Auto-Owners Insurance Company v. Department of Treasury

STATE OF MICHIGAN

COURT OF APPEALS

AUTO-OWNERS INSURANCE COMPANY, FOR PUBLICATION
October 27, 2015
Plaintiff-Appellee, 9:00 a.m.

v No. 321505
Court of Claims
DEPARTMENT OF TREASURY, LC No. 12-000082-MT

Defendant-Appellant.

Before: GADOLA, P.J., and JANSEN and BECKERING, JJ.

PER CURIAM.

Defendant appeals as of right a final order for the refund for use taxes. We affirm.

I. FACTS

Plaintiff is a Michigan corporation headquartered in Lansing, Michigan. Plaintiff
provides insurance services and is represented by over 35,000 independent agents in 26 states.
Plaintiff entered into a variety of contracts between December 1, 2006, and December 31, 2010.
Many of these contracts used complex and “modern” computing arrangements between plaintiff
and the third-party companies, which led to the instant controversy regarding whether these
contracts were subject to Michigan’s Use Tax Act (UTA), MCL 205.91 et seq. The six main
categories of contracts include: (1) insurance industry specific contracts, (2) technology and
communications contracts, (3) online research contracts, (4) payment remittance and processing
support contracts, (5) equipment maintenance and software customer support contracts, and (6)
marketing and advertising contracts.

A. INSURANCE INDUSTRY SPECIFIC CONTRACTS

Plaintiff entered into six contracts in this category. First, plaintiff entered into a contract
to utilize the services of Marshall & Swift/Boeckh (“MSB”). MSB provides building
information to plaintiff. Plaintiff’s agents submit building factors to MSB through the Internet.
MSB then analyzes the data and provides plaintiff with a valuation number to aid plaintiff in
determining the appropriate value for building insurance. There is no indication in the record
that plaintiff used MSB’s software or had MSB software on its computers during the years at
issue. Plaintiff also entered into a contract to utilize the services of Valen Technologies, Inc.
(“Valen”). Valen provides services to help plaintiff evaluate risks and underwrite insurance
policies. Valen works with plaintiff to develop a model specifically tailored to plaintiff. With

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regard to the model, an agent for plaintiff enters information and data on the Internet through
plaintiff’s custom interface. The data is submitted to Valen, which runs the data through the
model. The result is a score from 1 to 20, with 1 representing the best account to underwrite, and
20 representing the worst account to underwrite. Valen operates its own software to run the
model, and plaintiff did not receive, license, or have access to Valen’s software.

Plaintiff also contracted with the Association for Cooperative Operations Research and
Development (“ACORD”), which is a nonprofit organization that aids in the development of
open consensus data standards and standard insurance forms. ACORD provides national
insurance standards that create a common coding system for data fields in insurance data
transmissions. The ACORD standards create the ability to employ a standard format for the flow
of information to and from insurance agencies and to governmental agencies. Plaintiff paid a
membership fee to ACORD during the tax years at issue and received ACORD’s data standards.
According to plaintiff, it did not purchase, receive, or license software from ACORD.

Plaintiff also contracted with CoreLogic’s Proxix Solutions (“Proxix”) with regard to its
business in Kentucky. Proxix provides a geospacial system, which identifies and verifies the
municipality in which a specific piece of property is located. In response to a database query,
plaintiff provides longitude and latitude information to Proxix. In response, Proxix verifies and
identifies where property is located. Plaintiff also contracted with IVANS, Inc. (“IVANS”),
which is an electronic communication service that aids in managing the confidentiality of data.
This system allows parties using different technology infrastructure to communicate. IVANS
uses a data exchange service to translate data from plaintiff to an agent system while plaintiff and
the agent system use their own technology infrastructure. When an agency writes a new
automobile insurance policy, the agency compiles information on its computers, and then that
information is sent via the IVANS data exchange system to plaintiff. Plaintiff uses the same
secured data line to send back the information that comprises the policy report. Plaintiff uses the
IVANS system by sending encrypted data to an IP address. Plaintiff also uses the IVANS
system to report information to government agencies, including delivering automobile policy
information to the state’s department of motor vehicles. Plaintiff did not receive or download
any software in regard to its use of the IVANS system.

