SALES AND USE TAXES - INTERSTATE COMMERCE CARRIERS

RAB-93-8. The purpose of this bulletin is to clarify the taxability of interstate carrier property. This bulletin will rescind and replace Treasury Position Paper SUW 84-003.

For purposes of this bulletin:

"Interstate carrier property" is defined as vehicles (trucks, tractor/ trailers, and buses), railroad rolling stock, commercial vessels (watercraft), and aircraft.

"Interstate commerce activity" is defined as the transporting of a load for a fee across state lines.

SALES TAX

Background

Prior to September 20, 1989, the department granted a refund of Michigan sales tax paid on certain interstate carrier property based on a mileage allocation formula. This refund procedure was outlined in Treasury Position Paper SUW 84-003.

Discussion

In Grand Express v Michigan Department of Treasury, Revenue Division, Court of Claims No. 87-115-46-CM (September 20, 1989), the Michigan Court of Claims found that the refund procedures followed by SUW 84-003 using mileage apportionment formulas were illegal as they were not based on statutory authority. The court stated:

"Defendant's refund program is illegal and impermissible in that it provides tax exemptions not specifically enumerated by the legislature and will therefore be discontinued."

The Court of Claims followed Grand Express, supra., in Gainey Transportation Services, Inc. v Michigan Department of Treasury, unpublished order entered [July 8, 1992] (Docket No. 89-12535-CM). However, Plaintiff Gainey Transportation Services has filed a writ of appeal with the Michigan Court of Appeals; that decision is pending.

Ruling

The purchase of interstate commerce property in Michigan is subject to Michigan sales tax unless a valid Michigan exemption applies. Revenue Administrative Bulletin 1990-32 outlines the various Michigan exemptions allowed by law and their requirements for claiming exemption.

USE TAX

Background

Prior to September 20, 1989, the department granted a refund of Michigan use tax paid on certain interstate carrier property acquired out of state or from someone other than a Michigan dealer. The refund was based on a mileage allocation formula which was outlined in Treasury Position Paper SUW 84-003. The refund applied to tax paid on acquisitions as well as tax paid on lease/rentals of interstate carrier property.

Discussion

Court decisions defining the breadth of the exemption under the United States Constitution's commerce clause exist under Michigan statute only to the extent of the constitutional limitations on a state's ability to tax interstate commerce. Use tax is imposed on items used, stored, or consumed in Michigan.

Michigan looks to the U.S. Supreme Court's interpretation of the commerce clause. When the four-prong test outlined in Complete Auto Transit, Inc. v Brady, Chairman, Mississippi State Tax Commission, 430 US 274; 97 S Ct 1076; 51 L Ed 2d 326 (1977), is met, there is no constitutional prohibition under the commerce clause to Michigan taxing storage, use or consumption.

The four-prong test states that a taxing state does not violate the commerce clause of the federal constitution if:

1. The tax is applied to an activity with a substantial nexus with the taxing state,
2. The tax is fairly apportioned,
3. The tax does not discriminate against interstate commerce, and
4. It is fairly related to the services provided by the state.

Ruling

Effective June 1, 1993, interstate carrier property is subject to Michigan tax if it meets the Complete Auto Transit, supra., test. Michigan's 4 percent use tax is due on out-of-state acquisitions unless tax of at least 4 percent was properly paid to a state with which Michigan is reciprocal. [MCL 205.94(e); MSA 7.555(4e)] Michigan's 4 percent use tax levied on storage, use or consumption in Michigan would apply on leases/rentals, unless Michigan sales tax has been paid.