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Sharper Image Corp. v. Department of Treasury, 216 Mich.App. 698, 550 N.W.2d 596

Facts

The plaintiff, a foreign corporation, operates two stores in Michigan and conducts business through mail-order catalogs produced in Nebraska. From 1986 to 1990, the plaintiff filed tax returns but was assessed a use tax deficiency of $63,440 for failing to pay taxes on the use of catalogs and transportation charges. The plaintiff paid the assessed amount under protest and initiated a suit for a refund, arguing that the distribution of catalogs did not constitute 'use' under the Michigan Use Tax Act.

The essential facts of this case are not in dispute. In addition to owning two stores operating in Michigan, plaintiff, a foreign corporation, conducts business in Michigan through mail-order catalogs.

Issue

Whether the distribution of mail order catalogs constitutes 'use' under the Michigan Use Tax Act and whether transportation charges can be taxed as part of the 'price' of goods sold.

Rule

The Michigan Use Tax Act applies to the use, storage, or consumption of tangible personal property in the state, and 'use' is defined as the exercise of a right or power over tangible personal property incident to ownership.

The Michigan Use Tax Act applies to every person in this state 'for the privilege of using, storing, or consuming tangible personal property in this state.'

Analysis

The court determined that the plaintiff did not exercise sufficient control over the catalogs once they were delivered to the postal service in Nebraska, thus the distribution of catalogs did not meet the definition of 'use' under the Act. However, the court affirmed that transportation charges were taxable as they are part of the 'price' of goods sold, since the sale is not consummated until the transportation charges are paid.

Accordingly, because we conclude plaintiff did not exercise sufficient control over the catalogs in Michigan, and because the UTA does not define a 'use' to include the distribution of material, we find that the use tax may not be applied here.

Conclusion

The court reversed the lower court's ruling regarding the taxation of mail order catalogs and affirmed the ruling on transportation charges, remanding the case for further proceedings consistent with its opinion.

The Court of Claims ruling granting summary disposition for defendants with regard to the taxation of plaintiff's mail-order catalogs is reversed, and we remand for an order granting summary disposition for plaintiff with regard to this issue.

Who won?

The plaintiff prevailed regarding the taxation of mail order catalogs because the court found that the distribution did not constitute 'use' under the Michigan Use Tax Act.

The court reversed the trial court's order as it relates to this issue.

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