HB-4882, As Passed Senate, September 30, 2007

SUBSTITUTE FOR

HOUSE BILL NO. 4882

A bill to amend 1937 PA 94, entitled

"Use tax act,"

by amending sections 2, 3, 4, and 7 (MCL 205.92, 205.93, 205.94,

and 205.97), sections 2, 3, and 4 as amended by 2004 PA 172.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 2. As used in this act:

(a) "Person" means an individual, firm, partnership, joint

venture, association, social club, fraternal organization,

municipal or private corporation whether or not organized for

profit, company, limited liability company, estate, trust,

receiver, trustee, syndicate, the United States, this state,

county, or any other group or combination acting as a unit, and the

plural as well as the singular number, unless the intention to give

a more limited meaning is disclosed by the context.

(b) "Use" means the exercise of a right or power over tangible

personal property incident to the ownership of that property

including transfer of the property in a transaction where

possession is given. Converting tangible personal property acquired

for a use exempt from the tax levied under this act to a use not

exempt from the tax levied under this act is a taxable use.

state for any purpose after the property loses its interstate

character.

(d) "Seller" means the person from whom a purchase is made and

includes every person selling tangible personal property or

services for storage, use, or other consumption in this state. If,

in the opinion of the department, it is necessary for the efficient

administration of this act to regard a salesperson, representative,

peddler, or canvasser as the agent of a dealer, distributor,

supervisor, or employer under whom the person operates or from whom

he or she obtains tangible personal property or services sold by

him or her for storage, use, or other consumption in this state,

irrespective of whether or not he or she is making the sales on his

or her own behalf or on behalf of the dealer, distributor,

supervisor, or employer, the department may so consider him or her,

and may consider the dealer, distributor, supervisor, or employer

as the seller for the purpose of this act.

(e) "Purchase" means to acquire for a consideration, whether

the acquisition is effected by a transfer of title, of possession,

or of both, or a license to use or consume; whether the transfer is

absolute or conditional, and by whatever means the transfer is

effected; and whether consideration is a price or rental in money,

or by way of exchange or barter. Purchase includes converting

tangible personal property acquired for a use exempt from the tax

levied under this act to a use not exempt from the tax levied under

this act.

(f) "Purchase price" or "price" means the total amount of

consideration paid by the consumer to the seller, including cash,

credit, property, and services, for which tangible personal

property or services are sold, leased, or rented, valued in money,

whether received in money or otherwise, and applies to the measure

subject to use tax. Purchase price includes the following

subparagraphs (i) through (vi) and excludes subparagraphs (vii)

through (viii):

(i) Seller's cost of the property sold.

(ii) Cost of materials used, labor or service cost, interest,

losses, costs of transportation to the seller, taxes imposed on the

seller other than taxes imposed by this act, and any other expense

of the seller.

(iii) Charges by the seller for any services necessary to

complete the sale, other than the following:

(A) An amount received or billed by the taxpayer for

remittance to the employee as a gratuity or tip, if the gratuity or

tip is separately identified and itemized on the guest check or

billed to the customer.

(B) Labor or service charges involved in maintenance and

repair work on tangible personal property of others if separately

itemized.

(iv) Delivery charges incurred or to be incurred before the

completion of the transfer of ownership of tangible personal

property from the seller to the purchaser.

(v) Installation charges incurred or to be incurred before the

completion of the transfer of ownership of tangible personal

property from the seller to the purchaser.

(vi) Credit for any trade-in.

(vii) Interest, financing, or carrying charges from credit

extended on the sale of personal property or services, if the

amount is separately stated on the invoice, bill of sale, or

similar document given to the purchaser.

(viii) Any taxes legally imposed directly on the consumer that

are separately stated on the invoice, bill of sale, or similar

document given to the purchaser.

(g) "Consumer" means the person who has purchased tangible

personal property or services for storage, use, or other

consumption in this state and includes, a but is not limited to, 1

or more of the following:

(i) A person acquiring tangible personal property if engaged in

the business of constructing, altering, repairing, or improving the

real estate of others.