Plaintiff also utilized Lexis-Nexis Choicepoint (“Lexis-Nexis”), which provides data on
motor vehicle records and sends electronic notices regarding motor vehicle coverage to secured
parties. With regard to the data program, an independent agent inputs information over the
Internet or uses an electronic form to conduct a search. Plaintiff’s computer system then sends
data to Lexis-Nexis, which utilizes its in-house database to provide more detailed information to
plaintiff. Plaintiff then forwards the results to the independent agent. Plaintiff cannot access the
database. Only plaintiff sent data to Lexis-Nexis, and Lexis-Nexis delivered information on the
basis of the input data. With regard to the electronic notices, Lexis-Nexis provides a web-based
electronic mailing service. Plaintiff collects information and sends the information through a
FTP (file transfer protocol) to Lexis-Nexis. Lexis-Nexis uses the information to send notices to
secured parties or lienholders.

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 B. TECHNOLOGY AND COMMUNICATIONS

Plaintiff entered into two contracts that fall under this category. The first contract was
with Cisco WebEx, LLC (“WebEx”). WebEx provides videoconferencing services, webinar
services, and online meeting services. The services work through a link to WebEx’s website.
According to plaintiff, there was no licensing involved, and only the meeting organizer was
required to have a license. WebEx also provides a support center, which several members of
plaintiff’s Automation Support unit downloaded. The support center is downloaded through a
click box, which opens a session on the user’s computer and works with WebEx in fixing any
problems.

Plaintiff also contracted with LogMeIn, which provides remote access so that an
employee can work on his home computer as if he were sitting at his desk at work. The
employee accesses LogMeIn through a website, or portal hosted by LogMeIn, and inputs a
password. In order for the system to work, an incidental local client, or desktop agent, must be
installed locally on each personal computer using the system. LogMeIn also provides thumb and
flash drives that can be used to access the system from a third-party computer. According to
plaintiff, it did not receive any additional property or software from LogMeIn.

C. ONLINE RESEARCH

Plaintiff also contracted with West, a Thomson Reuters business, in order to conduct
legal research by using its online database service. West provides its services through the
Internet, and plaintiff did not receive any disks or software from West. Plaintiff also contracted
with Wolters Kluwer for an online subscription to Insource Services (“NILS”). The subscription
includes insurance-specific laws, filing guidelines, attorneys general opinions, and bulletins. The
online services are housed with Wolters Kluwer, and not with plaintiff. Although plaintiff
received a portion of the NILS materials (excluding insurance filing guidelines) in book and print
materials, it argues that it subscribed with the intention of obtaining online access, not the printed
materials.

D. PAYMENT REMITTANCE AND PROCESSING SUPPORT

Plaintiff contracted with RT Lawrence (“RTL”) for payment processing services. RTL’s
system uses scanners to capture images of checks and stubs and software to validate data and
compare amounts. RTL’s software was loaded onto plaintiff’s computers. The software uses
plaintiff’s scanners to process information. The scanners capture images of both the check and
the stub, and use plaintiff’s internal codes to minimize user verification by comparing amounts
and validating data. Plaintiff also contracted for support and maintenance of the scanners,
training, and customer support. According to plaintiff, the transaction that was taxed was solely
for software maintenance and support.

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 E. EQUIPMENT MAINTENANCE AND SOFTWARE CUSTOMER SUPPORT

Plaintiff also contracted with several companies with regard to software it had already
purchased, including with Data Center Management Systems, Duck Creek, GT Software, and
Software AG USA. Plaintiff contends that all the transactions that were taxed involved support
and maintenance of existing software. The invoice that Data Center Management Systems sent
to plaintiff states that plaintiff was billed for maintenance. The invoice related to Duck Creek
provides that plaintiff was billed for maintenance. The invoice at issue with regard to GT
Software indicates that plaintiff was billed a “Software Fee” in relation to a software upgrade.
However, the contract between plaintiff and GT Software provides that 12% of the software
licensing fee is for maintenance and support. Plaintiff sought a refund for the use tax paid on the
amount that constituted maintenance and support. Software AG’s invoices do not clarify
whether Software AG billed plaintiff for software or for maintenance. However, the contract
between Software AG and plaintiff provides that $73,210 of the software price is for technical
services. Plaintiff sought a refund for the taxes paid on this amount.1

F. MARKETING AND ADVERTISING

Plaintiff also entered into several contracts with marketing and advertising companies,
including Third Person Creative (“TPC”), Harvest Music and Sounddesign (“Harvest”), and
Main Media Marketing (“MMM”). TPC reviewed plaintiff’s marketing prices and provided
ideas related to branding. TPC also provided marketing strategies, conducted investigations, and
provided ideas for advertisements. Harvest wrote and produced commercials for plaintiff.
Plaintiff received digital files containing the commercials. MMM established websites and
developed search engine optimization queries for plaintiff. MMM also hosted websites and
implemented a pilot program on the Internet for plaintiff.

