Michigan National Bank v. Department of Treasury

Bronson, J.

(dissenting). I respectfully dissent. I am willing to assume arguendo that the items in question, South African Krugerrands, constitute "tangible personal property” subject to sales taxation under MCL 205.51 et seq.; MSA 7.521 et seq., 1979 AC, R 205.5.1 Nonetheless, I believe that the *657imposition of sales tax upon plaintiff was inappropriate because plaintiff was not "engaged in the business of making sales at retail”, MCL 205.52; MSA 7.522.

Several Supreme Court cases indicate that where a company merely accepts orders from Michigan customers and fills those orders through an out-of-state source, at the customers’ request, the company is not "making sales at retail” for sales tax purposes. See Montgomery Ward & Co, Inc v Fry, 277 Mich 260; 269 NW 166 (1936). See, also, J B Simpson, Inc v O’Hara, 277 Mich 55; 268 NW 809 (1936). In each case, the plaintiff was ostensibly a retail store located in Michigan which took orders from Michigan customers after providing those customers with a catalogue or series of samples. The orders were then forwarded to an out-of-state wholesaler or manufacturer, where they were filled. The out-of-state source then sent the ordered goods to the plaintiff, or in the case of Montgomery Ward, supra, directly to the customer. In each case, the Supreme Court held that imposition of a sales tax on such a transaction violated the federal interstate commerce clause, Montgomery Ward, supra, pp 268-269; Simpson, supra, p 59. Implicit in each holding was the observation that the plaintiff, by limiting its role to the mere taking of orders to be filled out of state, was not acting as a Michigan retailer, or in the language of the statute, was not "making sales at retail” to its Michigan customers.

In the present case, the petitioner bank had a similarly limited role. It merely accepted orders from its Michigan customers for the delivery of certain coins and, at the customers’ request, for*658warded those orders to an out-of-state dealer. Although the coins were shipped to petitioner rather than directly to the customers, cf. Montgomery Ward, supra, petitioner here did not resell the coins in Michigan, but instead merely notified its customers that delivery had been completed.

"Sale at retail” is defined in the General Sales Tax Act as "a transaction by which is transferred for consideration the ownership of tangible personal property”. (Emphasis added.) MCL 205.51(l)(b); MSA 7.521(l)(b). Thus, in order to consummate a "sale at retail”, the owner must transfer its ownership. Under the facts presented, petitioner was never the owner of any of the coins ordered by Michigan customers. Instead, the owner was the out-of-state dealer who undertook to fill each order. "Ownership” connotes the right to use and enjoy property, to exercise dominion over it, and to transmit the property for whatever amount of consideration the owner may desire. In the present case, once petitioner had received an order to be filled by an out-of-state dealer, it was required to hold the order until the customer came to take delivery. Petitioner had no right to charge the customer any price other than that which the dealer had quoted telephonically and, more important, had no right to transmit the coin to anyone other than the customer who ordered it. In cases where a customer failed to take delivery, petitioner was required to return the coins to the out-of-state dealer; petitioner did not have the option of reselling the coins to a third party. Most important, petitioner could never exercise dominion over the coins nor could it use or enjoy them as would a true "owner” of property. In short, petitioner enjoyed none of the benefits of "ownership” with respect to these coins. Under these circumstances, *659I find it highly inequitable to characterize petitioner as an "owner” capable of effecting a "sale at retail” for taxation purposes.

Beitzel v Dep’t of Revenue, 2 Mich App 311; 139 NW2d 780 (1966), relied on by the Tax Tribunal and cited by the majority, does not compel a contrary conclusion. The majority concedes that it was decided on completely different grounds. There was no discussion of whether a company’s function of merely taking orders for customers, to be filled by out-of-state suppliers, constitutes a "sale at retail”. In that case, the taxpayer who took the orders did more than just provide an order-taking service; instead, it actually made a profit by billing local customers at a mark-up from its cost to the out-of-state suppliers. Contrast the present case, where petitioner takes no mark-up whatsoever and where the compensation for its services is at most a nominal fee to cover costs and a measure of goodwill from its customers.

Another crucial factor distinguishing Beitzel from the present case is that, in Beitzel, the company taking orders was in the business of selling materials similar to those which its local customers ordered, namely, novelty advertising items. In this regard, I find it significant that the General Sales Tax Act defines retail sales not only as those in which ownership is transferred but also those in which the transfer is made "in the ordinary, course of the transferor’s business”. MCL 205.51(l)(b); MSA 7.521(l)(b). There has been no showing whatsoever that the "ordinary course” of petitioner’s business as a bank includes the function of taking orders for its customers to buy gold through out-of-state suppliers. This function instead appears to be something of a courtesy which is at best incidental to petitioner’s business as a bank. I would find *660that petitioner is not "making sales at retail” for purposes of the Michigan General Sales Tax Act. The question remains, however, whether petitioner could properly be responsible for paying a use tax on the coins delivered through the program in question.

