Court Opinion

ID: 4702334
Source: CourtListenerOpinion
Date Created: 2021-07-09 09:07:48.085845+00
Date Added: 2024-06-11T08:06:23.902573
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                 revision until final publication in the Michigan Appeals Reports.

                           STATE OF MICHIGAN

                            COURT OF APPEALS

BED BATH & BEYOND, INC.,                                             UNPUBLISHED
                                                                     July 8, 2021
               Plaintiff-Appellee,

V                                                                    Nos. 352088 and 352667
                                                                     Court of Claims
DEPARTMENT OF TREASURY,                                              LC No. 18-000220-MT

               Defendant-Appellant.

Before: MARKEY, P.J., and SHAPIRO and GADOLA, JJ.

MARKEY, P.J. (dissenting in part, concurring in part).

     Because I would reverse in part and affirm in part the order of the Court of Claims granting
summary disposition in favor of plaintiff, I respectfully dissent in part and concur in part.

        Under the Michigan Use Tax Act (UTA), MCL 205.91 et seq., “[t]here is levied upon and
there shall be collected from every person in this state a specific tax, including both the local
community stabilization share and the state share, for the privilege of using, storing, or consuming
tangible personal property in this state at a total combined rate equal to 6% of the price of the
property . . . .” MCL 205.93(1) (emphasis added). The UTA defines the term “use” to “mean[]
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).

        In my view, the difficulty in this case stems from the nature of the tangible personal
property at issue—advertising materials. Without yet taking into consideration the statutory
definition of “use,” the true “use” of advertising materials, such as those involved in this case, is
two-fold. First, advertising materials are used by the individual or company selling the products
or services displayed in a particular advertisement as a means to convince a consumer to purchase
the products or services or to otherwise patronize the business. This “use” of advertising materials
does not actually occur until the materials reach a consumer. Second, once the advertising
materials reach the home of a consumer, the consumer uses the materials to make discretionary
shopping decisions. The advertising materials are being “used” by the advertiser and the person
to whom the advertisement is delivered. The advertiser’s “use” of advertising materials

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necessarily takes place when the materials are no longer in the control of the advertiser. The
process of delivering or distributing advertising materials to a consumer does not actually entail
the “use” of the materials; rather, it is simply the mechanism that enables the two types of uses of
advertising materials to take place. “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). Although advertising materials technically qualify as tangible personal property,
determining what constitutes “use” of such materials can be challenging, especially compared to
items like electricity, water, gas, steam, and software, where use is easily discernible.

       Of course, my personal observations must give way to the statutory definition of “use.”
Therefore, the question is whether plaintiff exercised a right or power over the advertising
materials in Michigan incident to the ownership of the materials. See MCL 205.92(b). Stated
otherwise, the issue is whether plaintiff had “some level of control over” the advertising materials
in Michigan, Auto-Owners Ins Co v Dep’t of Treasury, 313 Mich App 56, 70; 880 NW2d 337
(2015), or whether there were some “indicia of control” by plaintiff over the materials in Michigan,
Ameritech Publishing, Inc v Dep’t of Treasury, 281 Mich App 132, 138-139; 761 NW2d 470
(2008); Sharper Image Corp v Dep’t of Treasury, 216 Mich App 698, 704; 550 NW2d 596 (1996).1
In WMS Gaming, Inc v Dep’t of Treasury, 274 Mich App 440, 443; 733 NW2d 97 (2007), this
Court explained:

                The imposition of a use tax . . . is not, as the trial court concluded, a tax
       imposed on an out-of-state purchase. Rather, it is a tax imposed on the use of that
       property that was purchased out-of-state and then imported into Michigan for use.
       It is the use in Michigan that is taxed under the use tax, precisely because it is not
       subject to the sales tax. It has long been held that the tax on the use of imported
       goods is not a tax on out-of-state sales even if that tax is based on the purchase price
       in the other state.