II. PROCEDURAL HISTORY

Defendant conducted a use-tax audit of plaintiff covering December 1, 2006, to
December 31, 2010. The auditors determined two bases for use tax liability: (1) fixed asset
purchase, and (2) expense items by looking at purchases. The auditors reviewed the fixed-asset
purchases for the entire audit period. In regard to expense items, the auditors used a block
sampling method with 2010 as the sample year. On March 28, 2012, defendant issued a bill for
taxes due and assessed a use-tax deficiency and interest for a total of $871,625.24. Plaintiff paid
the amount due, as well as additional interest, under protest.

1
There were a number of other transactions in this category. However, neither party discusses
the other transactions in this category on appeal. Plaintiff argues that all of the transactions in
this category involved support and maintenance of existing software. Defendant does not
challenge this assertion with regard to the transactions that the parties do not mention on appeal.
Therefore, to the extent that defendant challenges any other transactions in this category,
defendant abandons the argument on appeal. See Woods v SLB Prop Mtg, LLC, 277 Mich App
622, 626-627; 750 NW2d 228 (2008) (“ ‘[A]n appellant’s failure to properly address the merits
of his assertion of error constitutes abandonment of the issue.’ ”) (citation omitted).

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 On June 29, 2012, plaintiff filed a complaint in the Court of Claims, seeking a refund of
the use tax paid to defendant. Plaintiff asserted (1) that the products were not prewritten
computer software, (2) that under Catalina Mktg Sales Corp v Dep’t of Treasury, 470 Mich 13;
678 NW2d 619 (2004), any software involved was incidental to the services the products
provided, (3) that defendant unlawfully assessed Michigan use tax on transactions subject to
Michigan sales tax, and (4) that defendant used improper audit methods. After discovery was
conducted, plaintiff moved for summary disposition under MCR 2.116(C)(10). Defendant filed
a response, arguing that plaintiff was not entitled to summary disposition and that summary
disposition in favor of defendant was proper under MCR 2.116(I)(2).

The Court of Claims granted plaintiff’s motion for summary disposition under MCR
2.116(C)(10). The Court of Claims first determined that the transactions were not subject to use
tax since the software involved in the case was not “delivered by any means.” Focusing on the
dictionary definition of the word “deliver,” the Court of Claims held that the software was not
“handed over, left, or transferred” to plaintiff because any software remained on the third-party
server, and what was transferred to plaintiff was information that has been processed using the
third-party’s software, hardware, and infrastructure. The Court of Claims also noted that the
Legislature could not have contemplated the transactions involved because on the effective date
of the relevant statute, September 1, 2004, software was delivered electronically or physically,
and the court would have to extend the construction of the phrase “delivered by any means” in
order to include remote access technology. The Court of Claims next held that even if
“prewritten computer software” was “delivered” to plaintiff, defendant’s assessment would still
be invalid because plaintiff did not exercise the requisite “use” to subject the software to
Michigan’s use tax. The court held that plaintiff had no control over the underlying software
used by the third-party companies to complete the necessary tasks. Instead, plaintiff was only
able to input data in order to control outcomes.

The court next held that even if “prewritten computer software” was “delivered” to and
“used” by plaintiff, such use was merely incidental to the services rendered by the third-party
providers and would not subject the overall transactions to use tax. The court did not address
plaintiff’s argument that it cannot be held responsible for use tax simply because the sales took
place within Michigan, or plaintiff’s argument challenging defendant’s audit methods. The
Court of Claims also entered a final order for refund of taxes.

III. STANDARD OF REVIEW

This Court reviews de novo a trial court’s decision regarding a motion for summary
disposition. Williams v Enjoi Transp Solutions, 307 Mich App 182, 185; 858 NW2d 530 (2014).
“In reviewing a grant of summary disposition under MCR 2.116(C)(10), this Court considers the
pleadings, admissions, and other evidence submitted by the parties in the light most favorable to
the nonmoving party.” Id. Summary disposition is appropriate when there is no genuine issue of
material fact and the party moving for summary disposition is entitled to judgement as a matter
of law. Id.