(ii) A person who has converted tangible personal property or

services acquired for storage, use, or consumption in this state

that is exempt from the tax levied under this act to storage, use,

or consumption in this state that is not exempt from the tax levied

under this act.

(h) "Business" means all activities engaged in by a person or

caused to be engaged in by a person with the object of gain,

benefit, or advantage, either direct or indirect.

(i) "Department" means the department of treasury.

(j) "Tax" includes all taxes, interest, or penalties levied

under this act.

(k) "Tangible personal property" means personal property that

can be seen, weighed, measured, felt, or touched or that is in any

other manner perceptible to the senses and includes electricity,

water, gas, steam, and prewritten computer software.

(l) "Textiles" means goods that are made of or incorporate

woven or nonwoven fabric, including, but not limited to, clothing,

shoes, hats, gloves, handkerchiefs, curtains, towels, sheets,

pillows, pillowcases, tablecloths, napkins, aprons, linens, floor

mops, floor mats, and thread. Textiles also include materials used

to repair or construct textiles, or other goods used in the rental,

sale, or cleaning of textiles.

(m) "Interstate motor carrier" means a person who operates or

causes to be operated a qualified commercial motor vehicle on a

public road or highway in this state and at least 1 other state or

Canadian province.

(n) "Qualified commercial motor vehicle" means that term as

defined in section 1(i), (j), and (k) of the motor carrier fuel tax

act, 1980 PA 119, MCL 207.211.

(o) "Diesel fuel" means that term as defined in section 2(p)

of the motor fuel tax act, 2000 PA 403, MCL 207.1002.

(p) "Sale" means a transaction by which tangible personal

property or services are purchased or rented for storage, use, or

House Bill No. 4882 as amended September 30, 2007

other consumption in this state.

(q) "Convert" means putting a service or tangible personal

property acquired for a use exempt from the tax levied under this

act at the time of acquisition to a use that is not exempt from the

tax levied under this act, whether the use is in whole or in part,

or permanent or not permanent. <<A motor vehicle purchased for resale by

a new vehicle dealer licensed under section 248(8)(a) of the Michigan

vehicle code, 1949 PA 300, MCL 257.248, and not titled in the name of the

dealer shall not be considered to be converted prior to sale or lease by

that dealer.>>

Sec. 3. (1) There is levied upon and there shall be collected

from every person in this state a specific tax for the privilege of

using, storing, or consuming tangible personal property in this

state at a rate equal to 6% of the price of the property or

services specified in section 3a or 3b. The tax levied under this

act applies to a person who acquires tangible personal property or

services that are subject to the tax levied under this act for any

tax-exempt use who subsequently converts the tangible personal

property or service to a taxable use, including an interim taxable

use. If tangible personal property or services are converted to a

taxable use, the tax levied under this act shall be imposed without

regard to any subsequent tax-exempt use. Penalties and interest

shall be added to the tax if applicable as provided in this act.

For the purpose of the proper administration of this act and to

prevent the evasion of the tax, all of the following shall be

presumed:

(a) That tangible personal property purchased is subject to

the tax if brought into this state within 90 days of the purchase

date and is considered as acquired for storage, use, or other

consumption in this state.

(b) That tangible personal property used solely for personal,

nonbusiness purposes that is purchased outside of this state and

that is not an aircraft is exempt from the tax levied under this

act if 1 or more of the following conditions are satisfied:

(i) The property is purchased by a person who is not a resident

of this state at the time of purchase and is brought into this

state more than 90 days after the date of purchase.

(ii) The property is purchased by a person who is a resident of

this state at the time of purchase and is brought into this state

more than 360 days after the date of purchase.