The Tax Tribunal found that even if petitioner were not liable to pay any sales tax it was required to pay a use tax based, upon its role as "agent” for out-of-state dealers. I believe that this finding was inappropriate for two reasons. First, the respondent never even assessed a use tax against petitioner, and neither party raised the issue at any stage of the proceedings below. Accordingly, it was improper to base its decision even in part upon a use tax theory without affording the parties an opportunity to fully address the issue. At best, the tribunal’s findings with respect to the use tax were premature.

However, there is a second, more important reason why it was inappropriate to find petitioner liable for payment of a use tax. Even if the transactions in question are subject to a use tax, the direct incidence of that tax must fall upon one of the actual parties to the transaction; namely, either the out-of-state seller or the Michigan customer who orders and purchses the coins.

The Use Tax Act was enacted to supplement the General Sales Tax Act by imposing a tax on tangible personal property purchased out of state for use, storage or consumption in this state. See Nat'l Bank of Detroit v Dep’t of Revenue, 334 Mich 132, 141; 54 NW2d 278 (1952). The purpose of the use tax was to counteract the tendency of customers to go out of state to purchase tangible personal property which would be used or stored in Michigan. Imposition of the use tax had the *661effect of removing a competitive advantage enjoyed by non-Michigan merchants as a result of this practice.

Under the Use Tax Act, any person engaged in the business of selling tangible personal property for storage or use in this state is required to register with defendant, MCL 205.95(a); MSA 7.555(5)(a). Under administrative rules promulgated by respondent, only those out-of-state sellers who actively solicit sales of tangible personal property in Michigan are required to register. 1979 AC, R 205.26(a). If the seller is not actively soliciting sales of such property in Michigan, the tax must be borne by the end user or consumer, MCL 205.96(1); MSA 7.555(6)(1); MCL 205.97; MSA 7.555(7). The customer buying goods from a non-registered out-of-state seller must file a use tax return with respondent, 1979 AC, R 205.26(b). Similarly, where sales are made out of state, the seller is not required to register, and respondent’s sole remedy is against the consumer. J B Simpson, Inc v State Bd of Tax Administration, 297 Mich 403, 406; 298 NW 81 (1941).

Although little evidence was presented as to this issue, it is apparent from the record that the out-of-state dealers in question here do not actively solicit business in this state. It follows that these dealers were not required to register with respondent for payment of use taxes. Accordingly, unless it can be established that petitioner acted as an "agent” on behalf of these dealers in negotiating the transactions or otherwise securing the latter’s business in Michigan, it appears that respondent’s sole remedy is against the customers who order, and take delivery of, the coins. J B Simpson, Inc v State Bd of Tax Administration, supra; MCL 205.96(1); MSA 7.555(6)(1).

*662I question the tribunal’s characterization of petitioner as the out-of-state dealers’ "agent”. In this context the term "agent” connotes a party with a measure of discretionary authority to act on behalf of the principal in negotiating a transaction or otherwise securing the principal’s business. Cf. Lincoln v Fairfield-Nobel Co, 76 Mich App 514, 518; 257 NW2d 148 (1977); Saums v Parfet, 270 Mich 165; 258 NW 235 (1935). No evidence was presented, and certainly none was cited, in support of the tribunal’s characterization of petitioner as an "agent”. For example, respondent did not establish that any out-of-state dealer had expressly or impliedly conferred upon petitioner any authority to negotiate a price on behalf of the dealer or, for that matter, any authority to negotiate on behalf of any customer who placed an order. Nor did petitioner ever hold itself out as an "agent” acting on behalf of either party. Instead, petitioner properly characterizes its role as that of a "conduit” whose sole purpose was to bring the out-of-state seller and Michigan purchaser together.

I would hold that the imposition of sales tax was improper for lack of evidence that petitioner was acting as a retailer and would further hold that there was insufficient evidence upon which respondent could have based any imposition of use tax. Respondent’s sole remedy for collection of use taxes is against the Michigan customers who took delivery of the coins. Accordingly, I would reverse the assessment of taxes against petitioner.

I take this position despite the fact that the provisions distinguishing "tangible” from "intangible” property create an ambiguity which, according to established rules of statutory construction, must be resolved in favor of the taxpayer. Detroit v Norman Allan & Co, 107 Mich App 186, 191; 309 NW2d 198 (1981); In re Dodge Bros, 241 Mich 665, 669; 217 NW 777 (1928). The ambiguity 'is created by the fact that "tangible” property, left undefined by the General Sales Tax Act, supra, is defined by administrative rule as including "all * * * commodities * * * and substances capable of being exchanged”, yet "intangible property” is expressly defined by the intangibles tax act, MCL 205.131 et seq.; MSA 7.556(1) et seq. as "monies on hand or on deposit”, arguably including foreign currency. Since the legislative definition of intangibles could conceivably be broad enough to include foreign currencies, even where the currency is minted in the form of a precious metal such as gold, there is room to argue that under the present legislative scheme and applying established rules of statutory construction, the Krugerrands should be characterized in a manner most favorable to petitioner, namely, as foreign money not subject to sales taxation. See Smith v Dep’t of Revenue, supra. I find it unnecessary to address this issue, given my resolution of petitioner’s alterna*657tive claim on appeal that it was not acting as a retailer in distributing the coins.