrant for the Chamber of Commerce.
Barris, Sott, Denn & Driker, (by Eugene P.L.L.C. Driker), Smith, and Diann L. Counsel, General Ste- phen P. B. Krantz, Tax Counsel, and William D. Dep’t Corp Opinion of the Court Lawyers’ Coordinating
Peltz, Subcommittee, Chair for the Committee on State Taxation. (by
Miller, Canfield, Paddock & Stone, P.L.C. Faycurry), McKim, Samuel J. III and B. Joanne Company. Ford Motor Michigan
Thomas E. Brennan for Consumer Fed- eration. Corporation Plaintiff, J. appeals General Motors Weaver, Appeals from the Court of decision that (gm), Department Treasury, impose
defendant, could use components parts plaintiff tax1 on the vehicle provided plaintiff’s goodwill to customers as adjustments policy. We reverse the decision of the Appeals Court and hold that assessment of tax use improper was because they pursuant were taxed to the General Sales Tax *3 purchased Act2when customers vehicles at retail.
I
purchase
When customers
automobiles,
new GM
they
provided
with a GM limited manufacturer’s
warranty. These limited manufacturer’s warranties
provide,
pertinent part,
replacement
for the
parts
defective
of the automobile under certain cir-
They
generally provide coverage
cumstances.
also
for
expressly
length
time,
stated
to earlier
expiration, if the vehicle is driven
a
for
certаin num-
department
acknowledges
ber of miles. The
provided under these limited warranties are not sub-
[1]
Use Tax
In addition to the limited a warranties, GM open-ended adjustment policy more under “goodwill” discretionary on a will, basis, pay which GM for replacement parts for even GM vehicles after the lim- warranty period expired. ited has Although not by adjustment name “goodwill pol- referred to as a icy,” notice of this contained the General warranty provided Motors manual to customers at the time of sale. In this regard, рrovides: the manual you problem during Should ever encounter a or after
warranty periods resolved, that is talk not to a member of management. problem persists, dealer If the follow the procedure Assistance,” additional outlined in “Owner page [Emphasis 16 of this booklet. added.] The Owner Assistance section of the manual out- lines a “Customer Satisfaction Procedure.” It states problems will “normally” be resolved dealer’s or departments.3 sales service if However, concern is not level, resolved at that the manual rec- Motors, dealers, General in a bulletin to its directs them to make goodwill adjustments special case case “where consideratiоn is in loyalty.” provides order to enhance customer satisfaction and Gm the deal guidelines goodwill policy adjustments ers with a recommended set of for help distinguish workmanship them defects in and materials from by aging, physical damage, proper maintenance, defects c lack of owner abuse. gm Testimony of, revealed that estimates the cost and establishes a for, budget warranty repairs goodwill adjustments reserve both every annually, the lifetime of nally make and model of vehicle. Twice inter- warranty repairs goodwill pol- audits both the cost of and that of the *4 icy representative explained for each make and model of vehicle. A pricе designed costs, including that the vehicle sales to recover all goodwill adjustment policy, those with associated as well as to main- profitability. tain Corp Dep’t Opinion of the Court problem discussing
ommends first with the deal- ership management. problem If the is not resolved management, the dealer customers are told to contact directly. A customer dissatisfied with the outcome GM procedure may elect arbitration. The manual accept states that, while a customer is not bound to proceeding, “gen- the result of the arbitration GM will erally” agree though to be bound it even it reserves participation to terminate its in the arbitra- program.4 tion department compli-
The
conducted an audit of
gm’s
Michigan
period
January
ance with
tax laws for the
through
1, 1986,
December
1992.As a result of the
department
against
audit, the
assessed
GM use taxes
compo-
$5.5
and interest of
million on the vehicle
parts provided by
good-
nents and
GM to customers as
adjustments.
department
previously
had not
During
period,
assessed such a tax.
the audit
GM cus-
Michigan
compo-
$82
tomers in
obtained
million in
parts
goodwill policy.
nents and
under the
appealed
Gm
the assessment to the Court of Claims.
pertinent part,
alleged
department
In
GM
statutory authority
impose
lacked the
use tax on
goodwill adjustments
imposed
because sales tax was
on the cost of the
when vehi-
cles were sold at retail. However, the Court of Claims
disagreed
position
summary
granted
gm’s
disposition
department pursuant
in favor of 2.116(C)(10), holding,
part,
MCR
in relevant
that the
goodwill program
transfer under the
is sub-
possibility
merely
provide
comprehen
We note the
of arbitration
complaint
procedure.
light
analysis,
sive outline of the
resolution
of our
necessary
possibility
it is not
to consider whether the
of arbitration is a
form of
“consideration”
this case.