(2) The tax imposed by this section for the privilege of

using, storing, or consuming a vehicle, ORV, manufactured housing,

aircraft, snowmobile, or watercraft shall be collected before the

transfer of the vehicle, ORV, manufactured housing, aircraft,

snowmobile, or watercraft, except a transfer to a licensed dealer

or retailer for purposes of resale that arises by reason of a

transaction made by a person who does not transfer vehicles, ORVs,

manufactured housing, aircraft, snowmobiles, or watercraft in the

ordinary course of his or her business done in this state. The tax

on a vehicle, ORV, snowmobile, and watercraft shall be collected by

the secretary of state before the transfer of the vehicle, ORV,

snowmobile, or watercraft registration. The tax on manufactured

housing shall be collected by the department of consumer and

industry services, mobile home commission, or its agent before the

transfer of the certificate of title. The tax on an aircraft shall

be collected by the department of treasury. The price tax base of a

new or previously owned car or truck held for resale by a dealer

and that is not exempt under section 4(1)(c) is the purchase price

of the car or truck multiplied by 2.5% plus $30.00 per month

beginning with the month that the dealer uses the car or truck in a

nonexempt manner.

(3) The following transfers or purchases are not subject to

use tax:

(a) A transaction or a portion of a transaction if the

transferee or purchaser is the spouse, mother, father, brother,

sister, child, stepparent, stepchild, stepbrother, stepsister,

grandparent, grandchild, legal ward, or a legally appointed

guardian with a certified letter of guardianship, of the

transferor.

(b) A transaction or a portion of a transaction if the

transfer is a gift to a beneficiary in the administration of an

estate.

snowmobile, or watercraft that has once been subjected to the

Michigan sales or use tax is transferred in connection with the

organization, reorganization, dissolution, or partial liquidation

of an incorporated or unincorporated business and the beneficial

ownership is not changed.

(d) If an insurance company licensed to conduct business in

this state acquires ownership of a late model distressed vehicle as

defined in section 12a of the Michigan vehicle code, 1949 PA 300,

MCL 257.12a, through payment of damages in response to a claim or

when the person who owned the vehicle before the insurance company

reacquires ownership from the company as part of the settlement of

a claim.

(4) The department may utilize the services, information, or

records of any other department or agency of state government in

the performance of its duties under this act, and other departments

or agencies of state government are required to furnish those

services, information, or records upon the request of the

department.

(5) Any decrease in the rate of the tax levied under

subsection (1) on services subject to tax under this act shall

apply only to billings rendered on or after the effective date of

the decrease.

Sec. 4. (1) The following are exempt from the tax levied under

this act, subject to subsection (2):

(a) Property sold in this state on which transaction a tax is

paid under the general sales tax act, 1933 PA 167, MCL 205.51 to

205.78, if the tax was due and paid on the retail sale to a

consumer.

(b) Property, the storage, use, or other consumption of which

this state is prohibited from taxing under the constitution or laws

of the United States, or under the constitution of this state.

(i) Property purchased for resale. ~~, demonstration purposes, or~~

Property purchased for resale includes promotional merchandise

transferred pursuant to a redemption offer to a person located

outside this state or any packaging material, other than

promotional merchandise, acquired for use in fulfilling a

redemption offer or rebate to a person located outside this state.

(ii) Property purchased for lending or leasing to a public or

House Bill No. 4882 (H-1) as amended September 24, 2007

as amended September 30, 2007

parochial school offering a course in automobile driving except

that a vehicle purchased by the school shall be certified for

driving education and shall not be reassigned for personal use by

the school's administrative personnel. ~~For a dealer selling a new~~

~~car or truck, exemption for demonstration purposes shall be~~

~~determined by the number of new cars and trucks sold during the~~

~~current calendar year or the immediately preceding year without~~

~~regard to specific make or style according to the following~~

~~schedule of 0 to 25, 2 units; 26 to 100, 7 units; 101 to 500, 20~~

~~units; 501 or more, 25 units; but not to exceed 25 cars and trucks~~

~~in 1 calendar year for demonstration purposes. Property purchased~~

~~for resale includes promotional merchandise transferred pursuant to~~

~~a redemption offer to a person located outside this state or any~~

~~packaging material, other than promotional merchandise, acquired~~

~~for use in fulfilling a redemption offer or rebate to a person~~

~~located outside this state.~~

(iii) Property<< >> purchased for demonstration

purposes. <<For a new vehicle dealer selling a new car or truck,

exemption for demonstration purposes shall be determined by the number of new cars and trucks sold during the current calendar year or the immediately preceding calendar year, without regard to specific make or style, according to the following schedule but not to exceed 25 cars and trucks in 1 calendar year for demonstration purposes:

(A) 0 to 25, 2 units.

