In the subsequent years, states and local tax jurisdictions continue to intensify the enforcement, audit, and litigation of sales and use tax laws. State courts handle multiple sales tax refund disputes involving businesses and state tax departments. Both, indeed, seek favorable rulings on their part. This post highlights a sales tax litigation process in the state of Michigan involving the hearing and ruling of a sales tax appeal for TruGreen Limited Partnership.
Sales tax appeals are naturally the next step after the taxpayer has disputed the state's assessment or denial of a tax refund. However, from dealing with multiple litigation cases, we believe that parties involved in litigation cases must understand in-state sales tax laws and case laws to avoid misinterpretation and disapproval.
The premise of this case touches on the state of Michigan's machinery and agricultural exemptions under the Michigan Administrative Code R 205.51. Here, the Taxpayer has the burden of proof of showing they are right to claim an exemption. Thus, they should receive a refund for their use tax.
Summary of the Case Between TruGreen Limited Partnership and the Michigan Department of Treasury
The TruGreen Limited Partnership, which supplies lawn and ornamental plant care services and is the petitioner, had first requested for refund of use tax worth $4,745.39 for the supply of fertilizer, grass seed, and other products. The Michigan Department of Treasury, acting as the respondent, refused this request to which TruGreen sought an informal conference.
Before the conference, TruGreen submitted another use tax refund claim of $1,168,333.49. This is in respect of a four-and-a-half-year tax period. After deliberation, the referee upheld TruGreen's claim asserting that the company had proved they were eligible for exemption. Therefore, they should receive a refund.
The referee argued that the exemption needed only two requirements as per the Michigan Compiled law 205.94(1) (f) on use tax exemptions:
- An individual running a business operation (commercial lawn care)
- Tangible property (fertilizer, grass, and seeds) used and consumed for planting and caring for soil
The Department of Treasury Defense
In reference to the referee's conclusion,the department issued a "Decision and Order of Determination" as it rejected the refund claim. It held that statute and administrative rules on the tangible property used for agricultural production were relevant as per the 2004 PA 172 amendment (MCL 205.94 (1)(f). Further, a case law that came after this amendment maintained the interpretation that the exemption also covered agricultural production.
Thereafter, TruGreen moved to appeal to the Court of Claims, providing two arguments:
- The company's business activities match the statute's language, which is "tilling, planting, and caring for the things of the soil."
- The Michigan Court of Appeals' final ruling in the William Mueller & Sons, Inc. v. The Treasury Department concluded that agricultural production was exempted from the statute.
However, the Court of Claims dismissed both arguments and ruled that as per the statute, TruGreen needed to have contributed to agricultural or horticultural production. In addition, the court pointed out that all the Court of Appeals' cases unanimously supported agricultural and horticultural production.
After receiving the ruling from the Court of Claims, TruGreen Partnership Limited appealed to the Michigan Court of Appeals. This also ruled in favor of the Department of Treasury.
According to the Court of Appeals
- Those in the agricultural production business can claim exemption within the exemption history and context of "caring for the things of the soil".
- The amendment of 2004 did not significantly alter the exemption; instead, it intended to collaborate all of Michigan's exemption procedures into a single section.
As it stands, the TruGreen case challenges the Court of Appeals ruling before the Michigan Supreme Court. This higher court denied the petitioner's request for a refund of almost $1.2 million in use tax.
Resolving Sales Tax Disputes Like TruGreen Limited Partnership vs. Michigan Department of Treasury
We believe in fighting for the best interests of our clients as they seek a fair settlement of their cases. This is our way of advocating for a more equitable and uniform sales tax system. As a strong team of experienced sales tax professionals, CPAs, and lawyers, we're always prepared to handle all types of sales tax matters and litigation before any state or administrative court across states. If you have any questions concerning Michigan sales tax, or any other state, feel free to contact us today.