*5
Opinion of the Court ject Appeals regard- to use tax. The Court of affirmed “plaintiff’s concluding ing dealers issue,5 this provide obligated all with were not to customers adjustments” and, therefore, that the “value gross goodwill prоgram was not included in the of proceeds arising plaintiff’s from the retail sales of Appeals emphasized its vehicles.”6The Court of also purchasers view that the of vehicles did not obtain “any rights goodwill program.” enforceable in the We appeal. granted leave to
II
dispute,
are
Because the essential facts
not
we
presented
question
with
are
of law: whether
replacement parts provided to
at
customers
gm’s
expense through
goodwill program
indepen-
dently subject Michigan’s
use tax in connection
parts.
questions
with the
of
transfer
We review
Kelly
Square, Inc,
law de novo.
v Builders
465 Mich
(2001).
29, 34;
III
The sales tax and the use tax are interrelated. Sales
imposed by
tax is
the General Sales Tax Act (gta) gross proceeds
205.52(1).
of a business. MCL
“[g]ross proceeds”
gta
defines
as the “amount re-
money,
property,
ceived in
credits, subsidies,
or other
retail____”
money’sworth in consideration of a sale at
205.51(l)(i).
pursuant
MCL
In contrast,
to the Michi-
*6
gan
generally imposed
Use Tax Act
use tax is
(uta),
privilege
“using, storing,
consuming
on the
or
tan-
personal
gible
property.”
205.93(1).
MCL
goodwill adjust-
Gm contends that the cost of its
exempt
4(1)(a)
§
ments is
from use tax under
provides
205.94(l)(a)
“[property
UTA. MCL
sold
paid
in this state on which
a
transaction
tax is
under
general
exempt
the
sales tax
act”
from the use tax
paid
“if the tax was due and
on the retail sale to a
inquiry
consumer.” Thus, our
is whether “tax was due
paid” pursuant
good-
and
gta
to the
on the cost of the
when vehicles were sold at retail.
imposed
The sales
taxes,
and use
while
in different
ways,
operate
provisions
do not
in isolation. Rather,
supplementary
comple
the uta and gta
mentary.
Treasury Dep’t,
World Book, Inc v
459 Mich
(1999);
403, 408;
To have consideration there must be
Evening
exchange. Higgins
News, 404
for
v Monroe
(1978). There must be
1, 20-21;
Mich
sent has fallen into the error of considering not *9 merely if there is consideration, but its sufficiency. As we have stated, courts do inquire not into the adequacy of consideration to support a contract. Higgins, supra.13 Thus, we duty conclude that the goodwill policy imposes on GM to requests consider for in redress faith good is a valuable consideration that is worth far more than the legendary pepper- corn.14
Moreover,
the evidence
indicates
that
for
period 1986-1992, plaintiff provided “goodwill” parts
to customers of General Motors cars having an esti
mated value of
million. As the dissent itself recog
$82
nizes, “the
.
cost of
. .
parts has been factored
[these]
into the retail cost of the car . . . .” Post at 247. If this
is so, then such costs have been necessarily paid by
the consumer at sale, i.e., a car otherwise valued at
$9975 has been
price
increased in
to
and the
$10,000
simply ignore
complaints
be free
any
giving
such
without
them
consid-
However,
eration.
undertaking
because of its
goodwill
contractual
for the
policy,
duty
complaints
GM a
good
has
to consider such
faith.
13
point
This
is reinforced
Professor Samuel Williston:
elementary
quoted principle
It is an
and oft
that the law will not
inquire
adequacy
into
long
of consideration so
as the considera-
support
promise. By
tion is otherwise valid to
this is meant that
long
requirement
bargained-for
so
as the
of a
benefit or detriment
satisfied,
is
the fact
that
the relative value or worth of the
exchange
unequal
anything
is irrelevant so that
which fulfills the
requirement
support
promise,
regardless
consideration will
comparative-value
prom-
thing
of the consideration and of the
ised. The rule is almost as old as the doctrine of consideration
Williston,
(4th ed), 7:21, pp
itself.
Contracts
[3
§
383-386.]