(B) 26 to 100, 7 units.

(D) 501 or more, 25 units.>>

(iv) [ ] motor vehicles purchased for resale purposes by a new

vehicle dealer licensed under section 248(8)(a) of the Michigan

vehicle code, 1949 PA 300, MCL 257.248.

(d) Property that is brought into this state by a nonresident

person for storage, use, or consumption while temporarily within

this state, except if the property is used in this state in a

nontransitory business activity for a period exceeding 15 days.

(e) Property the sale or use of which was already subjected to

a sales tax or use tax equal to, or in excess of, that imposed by

this act under the law of any other state or a local governmental

unit within a state if the tax was due and paid on the retail sale

to the consumer and the state or local governmental unit within a

state in which the tax was imposed accords like or complete

exemption on property the sale or use of which was subjected to the

sales or use tax of this state. If the sale or use of property was

already subjected to a tax under the law of any other state or

local governmental unit within a state in an amount less than the

tax imposed by this act, this act shall apply, but at a rate

measured by the difference between the rate provided in this act

and the rate by which the previous tax was computed.

(f) Property sold to a person engaged in a business enterprise

and using and consuming the property in the tilling, planting,

caring for, or harvesting of the things of the soil or in the

breeding, raising, or caring for livestock, poultry, or

horticultural products, including transfers of livestock, poultry,

or horticultural products for further growth. This exemption

includes agricultural land tile, which means fired clay or

perforated plastic tubing used as part of a subsurface drainage

system for land used in the production of agricultural products as

a business enterprise and includes a portable grain bin, which

means a structure that is used or is to be used to shelter grain

and that is designed to be disassembled without significant damage

to its component parts. This exemption does not include transfers

of food, fuel, clothing, or similar tangible personal property for

personal living or human consumption. This exemption does not

include tangible personal property permanently affixed to and

becoming a structural part of real estate.

(g) Property or services sold to the United States, an

unincorporated agency or instrumentality of the United States, an

incorporated agency or instrumentality of the United States wholly

owned by the United States or by a corporation wholly owned by the

United States, the American red cross and its chapters or branches,

this state, a department or institution of this state, or a

political subdivision of this state.

(h) Property or services sold to a school, hospital, or home

for the care and maintenance of children or aged persons, operated

by an entity of government, a regularly organized church,

religious, or fraternal organization, a veterans' organization, or

a corporation incorporated under the laws of this state, if not

operated for profit, and if the income or benefit from the

operation does not inure, in whole or in part, to an individual or

private shareholder, directly or indirectly, and if the activities

of the entity or agency are carried on exclusively for the benefit

of the public at large and are not limited to the advantage,

interests, and benefits of its members or a restricted group. The

tax levied does not apply to property or services sold to a parent

cooperative preschool. As used in this subdivision, "parent

cooperative preschool" means a nonprofit, nondiscriminatory

educational institution, maintained as a community service and

administered by parents of children currently enrolled in the

preschool that provides an educational and developmental program

for children younger than compulsory school age, that provides an

educational program for parents, including active participation

with children in preschool activities, that is directed by

qualified preschool personnel, and that is licensed by the

department of consumer and industry services pursuant to 1973 PA

116, MCL 722.111 to 722.128.

(i) Property or services sold to a regularly organized church

or house of religious worship except the following:

(i) Sales in which the property is used in activities that are

mainly commercial enterprises.

(ii) Sales of vehicles licensed for use on the public highways

other than a passenger van or bus with a manufacturer's rated

seating capacity of 10 or more that is used primarily for the

transportation of persons for religious purposes.

(j) A vessel designed for commercial use of registered tonnage

of 500 tons or more, if produced upon special order of the

purchaser, and bunker and galley fuel, provisions, supplies,

maintenance, and repairs for the exclusive use of a vessel of 500

tons or more engaged in interstate commerce.

(k) Property purchased for use in this state where actual

personal possession is obtained outside this state, the purchase

price or actual value of which does not exceed $10.00 during 1

calendar month.

