DISCOUNT TIRE CO v. DEPARTMENT OF TREASURY (2012)

Defendant appeals as of right the Court of Claims order granting summary disposition in favor of plaintiff in this tax matter. We affirm.

Plaintiff is a Michigan corporation engaged in the business of tire sales and repairs in Michigan and elsewhere. When plaintiff sells a tire to a customer, the customer has the option of purchasing a “Certificate for Repair, Refund, or Replacement” at an extra cost. Pursuant to the certificate, if a tire covered by the certificate is damaged within three years of purchase and the tire still has legal tread, the customer is entitled to have the damaged tire repaired at no cost by plaintiff. In the event the tire is irreparably damaged, the customer is entitled to a full cash refund equal to the purchase price and sales tax paid on the tire. Additionally, at the customer's request, plaintiff must provide the customer with the opportunity to purchase a comparable replacement tire at a price not exceeding the purchase price of the original tire.

During the tax years at issue (2003–2006), plaintiff charged and remitted sales tax to defendant on the original tire sale, but claimed a credit on that remitted sales tax in the event that the tire was returned as irreparably damaged under the certificate. If plaintiff sold a replacement tire to the customer pursuant to the certificate, plaintiff collected and remitted sales tax to defendant on the replacement tire, and also remitted a use tax on the replacement tire. In 2007, plaintiff requested a refund of the use taxes remitted on these replacement tires from defendant on the grounds that plaintiff had paid both sales tax and use tax on those tires. Following an audit, defendant denied plaintiff's request.

Plaintiff then requested an informal conference with defendant, following which defendant issued an informal conference recommendation supporting defendant's decision to deny plaintiff's request. The informal conference recommendation concluded that plaintiff was not permitted to claim a sales tax credit on the return of the irreparably damaged tires because the return provided for in the certificate was not a “return of goods” under the Sales Tax Act as defined by defendant's administrative Rule 16. Further, the recommendation concluded that the replacement tires were provided for free and not sold at retail and that plaintiff was, therefore, required to pay use tax on the replacement tire and was not entitled to a refund of that tax. Defendant officially adopted the conclusions of the informal conference recommendation in a January 27, 2010, decision and order of determination denying plaintiff the refund it had requested.

Following defendant's decision, plaintiff appealed to the Michigan Court of Claims, and both parties submitted motions for summary disposition. In its October 12, 2011, opinion, the court held that defendant's Rule 16 was invalid due to its improperly restrictive definition of “returned goods,” that plaintiff was entitled to claim a returned goods sales tax credit on the original tire sale, and that the replacement tire was sold at retail, making the application of a use tax to that tire inappropriate. The court also held that plaintiff was entitled to the returned goods sales tax credit even under the restrictive definition of returned goods found in Rule 16. Accordingly, the court granted plaintiff's motion for summary disposition and denied defendant's motion for summary disposition. This appeal followed.

This Court reviews questions of statutory interpretation de novo. Wexford Med Group v. Cadillac, 474 Mich. 192, 202; 713 NW2d 734 (2006). A lower court's decision on a motion for summary disposition is also reviewed de novo. Maiden v. Rozwood, 461 Mich. 109, 118; 597 NW2d 817 (1999). Under MCR 2.116(C)(10), “[s]ummary disposition is appropriate if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law.” Latham v. Barton Malow Co, 480 Mich. 105, 111; 746 NW2d 868 (2008).

On appeal, defendant first argues that plaintiff was not entitled to a “returned goods” sales tax credit when replacing a customer's tire pursuant to the certificate. We disagree.

Michigan imposes a 6 percent sales tax on the gross proceeds of “all persons engaged in the business of making sales at retail, by which ownership of tangible property is transferred for consideration․” MCL 205.52(1). MCL 205.56b provides that with respect to such sales tax, [a] taxpayer may claim a credit or refund for returned goods․”

As acknowledged by defendant, the statutory language at issue is sparse. Our goal in statutory construction is, as always, however, to give effect to the Legislature's intent. McCormick v. Carrier, 487 Mich. 180, 191; 795 NW2d 517 (2010).

This Court begins by reviewing the language of the statute, and, if the language is clear and unambiguous, it is presumed that the Legislature intended the meaning expressed in the statute. Judicial construction of an unambiguous statute is neither required nor permitted. When reviewing a statute, all nontechnical words and phrases shall be construed and understood according to the common and approved usage of the language, MCL 8.3a, and, if a term is not defined in the statute, a court may consult a dictionary to aid it in this goal. [Id. at 191–192](internal citations and quotation omitted).

With these parameters in mind, we do not agree with defendant's contention that the most reasonable construction of the phrase “returned goods” in MCL 205.56b is that the goods must be returned within a certain time frame and be within substantially the same condition in that which they were sold. This “reasonable construction” would require us to take a relatively simple, straightforward, and short statute and add several much more meaningful and elaborate phrases that, had the Legislature intended to appear, it could easily have included.