concluding
goodwill program
that the
illusory
amounted to an
promise,
Appeals
the Court of
Co,
referenced Barbat v M E Arden
App 540, 543-544;
Mich
(1977),
proposition
Opinion the Court $25 the for an additional paid has consumer institution, a charitable Plaintiff, being not policy. good factored the cost necessarily have must such cost car, the cost of into paid by the consumer. necessarily been have must that the consumer Further, presumed it can be The automo passed. value $25 something because few com sufficiently competitive that industry is bile products onto their tack costs can afford to panies as valueless perceived that are parts or services can dissent, we Contrary by their consumers. par market “rational, self-interested easily envision a a benefit estimated ticipant” something for paying $13 benefits to million annual provide more than *10 interpretation 205.94(l)(a) of MCL Our consumers. interpretation of consider a “lax” does not constitute our Rather, Post at 248. the dissent asserts. ation as prin on fundamental contract interpretation is based marketplace.15 realities of the ciples and reflects the IV policy provides adjustment the goodwill Because for customers to seek redress opportunity GM and is included vehicle defects because purchased vehicles and at the price the retail of GM flow- it is of the consideration sale, time of retail proved “[m]erеly plaintiff through its that because The dissent asserts charges accounting for costs associated methods that it all consumers , program that was . . . I cannot conclude ‘consideration’ with a . . . Post at purchasers not set forth the n 4. If this statement does very “consideration,” know what the term means. it is hard to essence every price course, recognize not cost factored into the we that Of exempt product use tax as a form of “considera from manufacturer’s provide a a customer Costs that do not benefit tion” to a customer. consideration. could not be Dep’t Corp Motors Gen Dissenting by Cavanagh, Opinion J. they purchase vehicle
ing when gm customers рursuant We at retail sale. to the gta is taxed Appeals and Court of decision reverse the entry of for of Claims to the Court this case remand judgment in favor of gm. JJ., and
Corrigan, C.J., Taylor, Young, Markman, J. with concurred Weaver, separately (dissenting). I write J. Cavanagh, majority’s my disagreement express conclu- exchange consider- customers new car that retail sion purchasing policy parts goodwill vehi- when ation by plaintiff. has claimed Plaintiff cles manufactured subject repair parts goodwill to use not be should its price of the included in the the costs are tax because MCL tax. Under to sales which is vehicle, 205.94(l)(a), sub- is owed on retail sales no use tax applies exemptiоn ject this However, to sales tax. parts only i.e., retail,” in a “sale at included if the are ownership tangible which “a transaction property personal for considera- is transferred agree 205.51(l)(b). I Because cannot . . .” MCL tion. goodwill considera- transferred for respectfully dissent. tion, I must
I
adjust-
make
dealers to
its
Plaintiff directs
*11
special
by
is in
consideration
“where
case
ments case
loyalty.”1
satisfaction
customer
enhance
order to
repair
provide
to
have the discretion
dealers
Most
the
parts
after
rate to consumers
at a reduced
free or
Gm Service
Bulletin No. 57-05-01,
April
1995.
ment the customer. The to
[*] [*] [*] Policy Adjustment, those cases which warrant there is sel- pay dom a reason for sight Buick to the entire amount. Never lose fact the owner has driven the vehicle for the life warranty, Unquestionably, and then some. the customer has received some value bring from the investment. Do not hesitate to up during negotiation. this Dealers also expects advised to “determine what the owner . . . eval- complaint. uate . . . . . if the [and] [determine customer will be satis- any you might fied with offer make.” 3 Contrary implication by majority, plaintiff’s participation to the way guaranteed. may always arbitration no request is in While a consumer arbitration, plaintiff right participate. reserves the to refuse See 1990 Warranty and Owner Assistance Information for Buick New Cars (“gm generally agree to be bound arbitrator’s decision .... reserves [gm] change eligibility the pation partici limitations and/or its discontinue program” [emphasis added]). in the *12 Dep’t Corp v by Dissenting Opinion Cavanagh, J. legally gain
ceedings,
enforce-
no
consumers
pur-
program
program,
a
a result of this
as
able
“purchasеd”
portedly
sale.
at the retail
legal
requires bargained-for
detri
Consideration
Evening
Higgins
News,
1,
404 Mich
v Monroe
ment.
(1978) (opinion
NW2d 537
20-21;272
Moody,
Blair
discretionary
majority
J.). agree
that a
with the
I
Jr.,
promise
good
and that the
faith
must be exercised
may
promise
a
consti
of such
execution
reasonable
Rich,
Watkins Co
J R
valid consideration.
tute
Lucy,
(1931); Wood v
NW 845
84-85; 235
Mich
(1917).