(l) A newspaper or periodical classified under federal postal

laws and regulations effective September 1, 1985 as second-class

mail matter or as a controlled circulation publication or qualified

to accept legal notices for publication in this state, as defined

by law, or any other newspaper or periodical of general

circulation, established at least 2 years, and published at least

once a week, and a copyrighted motion picture film. Tangible

personal property used or consumed in producing a copyrighted

motion picture film, a newspaper published more than 14 times per

year, or a periodical published more than 14 times per year, and

not becoming a component part of that film, newspaper, or

periodical is subject to the tax. After December 31, 1993, tangible

personal property used or consumed in producing a newspaper

published 14 times or less per year or a periodical published 14

times or less per year and that portion or percentage of tangible

personal property used or consumed in producing an advertising

supplement that becomes a component part of a newspaper or

periodical is exempt from the tax under this subdivision. A claim

for a refund for taxes paid before January 1, 1999 under this

subdivision shall be made before June 30, 1999. For purposes of

this subdivision, tangible personal property that becomes a

component part of a newspaper or periodical and consequently not

subject to tax, includes an advertising supplement inserted into

and circulated with a newspaper or periodical that is otherwise

exempt from tax under this subdivision, if the advertising

supplement is delivered directly to the newspaper or periodical by

a person other than the advertiser, or the advertising supplement

is printed by the newspaper or periodical.

(m) Property purchased by persons licensed to operate a

commercial radio or television station if the property is used in

the origination or integration of the various sources of program

material for commercial radio or television transmission. This

subdivision does not include a vehicle licensed and titled for use

on public highways or property used in the transmitting to or

receiving from an artificial satellite.

(n) A person who is a resident of this state who purchases an

automobile in another state while in the military service of the

United States and who pays a sales tax in the state where the

automobile is purchased.

(o) A vehicle for which a special registration is secured in

accordance with section 226(12) of the Michigan vehicle code, 1949

PA 300, MCL 257.226.

(p) The sale of a prosthetic device, durable medical

equipment, or mobility enhancing equipment.

(q) Water when delivered through water mains, water sold in

bulk tanks in quantities of not less than 500 gallons, or the sale

of bottled water.

(r) A vehicle not for resale used by a nonprofit corporation

organized exclusively to provide a community with ambulance or fire

department services.

(s) Tangible personal property purchased and installed as a

component part of a water pollution control facility for which a

tax exemption certificate is issued pursuant to part 37 of the

natural resources and environmental protection act, 1994 PA 451,

MCL 324.3701 to 324.3708, or an air pollution control facility for

which a tax exemption certificate is issued pursuant to part 59 of

the natural resources and environmental protection act, 1994 PA

451, MCL 324.5901 to 324.5908.

(t) Tangible real or personal property donated by a

manufacturer, wholesaler, or retailer to an organization or entity

exempt pursuant to subdivision (h) or (i) or section ~~4a(a) or (b)~~

4a(1)(a) or (b) of the general sales tax act, 1933 PA 167, MCL

205.54a.

(u) The storage, use, or consumption of an aircraft by a

domestic air carrier for use solely in the transport of air cargo,

passengers, or a combination of air cargo and passengers, that has

a maximum certificated takeoff weight of at least 6,000 pounds. For

purposes of this subdivision, the term "domestic air carrier" is

limited to a person engaged primarily in the commercial transport

for hire of air cargo, passengers, or a combination of air cargo

and passengers as a business activity. The state treasurer shall

estimate on January 1 each year the revenue lost by this act from

the school aid fund and deposit that amount into the school aid

fund from the general fund.

(v) The storage, use, or consumption of an aircraft by a

person who purchases the aircraft for subsequent lease to a

domestic air carrier operating under a certificate issued by the

federal aviation administration under 14 CFR part 121, for use

solely in the regularly scheduled transport of passengers.