The UTA is analyzed under the general rules of statutory interpretation. Ameritech
Publishing, Inc v Dep’t of Treasury, 281 Mich App 132, 135; 761 NW2d 470 (2008). We
review de novo issues of statutory interpretation. Id. at 135-136. We construe a statute in order

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to determine and give effect to the Legislature’s intent. Id. at 136. “The goal of statutory
interpretation is to discern the intent of the Legislature by examining the plain language of the
statute.” Aroma Wines & Equip, Inc v Columbian Distrib Servs, Inc, 303 Mich App 441, 447;
844 NW2d 727 (2013), aff’d 497 Mich 337 (2015). “If the language employed by the
Legislature is unambiguous, the Legislature is presumed to have intended the meaning clearly
expressed, and this Court must enforce the statute as written.” Ameritech Publishing, Inc, 281
Mich App at 136. “Tax laws will not be extended in scope by implication or forced
construction.” Id. An ambiguity in a tax law is construed in favor of the taxpayer. See id.

IV. USE OF PREWRITTEN COMPUTER SOFTWARE

Defendant argues that the Court of Claims erred when it determined that the transactions
were not taxable under the UTA. We disagree.

The UTA is designed to cover actions that are not covered under the general sales tax act
(GSTA), MCL 205.51 et seq. WPGP1, Inc v Dep’t of Treasury, 240 Mich App 414, 416; 612
NW2d 432 (2000).

A sales-use tax scheme is designed to make all tangible personal property,
whether acquired in, or out of, the state subject to a uniform tax burden. Sales
and use taxes are mutually exclusive but complementary, and are designed to
exact an equal tax based on a percentage of the purchase price of the property in
question. [Catalina, 470 Mich at 19 n 3 (citation and quotation marks omitted).]

The use tax is levied “for the privilege of using, storing, or consuming tangible personal
property” in Michigan. MCL 205.93(1). The use tax is assessed “at a total combined rate equal
to 6% of the price of the property or services.” Id.

“Use” is defined in the UTA as “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.” MCL 205.92(b). The UTA does not explain what a right
or power incident to ownership of tangible personal property entails. However, this Court has
held that the key feature in determining whether a party exercised a right or power over tangible
personal property is whether the party had some level of control over the tangible personal
property. See WPGP1, Inc, 240 Mich App at 417-419 (noting that the plaintiff did not “use”
airplanes under the meaning of the term in the UTA since the plaintiff did not have control over
them).

“Tangible personal property” is defined as “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.” MCL 205.92(k) (emphasis
added). The UTA defines “prewritten computer software” as “computer software, including
prewritten upgrades, that is delivered by any means and that is not designed and developed by
the author or other creator to the specifications of a specific purchaser.” MCL 205.92b(o)
(emphasis added). Finally, the UTA defines “computer software” as “a set of coded instructions
designed to cause a computer or automatic data processing equipment to perform a task.” MCL
205.92b(c).

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 The UTA does not define the term “deliver.” However, this Court may consult a
dictionary definition to determine the plain and ordinary meaning of a term. Aroma Wines, 303
Mich App at 447.2 The Merriam-Webster’s Collegiate Dictionary (2014) defines the term
“deliver,” in relevant part, as “to take and hand over to or leave for another: CONVEY,” and “to
send (something aimed or guided) to an intended target or destination.” The UTA, therefore,
requires that the prewritten computer software be conveyed or handed over by any means. See
MCL 205.92b(o); Merriam-Webster’s Collegiate Dictionary (2014). Therefore, the transactions
at issue in this case were taxable under the UTA if plaintiff exercised control over a set of coded
instructions that was conveyed or handed over by any means and was not designed and
developed by the author or other creator to the specifications of a specific purchaser. See MCL
205.92(k); MCL 205.92b(c) and (o); Merriam-Webster’s Collegiate Dictionary (2014).