Lady
Further, I am not any if dis- in favor of a customer reason to rule have hearing. actually arbitration resulted satisfaction parties, between the of the contract On the basis warranty expired express if a customer have would simple policy. requested parts The under the warranty supplеmental suggests purchase a failure duty absolutely legal good-faith plaintiff no has 466 Mich Dissenting Opinion Cavanagh, J. repair warranty expires. defective after presence express promises (original warranty) opportunity purchase supplemental promises (extended parties’ evidence the warranty) intention escape that plaintiff liability for defects after orig- warranty period expires. inal Because information *13 the terms of concerning goodwill policy gener- the is ally kept I am secret, not sure that a consumer could adequately plead his the arbitrator, case to assuming plaintiff All agreed participate. to a consumer left with is right complain the and I plaintiff, believe it is to consider a stretch that sufficient consideration where such regardless exists of the goodwill policy. I Therefore, would hold that pol- the goodwill icy adjustment program does not constitute valid consideration.4 majority, respect prohibits generally Like the I the doctrine that questioning adequacy Unfortunately, courts from the of consideration. inapplicable absolutely that doctrine is here because no consideration for goodwill passed parties parts Merely between the at sale. the retail plaintiff proved through accounting charges because its methods that it all program consumers for associated costs with a in free or results dis some, parts counted I cannot conclude that “consideration” was by purchasers goodwill parts. $82 at the retail sale for Gm’s million dollars repairs, certainly value, simply worth regarded while cannot be as
legal consideration. Further, majority implies any price cost factored into the of the gm exempt case, car be should from use tax. If that were the no manu- pay generally facturer would ever way use tax because all work costs their products. price currently into the The statute as drafted does not provide per product prices, only se exclusion for all costs factored into pаssed those for which consideration has at a retail sale. See MCL 205.94(l)(a), 205.51(l)(b). majority presumes pinpoint The also that a customer can the costs program nothing buy associated with a it car knows of and promised policy. goodwill the basis of the value associated with the assumption. participants error lies in that We cannot assume market are making they knowledge good- rational when choices lack sufficient of the policy. bargains product nor Neither the dealer over this GM keeps scope program confidential, consumer. Gm the terms and of the Corp Dep’t of Dissenting Opinion Cavanagh, J. the I that the cost of so, agree
Even car, retail cost of the factored into the parts has been both parts the goodwill and to that extent Unfortunately, because the use and sales tax. to use consid only costs transferred for exempts tax statute essentially Legislature sale, eration in a retail fac taxes where costs are pyramiding failed to avoid actually part but are not of the product, tored into paid. 205.51, 205.94(1)(e).5 consideration MCL
II suspect appropriate forthright I the most analyze pur- for tax goodwill program method to promo- as poses would be to conceive Plaintiff grants tional or items. gratuitous thereby making impossible pay program it for a consumer to for such a majority’s аttempt my position ignores to rebut with consideration. The i.e., principles consideration, bargained-for the foundational considera- promisee tion by where “the action that the took was not induced is absent *14 2.6, p promise.” Farnsworth, Contracts, (2d ed), (emphasis § in the 52 case, plaintiff simply give opportu- original). In this fails to consumers an nity alleged benefit. to be induced the 5 my majority erroneously attempt position, In an to refute the infers following: the gm’s promise to rule that is valid con- dissent would decline [T]he gm’s any” in customers have “little if knowl-
sideration because gm’s scope edge of discretion. Id. That it is unknown how lib- of the erally not mean there is no dis- GM will exercise its discretion dоes fact, discretion, i.e., In it means there is a benefit to the cretion. at consumer. [Ante 240.] gm’s clarify, parts I conclude that cannot constitute valid consideration To for, bargain not and were not induced to act because the consumers did particular. of, general More- because fact, over, agree GM has so much discretion I that GM has discretion. impossible bring claiming be for consumers to action that it would majority good faith. The errs infer- discretion was exercised without my knowledge ring a consumer’s lack of from statement that describes gm’s scope concerning the existence of discretion is discretion that dispositive inquiry. itself Mich Dissenting Opinion by Cavanagh, J. loy
“in order to enhance customer satisfaction and
alty.”
goodwill policy
In essence, the
is a select form
advertising,
large
i.e., a
scale
version
the distri
pens
cups
partici
bution of free
to conference
pants
provision
pharmaceutical samples
or the
of free
physicians.
probably grant
Dealers
the benefits of
discretionary goodwill program
to those custom
likely
experience
ers most
enhanced manufacturer
loyalty.
program
Because the
most resembles a mar
keting or customer
offer, and
satisfaction
because
general statutory exemption
promo
there is no
Michigan,6 I
permit
tional items from use tax in
would
аssuming
defendant to assess
taxes,
use
it does so in
Virginia Dep’t
a uniform fashion. See
Taxation v
Co,
Miller-Morton
220 Va
859;
III majority permits interpretation a lax of consid- bridge gap eration in order to between the text of general duplicate the statute and the desire to avoid 205.94(l)(c) exempts promotional MCL items, from use tax certain which include: pursuant redemption [Promotional merchandise transfеrred to a person any offer to a packaging located outside this state or mate- rial, promotional merchandise, acquired other than for use in ful-
filling redemption person offer or rebate to a located outside this [Emphasis state. added.] *15 Dep’t Corp Dissenting Opinion by Cavanagh, J. might While worthwhile, taxation. the end be arguably empty method creates an definition of con- bargainers. sideration that could affect future Rather compensate legislative exempt than for the failure to product by watering all costs from use tax down our understanding of I consideration, would hold that the repair parts are not included in the retail sale for paid. which consideration is Kelly, Cavanagh, J., concurred with J.