(w) Property or services sold to an organization not operated

for profit and exempt from federal income tax under section

501(c)(3) or 501(c)(4) of the internal revenue code, 26 USC 501; or

to a health, welfare, educational, cultural arts, charitable, or

benevolent organization not operated for profit that has been

issued before June 13, 1994 an exemption ruling letter to purchase

items exempt from tax signed by the administrator of the sales,

use, and withholding taxes division of the department. The

department shall reissue an exemption letter after June 13, 1994 to

each of those organizations that had an exemption letter that shall

remain in effect unless the organization fails to meet the

requirements that originally entitled it to this exemption. The

exemption does not apply to sales of tangible personal property and

sales of vehicles licensed for use on public highways, that are not

used primarily to carry out the purposes of the organization as

stated in the bylaws or articles of incorporation of the exempt

organization.

(x) The use or consumption of services described in section

~~3a(a) or (c)~~ 3a(1)(a) or (b) or 3b by means of a prepaid telephone

calling card, a prepaid authorization number for telephone use, or

a charge for internet access.

(y) The purchase, lease, use, or consumption of the following

by an industrial laundry after December 31, 1997:

(i) Textiles and disposable products including, but not limited

to, soap, paper, chemicals, tissues, deodorizers and dispensers,

and all related items such as packaging, supplies, hangers, name

tags, and identification tags.

(ii) Equipment, whether owned or leased, used to repair and

dispense textiles including, but not limited to, roll towel

cabinets, slings, hardware, lockers, mop handles and frames, and

carts.

(iii) Machinery, equipment, parts, lubricants, and repair

services used to clean, process, and package textiles and related

items, whether owned or leased.

(iv) Utilities such as electric, gas, water, or oil.

(v) Production washroom equipment and mending and packaging

supplies and equipment.

(vi) Material handling equipment including, but not limited to,

conveyors, racks, and elevators and related control equipment.

(vii) Wastewater pretreatment equipment and supplies and

related maintenance and repair services.

(2) The property or services under subsection (1) are exempt

only to the extent that the property or services are used for the

exempt purposes if one is stated in subsection (1). The exemption

is limited to the percentage of exempt use to total use determined

by a reasonable formula or method approved by the department.

Sec. 7. (1) Each ~~consumer~~ person storing, using, or ~~otherwise~~

consuming in this state tangible personal property or services

~~purchased for or subsequently converted to such purpose or purposes~~

~~shall be~~ is liable for the tax ~~imposed by~~ levied under this act,

and ~~such~~ that liability shall not be extinguished until the tax

levied under this act has been paid to the department.

(2) A person who acquires tangible personal property or

services for any tax-exempt use who subsequently converts the

tangible personal property or service to a taxable use, including

an interim taxable use, is liable for the tax levied under this

act. If tangible personal property or services are converted to a

taxable use, the tax levied under this act shall be imposed without

regard to any subsequent tax-exempt use. The payment to the

department of the tax, interest, and any penalty assessed by the

department ~~shall relieve~~ relieves the seller, who sold the property

or services with regard to the storing, use, or ~~other~~ consumption

House Bill No. 4882 (H-1) as amended September 24, 2007

on which the tax was paid from the payment of the amount of the tax

~~which~~ that he or she may be required under this act to collect from

the purchaser.

Enacting section 1. It is the intent of the legislature that

this amendatory act clarify that a person who acquires tangible

personal property for a purpose exempt under the use tax act, 1937

PA 94, MCL 205.91 to 205.111, who subsequently converts that

property to a use taxable under the use tax act, 1937 PA 94, MCL

205.91 to 205.111, is liable for the tax levied under the use tax

act, 1937 PA 94, MCL 205.91 to 205.111.

Enacting section 2. This amendatory act is [curative and] intended

to prevent

any misinterpretation of the ability of a taxpayer to claim an

exemption from the tax levied under the use tax act, 1937 PA 94,

MCL 205.91 to 205.111, based on the purchase of tangible personal

property or services for resale that may result from the decision

of the Michigan court of appeals in Betten Auto Center, Inc v

Department of Treasury, No. 265976[, as affirmed by the Michigan Supreme

Court]. This amendatory act is

retroactive and is effective beginning September 30, 2002 and for

all tax years that are open under the statute of limitations

provided in section 27a of 1941 PA 122, MCL 205.27a.