We first note that the Court of Claims incorrectly determined that all software remained
on a third-party server. The Court of Claims focused its analysis on the phrase “that is delivered
by any means” in the definition of “prewritten computer software,” holding that this phrase
created a requirement that the software be “delivered” (i.e., handed over, left, or transferred).
The court held that no software was ever “delivered” because all software remained on the third-
party servers, and what was transferred to plaintiff was information that had been processed
using the third-party’s software, hardware, and infrastructure. However, a desktop agent was
installed on each computer with regard to LogMeIn, and RTL used software that runs locally on
plaintiff’s computers. Therefore, the Court of Claims erred to the extent that it found that all
software was located on third-party servers.

In addition, the Court of Claims applied a narrow definition of the term “deliver” without
examining how the term operates in the broader context in which it is placed. The meaning of
language cannot be divorced from the context in which it is found. Rental Props Owners Ass’n
of Kent Co v Kent Co Treasurer, 308 Mich App 498, 508; 866 NW2d 817 (2014) (“ ‘Unless
statutorily defined, every word or phrase of a statute should be accorded its plain and ordinary
meaning, taking into account the context in which the words are used.’ ”) (citation omitted). The
phrase “delivered by any means” indicates that the Legislature was aware that software could be
purchased at a store and “delivered” by tangible storage media, or purchased online and
“delivered” electronically. See MCL 205.92b(o). By using the word “any,” the Legislature
made plain that the means by which the software is delivered is immaterial. Therefore, the Court
of Claims improperly narrowed the scope of the term “deliver” to preclude electronic delivery.
See MCL 205.92b(o); Rental Props Owners Ass’n, 308 Mich App at 508. However, the Court of
Claims correctly determined that the mere transfer of information and data that was processed
using the software of the third-party businesses does not constitute delivery by any means of

2
We disagree with defendant’s assertion that the meaning of the term “deliver” is readily
discernable from reading the statute itself. Plaintiff and defendant dispute whether the term
“deliver” includes accessing the functionality of prewritten computer software, and the statute
does not clarify this point. Therefore, the plain and ordinary meaning of the term is unclear, and
it is proper to consult a dictionary to determine the plain and ordinary meaning. See Aroma
Wines, 303 Mich App at 447.

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prewritten computer software. See MCL 205.92b(o). In that situation, no prewritten computer
software is delivered, and only data resulting from third-party use of software is delivered. See
id.

The majority of the transactions in this case were not taxable under the UTA because
they did not involve the delivery of prewritten computer software by any means. With regard to
West, plaintiff never exercised an ownership-type right or power over any West computer
software. Instead, all the code remained on West’s server. West controlled the code, maintained
it, and updated it as it saw fit. Plaintiff only accessed a website that allowed it to submit requests
to the West system that controlled the code. Accessing West’s code in such a limited manner is
not an exercise of a right or power over the code incident to the ownership of that code because
accessing the code in such a limited manner does not signify ownership. Therefore, plaintiff did
not use tangible personal property with regard to West. See MCL 205.92(b); MCL 205.92b(o);
WPGP1, Inc, 240 Mich App at 417-419.

The same is true for the online services provided by Wolters Kluwer. Plaintiff accessed
the Wolters Kluwer system via web browser, and plaintiff never had access to any of the code
that enabled the Walters Kluwer website and its features. Therefore, plaintiff never used
prewritten computer software from Wolters Kluwer under the meaning of the UTA. See MCL
205.92(b); MCL 205.92b(o).3 However, plaintiff did receive print materials from Wolters
Kluwer, which constitutes tangible personal property. See MCL 205.92(k). Plaintiff exercised a
right over the print materials incident to ownership since plaintiff received the print materials
from Wolters Kluwer, had possession over the print materials, and was able to use them at will.
See MCL 205.92(b); WPGP1, Inc, 240 Mich App at 417-419. Therefore, plaintiff used tangible
personal property under the meaning of the UTA in connection with the print materials. See id.

In regard to MSB, plaintiff’s computer system sent data electronically to MSB, MSB
processed the data, and then MSB sent back a number indicating the appropriate value for the
building insurance. Under this arrangement, plaintiff never had access to any of the code that
enabled MSB’s system. The same is true for Valen. Plaintiff’s computer system sent data
electronically to Valen, Valen processed the data through its econometric model, and Valen
returned a numerical score from 1 to 20 to plaintiff. Plaintiff never had access to any of the code
that enabled Valen’s system. Likewise, with Proxix, plaintiff queried the Proxix database for
longitude and latitude information to identify the Kentucky municipality in which a specific
Kentucky property was located. Plaintiff never had access to any of the code that enabled
Proxix’s system. Thus, plaintiff never used prewritten computer software with regard to these
companies. See MCL 205.92(b); MCL 205.92b(o); WPGP1, Inc, 240 Mich App at 417-419.