        With regard to the statutory definition of “use” in the UTA, the Michigan Supreme Court
in NACG Leasing v Dep’t of Treasury, 495 Mich 26, 29 n 9; 843 NW2d 891 (2014), observed that
“[i]mportant rights flowing from property ownership include the right to exclusive possession, the
right to personal use and enjoyment, the right to manage its use by others, and the right to income
derived from the property.” (Quotation marks and citation omitted.)

        Here, plaintiff entered into a contract with Harte Hanks for direct mail services. Harte
Hanks had the contractual obligation to prepare and deliver the advertising materials, but it was
according to plaintiff’s ad campaign schedule. And plaintiff specified the Michigan residents to
whom it wanted the advertising materials delivered by providing its customer mailing list to Harte
Hanks. Furthermore, the contract required Harte Hanks to address and then mail plaintiff’s
advertising materials to the identified Michigan residents using the USPS within a timeframe
specified by plaintiff. To fulfill its contractual responsibility to mail plaintiff’s advertising

1
 I agree with the majority’s summarization of the opinions in Ameritech Publishing and Sharper
Image.

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materials, Harte Hanks was granted some discretion to optimize efficiencies on the basis of its
mail expertise. To this end, Harte Hanks packaged the materials in bulk at its Pennsylvania plant
and, for an agreed upon rate, transported them via freight to USPS locations in Michigan where
the materials entered the mail stream. Afterward, Harte Hanks provided plaintiff with a
distribution report so that plaintiff could determine when its advertising materials reached its
customers in relation to the materials’ expiration date. Under these circumstances, plaintiff plainly
exercised a right incident to its ownership of the advertising materials by contracting with Harte
Hanks to have the materials mailed to Michigan residents within particular parameters specified
by plaintiff. Nothing in the plain and unambiguous language of MCL 205.92(b)—the statutory
definition of “use”—precludes a party’s exercise of a right over property incident to the ownership
of the property through contractual arrangements pursuant to which another person or entity
engages in the physical distribution of the property as dictated by the underlying contract.

         While I conclude that no genuine issue of material fact exists that plaintiff exercised a right
incident to ownership by contractually managing Harte Hanks’s delivery of plaintiff’s advertising
materials, I find the closer, more relevant, question is whether plaintiff exercised this right in
Michigan. Much of Harte Hanks’s preparation of materials to meet plaintiff’s specifications
occurred outside Michigan at Harte Hanks’s Pennsylvania plant. It was only after those advertising
materials were scheduled for delivery and addressed to Michigan residents at plaintiff’s direction
that the materials entered Michigan on Harte Hanks’s trucks for delivery to Michigan USPS
centers and facilities where they would enter the mail stream. Yet, by contracting with Harte
Hanks for delivery and allowing Harte Hanks the discretion to optimize mailing efficiencies based
on its expertise, plaintiff caused the materials to enter Michigan via freight, thereby controlling,
effectively, this aspect of delivery. Indeed, absent plaintiff’s direction to deliver the advertising
materials at a particular time to certain Michigan residents at an agreed upon delivery rate with
Harte Hanks, plaintiff’s materials would not have entered state boundaries. At the point in time
when Harte Hanks was transporting the advertising materials by freight to USPS facilities and
centers in Michigan, they remained the property and within the ultimate control of plaintiff.2
Accordingly, with respect to the advertising materials that were delivered to Michigan USPS
facilities and centers, I conclude that plaintiff used those materials in Michigan; consequently,
plaintiff owes use tax under the UTA. I would reverse and remand the case for entry of judgment
in favor of defendant, but with one caveat. There was evidence that with regard to smaller
campaigns Harte Hanks delivered advertising materials to a USPS facility close to its operations
in Pennsylvania. To the degree that the USPS facility was located outside of Michigan, the
advertising materials were not used by plaintiff in Michigan. No use tax should be imposed on
those materials under the reasoning in Sharper Image, so I would affirm the Court of Claims’
ruling to that extent. I would also remand the case for a determination of any deduction from the
use tax owing by plaintiff as associated with advertising materials not delivered by Harte Hanks
to a Michigan USPS facility or center.