Here, it is undisputed that plaintiff engaged in the retail sale of tires, that it charged customers a 6 percent sales tax on the original tires at issue, and that it remitted that tax to defendant. When those customers who had purchased certificates presented plaintiff an original tire that was deemed irreparable, they returned the original tire to plaintiff. When one “returns” a good one reverts it to a former owner. See, The American Heritage Dictionary of the English Language, 4th ed. That is precisely what occurred in this matter. And, upon return of the tire as irreparable to plaintiff, plaintiff provided the customer with a full cash refund, including the sales tax. The customer was free to simply take this refund, to spend part of it on a tire of lesser value, to put all of it towards a tire of greater value, to put some or all of it towards other automotive goods and services offered by plaintiff, or to use it to acquire a tire of comparable value to the original tire for the price paid for the original tire. In short, the customer received a cash refund which could be used in any manner that the customer chose. Plaintiff is thus entitled to a credit for the previously remitted sales tax under MCL 205.56b.

While defendant concentrates heavily on plaintiff's obligation under the certificate to provide the customer with the option of purchasing a comparable tire for the full value of the refund, this is but one possible use of the refund. Under defendant's interpretation, plaintiff would be unable to obtain a refund or credit for sales tax remitted to defendant in cases where plaintiff refunded the customer's money and the customer merely walked out of the door with the refunded cash. Such a result is both contrary to the plain language of MCL 205.56b and to the underlying purpose of the sales tax.

Defendant next asserts that the trial court erred in not treating defendant's administrative Rule 16 as a valid legislative rule. According to defendant, had the court properly applied the rule, the only reasonable interpretation of MCL 205.56b would preclude plaintiff from obtaining a refund under the “returned goods” credit. We disagree.

Defendant issued Rule 16 to clarify the meaning of “returned goods” under the Sales Tax Act. The rule reads as follows:

Credits or refunds for returned goods, the sales of which have been subject to tax, may be deducted only if the goods are voluntarily returned for full exchange, an entire refund of purchase price, or full credit. When the property is returned within a reasonable time after the date of sale, and the purchase [sic] is made whole, a credit may be had on the tax paid on the rescinded sale․ [Mich Admin Code R 205.16.]

Rules adopted by an agency in accordance with the Administrative Procedures Act generally have the force and effect of law. Conlara, Inc v. State Bd of Ed, 442 Mich. 230, 239; 501 NW2d 88 (1993). These so-called legislative rules are invalid, however, if the agency that enacts it lacks statutory authority to enact such a rule, the rule is enacted through improper procedure, or the rule is unreasonable. Id. at 240. Any rule an agency issues without exercising delegated legislative power is an interpretive rule. Id . At 239. Such rules interpret and apply the provisions of the statute under which the agency in question operates and are invalid if they do more than specify the application of a legislative purpose implicit in the general language used by the legislature, if they conflict with the governing statute, if they extend or modify the statute, or if they have no relationship to a statutory purpose.” Id. at 240–241; 243 n26.

Here, no statute authorizes defendant to enact a definition of ‘returned goods” that carries the force and effect of law. As such, Rule 16 is not a valid legislative rule. Further, while Rule 16 can properly be construed as an interpretive rule, as it states defendant's interpretation of a statute, Rule 16 also changes the scope of, modifies, and narrows the “returned goods” credit in the Sales Tax Act. Even a cursory reading of Rule 16 evidences the fact that it contains far more restrictive language than MCL 205.56b. As such, it is invalid as a matter of law. Id.

In any event, even if we were to find Rule 16 is a valid legislative rule, plaintiff has met the requirements. First, the tires were voluntarily returned to plaintiff upon being irreparably damaged. True, there was damage to the tire, but just as instances where a person receives a gift and does not like it or buys an item that was defective from the beginning and returns it, the tire was nonetheless voluntarily returned instead of being retained by the customer. In each instance an outside influence or impact led to the item's return, but nothing forced the customer to return the item.

Second, the tire was returned for a full refund or credit. Defendant has not argued otherwise. Finally, while difficult to gauge, it could be argued that the tire was returned within a “reasonable time” after the date of sale. There is no indication when most of the tires were returned. However, for items that are intended to last many years, a reasonable time may indeed be within three years. The time period would certainly be different than the time period for a pair of soccer cleats for an 8–year–old. Because defendant did not further define this entirely subjective phrase in its rule and there is no indication when the tires at issue were returned, we cannot say that plaintiff failed to meet the requirements of this rule.

Defendant next contends that because plaintiff is not entitled to a credit for returned goods under MCL 205.56b, the use tax imposed upon any replacement tire provided is not duplicative. We disagree.

As indicated above, plaintiff is entitled to a credit for returned goods. Moreover, because the replacement tires that were purchased were purchased with the refunded money, they are retail goods as well and subject to sales tax, but not a use tax. The use tax is complimentary to the sales tax, and the two taxes cannot be imposed on the same transaction because the use tax does not apply to goods sold at retail. Gen Motors Corp v. Dep't of Treasury, 466 Mich. 231, 237; 644 NW2d 734 (2002); MCL 205.94(1)(c)(i ). Because the sales tax applies to goods sold at retail, the sales tax applies to both transactions under the certificate, and the use tax applies to neither. In sum, because plaintiff was entitled to a sales tax credit for returned goods on the original tires and the replacement tires were sold at retail, plaintiff is entitled to a return of the use taxes remitted to defendant on the replacement tires. While defendant complains that this results in plaintiff only remitting sales tax for one tire after the application of the returned goods sales tax credit, that is precisely what the tax credit allows for when a customer returns a good for a cash refund that is used to purchase another good at retail.

Affirmed.

PER CURIAM.