3
Defendant determined that the transactions involved prewritten computer software on the basis
of the contracts between plaintiff and the third-party companies. However, the agreements do
not establish that prewritten computer software was delivered. Instead, to the extent that the
agreements provide for the delivery of prewritten computer software, the agreements only
contemplate the delivery on a future date and do not indicate that prewritten computer software
was delivered on the dates that the agreements were signed. See MCL 205.92b(o).

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 Similarly, TPC reviewed plaintiff’s marketing prices and provided ideas related to
branding and advertising. Harvest wrote and produced commercials for plaintiff. MMM
established websites and developed search engine optimization queries for plaintiff. MMM also
hosted websites and implemented a pilot program on the Internet for plaintiff. None of the three
marketing and advertising companies delivered prewritten computer software to plaintiff.
Plaintiff never had access to any of the code that enabled the systems of TPC, MMM, or Harvest.
Therefore, these transactions were not subject to taxation under the UTA. See MCL 205.92(b);
MCL 205.92b(o).

With Lexis-Nexis, plaintiff’s computer system sent data electronically to Lexis-Nexis,
and Lexis-Nexis processed the data and then returned more detailed information to plaintiff.
Plaintiff never had access to any of the code that enabled the Lexis-Nexis system. As for
sending notices to lienholders and secured parties, plaintiff uploaded a file to the Lexis-Nexis
server, and then Lexis-Nexis processed that file and sent out the necessary notices. Likewise,
under this arrangement plaintiff never had access to any of the code that enabled the Lexis-Nexis
system. Therefore, plaintiff did not use tangible personal property under the meaning of the
UTA with regard to Lexis-Nexis. See MCL 205.92(b); MCL 205.92b(o); WPGP1, Inc, 240
Mich App at 417-419.

Plaintiff never had access to any ACORD code because there is no ACORD code. The
“data standards information” that ACORD provides is not “computer software” because it does
not “cause a computer to perform a task.” See MCL 205.92b(c). Rather, all plaintiff has is
access to a list of standards that help it and the other members use a common coding system for
their data fields. Similarly, plaintiff contracted with IVANS to use its secure communication
infrastructure, which IVANS built and maintains. Plaintiff never had access to any code that
enabled the IVANS system, and plaintiff used its own code to access the IVANS system.
Therefore, plaintiff did not use tangible personal property under the meaning of the UTA with
regard to IVANS and Accord. See MCL 205.92(b); MCL 205.92b(o); WPGP1, Inc, 240 Mich
App at 417-419.

Finally, plaintiff entered into a number of contracts with software companies to provide
maintenance and support services. The transactions with Data Center Management Systems and
Duck Creek involved software maintenance. Defendant failed to present evidence in the Court
of Claims showing that prewritten computer software was delivered to plaintiff in connection
with the transactions with Data Center Management Systems and Duck Creek. Instead, plaintiff
presented evidence that it transacted with the companies for software support and maintenance.
Therefore, the support and maintenance transactions were not subject to taxation under the UTA
since they involved the provision of services, rather than the delivery by any means of prewritten
computer software. See MCL 205.92(b); MCL 205.92b(o). As noted above, plaintiff conceded
in its motion for summary disposition that the transactions involving GT Software and Software
AG included the purchase of software. However, plaintiff argued that the invoices included
amounts for maintenance and support, and plaintiff requested a refund with regard to these
amounts. Plaintiff was entitled to a refund with regard to these amounts since the cost for
maintenance and support was separately listed in the agreements between the parties, and no
prewritten computer software was delivered to plaintiff in exchange for the amount taxed for
software maintenance and support. MCL 205.92(b); MCL 205.92b(o).