2
 I have no doubt that if for whatever reason plaintiff contacted Harte Hanks to stop shipment while
a truck full of advertising materials was rolling through Michigan, Harte Hanks would honor the
request and halt delivery.

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        Plaintiff contends that it never exercised any control of the advertising materials in
Michigan because it forfeited all control upon sending the designs to a third-party printer and,
other than specifying the general timeframe for delivery, had no control over delivery. According
to plaintiff, this Court should give deference to the Court of Claims’s “evidentiary finding” that
plaintiff did not control any aspect of delivery and that plaintiff’s control of the materials ended
before they reached our state.

        As a preliminary matter, I note that this Court owes no deference to alleged factual findings
made by the Court of Claims on a motion for summary disposition. In fact, a trial court is not
permitted to resolve factual disputes for purposes of summary disposition under MCR
2.116(C)(10). Pioneer State Mut Ins Co v Dells, 301 Mich App 368, 377; 836 NW2d 257 (2013).
The lower court’s role is simply to review the documentary evidence to determine if a genuine
issue of material fact exists. Id. And this is the same standard that applies to our examination on
de novo review. Skinner v Square D Co, 445 Mich 153, 162; 516 NW2d 475 (1994). De novo
review of an issue means that the issue is reviewed independently with no deference given to the
court below. In re Ferranti, 504 Mich 1, 14; 934 NW2d 610 (2019).
        With respect to the substantive merits of plaintiff’s argument, I find the record simply does
not support plaintiff’s position that it relinquished all control of the advertising materials during
delivery. Plaintiff contracted for the delivery of the materials in Michigan but retained a certain
indicia of control over the advertising materials through its contract with Harte Hanks as the
property was transported into Michigan to USPS centers and facilities. In asserting otherwise,
plaintiff mischaracterizes the record or otherwise omits key facts. For example, plaintiff ignores
the fact that the advertising materials were transported via freight into Michigan at a contracted
rate,3 misstates that Harte Hanks owned the list of customers to whom plaintiff’s advertising
materials were addressed, and inaccurately suggests that Harte Hanks controlled the timing of
delivery by omitting the fact that plaintiff had the materials produced and delivered consistent with
its annual schedule.

        Plaintiff argues that this case is akin to Sharper Image and distinguishable from Ameritech
Publishing. In Sharper Image, the plaintiff was not subject to use tax for catalogs it mailed to
Michigan residents from a Nebraska USPS facility. Sharper Image, 216 Mich App at 702-704.
The Court concluded that the plaintiff did not use the catalogs in Michigan because the plaintiff’s
control over the materials ended when the catalogs were delivered to the Nebraska USPS facility.
Id. at 702. In this case, plaintiff, by way of contract with Harte Hanks, transported its advertising
materials into Michigan by freight. Unlike the plaintiff in Sharper Image, plaintiff here effectively
controlled and thus used the advertising materials in Michigan until the materials entered the USPS
mail stream at USPS facilities and centers located in Michigan.

        Likewise, in Ameritech Publishing, 218 Mich App at 134, the plaintiff entered into carrier
and distribution contracts for the delivery of its telephone directories in Michigan. While all
distribution activities took place in Michigan, and the plaintiff’s contractual directions were more
detailed, id. at 133-135, 143-144, these facts do not undermine my conclusion that plaintiff in this

3
  I again note my one caveat concerning advertising materials transported by Harte Hanks to USPS
facilities outside of Michigan.

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case also controlled its property in Michigan under its contract with Harte Hanks, thereby
implicating imposition of the use tax.

        I would reverse and remand for entry of judgment in favor of defendant, except with respect
to any advertising materials that Harte Hanks shipped to USPS sites outside the State of Michigan
even though those materials were addressed to Michigan homes. Accordingly, I respectfully
dissent in part and concur in part.

                                                            /s/ Jane E. Markey

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