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Keywords

appealleasecorporation
appealmotionsummary judgmentleasecorporationmotion for summary judgment

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Earle Equipment Co. v. Department of Treasury, Revenue Div., 136 Mich.App. 536, 358 N.W.2d 16

Facts

Earle Equipment, a Michigan corporation, leases construction equipment with purchase options, paying all related use and sales taxes. The leases allow lessees to purchase the equipment at a stipulated price, with rental payments credited against this price. Carrying charges, calculated as simple interest on the original price, are paid retroactively when the purchase option is exercised. The Department of Treasury assessed sales tax on these carrying charges, leading to the appeal.

The petitioner, a Michigan corporation in the business of selling, renting and servicing construction equipment, appeals as of right from a decision of the Michigan Tax Tribunal. The tribunal granted the Treasury Department's motion for summary judgment upholding the assessment of sales taxes against the petitioner.

Issue

Are carrying charges computed retroactively and paid by lessees at the time the purchase options are exercised excludible from the sales tax?

WHERE A CONSTRUCTION EQUIPMENT DEALER LEASES MACHINES WITH PURCHASE OPTIONS AND PAYS ALL USE TAXES RELATING TO THE RENTALS RECEIVED AND SALES TAXES ON THE BALANCE OF THE PURCHASE OPTION PRICE, ARE CARRYING CHARGES COMPUTED RETROACTIVELY AND PAID BY THE LESSEES AT THE TIME THE PURCHASE OPTIONS ARE EXERCISED EXCLUDIBLE FROM THE SALES TAX?

Rule

The carrying charges are considered part of the 'gross proceeds' of the sale and are subject to sales tax as defined in M.C.L. § 205.51(g).

The carrying charges are considered part of the 'gross proceeds' of the sale and are subject to sales tax as defined in M.C.L. § 205.51(g).

Analysis

The court determined that the carrying charges are not separate from the sale of the equipment but are integral to the total consideration required to obtain the equipment. The definition of 'gross proceeds' includes all amounts received in consideration of sales at retail, and since the lessee must pay both the sale price and the carrying charges to acquire the equipment, the charges are taxable.

The carrying charges here clearly come within the definition of 'gross proceeds'. The total of the balance of the 'sale price' and the 'carrying charges' forms the consideration provided by the buyer to obtain the equipment. Title to the equipment is not conveyed until both amounts are paid.

Conclusion

The Court of Appeals affirmed the Tax Tribunal's decision, holding that the carrying charges are part of the gross proceeds and thus subject to sales tax.

Affirmed.

Who won?

The Department of Treasury prevailed because the court found that the carrying charges were part of the gross proceeds of the sale and not a separate service charge.

The Tax Tribunal correctly determined that the carrying charges were 'part of the money, credits, subsidies, property, or other money's worth in consideration of sales at retail'.

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