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 However, plaintiff received prewritten computer software that was delivered to it with
regard to several of the transactions at issue in this case. With regard to WebEx, plaintiff
purchased access to a network that is designed and used for web-conferencing. Plaintiff
accessed the WebEx system via the WebEx website and never had access to any code that
enabled the WebEx system. See MCL 205.92(b); MCL 205.92b(o). However, WebEx provided
a support center, which was downloaded onto several computers and aided the user in fixing
problems. The support center constituted computer software since it was a set of coded
instructions designed to cause a computer or automatic data processing equipment to perform a
task. See MCL 205.92b(c). The prewritten computer software was delivered to plaintiff since it
was downloaded onto plaintiff’s computers at plaintiff’s request. See MCL 205.92b(o). Plaintiff
had control over the control center when it used the program. It did not merely access the
functionality of the software. See id. Therefore, plaintiff exercised an ownership-type right or
power over the support center since the software was installed on plaintiff’s computers, and
plaintiff was able to control when and how the software was used. See MCL 205.92(b);
WPGP1, Inc, 240 Mich App at 417-419.

Plaintiff also used prewritten computer software provided by RTL. The software was
delivered since plaintiff had actual possession of the software. Plaintiff ran the software on its
own computers and used the software at its own will. Under these circumstances, plaintiff
exercised an ownership-type right or power over the software from RTL by taking possession of
the software, physically installing the software on its computers, and using the software as it
wished. See MCL 205.92(b); MCL 205.92b(o); WPGP1, Inc, 240 Mich App at 417-419.
Plaintiff did not merely access the functionality of the software. See WPGP1, Inc, 240 Mich
App at 417-419. Plaintiff argues that defendant taxed the remaining balance on an invoice for
maintenance of the RTL software, rather than for the software itself. RTL sent plaintiff an initial
invoice with regard to the transaction at issue, and RTL later sent plaintiff an invoice for the
remaining balance on the initial invoice. The first entry on the initial invoice was for software,
and the remaining entries were for support. The invoice for the remaining balance did not
separately list the amount owed for maintenance and support. Thus, the transaction at issue
involved the delivery by any means of prewritten computer software since prewritten computer
software was delivered to plaintiff, and there is no indication that the transaction that was taxed
only involved the provision of services. See MCL 205.92(b); MCL 205.92b(o); WPGP1, Inc,
240 Mich App at 417-419.

With regard to LogMeIn, plaintiff used a remote access agent that LogMeIn supplied and
that was necessary to run locally on plaintiff’s machines in order to access the network and its
features. The local client, or desktop agent, was installed on each computer. The desktop agent
constituted prewritten computer software since it included a set of coded instructions designed to
cause the computer to perform a task. See MCL 205.92b(c). The software was delivered since
plaintiff had actual possession of the desktop agents. Plaintiff used the software since it ran the
software on its own computers and could control the software at its own will. See MCL
205.92(b); WPGP1, Inc, 240 Mich App at 417-419. Plaintiff also received a number of flash
drives and thumb drives from LogMeIn, which also constitute tangible personal property. See
MCL 205.92(k). Under these circumstances, plaintiff exercised an ownership-type right or
power over tangible personal property by taking possession of the property, physically installing
the software on its computers, and using the software and drives as it wished. See MCL

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205.92(b). Therefore, plaintiff used the tangible personal property provided by LogMeIn under
the meaning of the term in the UTA. See id.

V. INCIDENTAL TO SERVICE TEST

Although plaintiff exercised a right or power over tangible personal property, the transfer
of tangible personal property was incidental to the rendering of professional services. The test
for determining whether a business relationship that involves both the transfer of personal
property and the provision of services constitutes a nontaxable service or a taxable property
transaction is the “incidental to service” test. Catalina, 470 Mich at 24. “The ‘incidental to
service’ test looks objectively at the entire transaction to determine whether the transaction is
principally a transfer of tangible personal property or a provision of a service.” Id. at 24-25. The
Michigan Supreme Court in Catalina adopted the following six-factor test for determining
whether the transfer of tangible personal property is incidental to the rendering of professional
services:

In determining whether the transfer of tangible property was incidental to
the rendering of personal or professional services, a court should examine what
the buyer sought as the object of the transaction, what the seller or service
provider is in the business of doing, whether the goods were provided as a retail
enterprise with a profit-making motive, whether the tangible goods were available
for sale without the service, the extent to which intangible services have
contributed to the value of the physical item that is transferred, and any other
factors relevant to the particular transaction. [Id. at 26.]4

The software and other tangible personal property provided to plaintiff were incidental to
the services that the companies provided to plaintiff. The first factor concerns what plaintiff
sought as the object of the transactions. For WebEx, Auto-Owners primarily sought access to
networking infrastructure. With regard to RTL, plaintiff sought a system that could capture
images of checks and stubs, validate the data on the checks and stubs, and compare it to other
data to minimize user verification. For the transactions with Wolters Kluwer, plaintiff sought
online information services. However, with regard to LogMeIn, plaintiff sought the software and
drives that were designed to allow remote computer access, as well as the web-based access.

4
The Michigan Supreme Court articulated the incidental to service test in the context of a
challenge under the GSTA, rather than the UTA. See Catalina, 470 Mich at 25. However,
neither party challenges whether the incidental to service test applies with regard to the UTA.
Furthermore, the test that the Michigan Supreme Court articulated applies broadly to all business
relationships that involve both the provision of services and the transfer of personal property.
See id. at 24. The Court did not limit the standard to transactions under the GSTA. See id. at 14,
24-26.

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Thus, this factor weighs in favor of plaintiff for every transaction except for the transaction with
LogMeIn. See Catalina, 470 Mich at 26.

The second factor concerns what the seller or service provider is in the business of doing.
WebEx provides access to networking infrastructure that it maintains. RTL is in the business of
streamlining remittance processing, reconciliation, and research. LogMeIn is in the business of
providing a system that is designed to allow remote computer access. Wolters Kluwer is in the
business of providing information services. Thus, all of the businesses provide services.
Therefore, this factor weighs in favor of plaintiff. See Catalina, 470 Mich at 26.

The third factor is whether the tangible personal property was provided as part of a retail
enterprise with a profit-making motive. All the transactions that involved the transfer of
personal property occurred with for-profit retail enterprises. However, each business had a
motive to profit from providing a service to plaintiff, rather than from providing tangible
personal property to plaintiff. With regard to RTL, the motive of the company is to provide
payment and remittances services. The software that was downloaded on plaintiff’s computers
was only an insignificant part of the overall transaction. See Catalina, 470 Mich at 26. WebEx
had a motive to provide web-based conference services, and the support center was a minor part
of the larger enterprise. See id. Wolters Kluwer also had a motive to provide information
services, rather than tangible property. See id. The issue is a closer call with regard to LogMeIn.
LogMeIn provided desktop agents and thumb or flash drives to users in order to facilitate the
remote access program. However, the required software was minimal in light of the extensive
computing and networking infrastructure that LogMeIn maintained so that the software could
operate properly. Therefore, this factor weighs in plaintiff’s favor as well. See id.

The fourth factor is whether the tangible goods were available for sale without the
service. For all the transactions, there is no indication that plaintiff could purchase any
underlying tangible personal property without purchasing the services. Instead, plaintiff
obtained the tangible personal property only when it contracted for services. There is no
indication that any of the companies provided software or other tangible personal property apart
from the services it provided. Thus, this factor weighs in favor of plaintiff. See Catalina, 470
Mich at 26. The fifth factor is the extent to which intangible services have contributed to the
value of the physical item that is transferred. Here, the prewritten computer software and other
tangible personal property provided had no value without the associated services. The only
tangible personal property that may have had some value apart from the services was the print
materials provided by Wolters Kluwer. Therefore, this factor weighs in favor of plaintiff for
each transaction except for the transaction with Wolters Kluwer. See id.5

Considering all of the factors together, the tangible personal property was incidental to
the services that plaintiff received. With regard to Wolters Kluwer, RTL, LogMeIn, and WebEx,
plaintiff contracted with the businesses in order to receive services, and the tangible personal

5
We do not find any other factor relevant in determining whether the transfer of tangible
personal property was incidental to the provision of services as the first five factors encompass
the main features of each transaction. See Catalina, 470 Mich at 26.

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property was merely incidental to the provision of services. There is no indication that plaintiff
could purchase the software or other tangible personal property independent of the services, and
the services gave value to the software and other tangible personal property. See Catalina, 470
Mich at 26. Therefore, the transactions were not taxable under the UTA. See id. Accordingly,
the trial court did not err in granting plaintiff’s motion for summary disposition. See id. We
need not address the other issues raised in defendant’s brief on appeal since we conclude that the
trial court properly determined that the transactions were not subject to taxation under the UTA.

Affirmed. No costs, a public question being involved. See MCR 7.219(A).

/s/ Michael F. Gadola
/s/ Kathleen Jansen
/s/ Jane M. Beckering

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