Sales Tax State Activity Update - April 2005

Haul Away Service Taxable in Michigan

The Michigan Court of Appeals upheld a trial court's decision that delivery and haul away fees were properly taxed, since they were a relevant part of a transaction in which tangible personal property was sold for consumption.

Background

The plaintiff purchased a new stove, which was the primary purpose of the transaction.

The delivery of the new stove and hauling away of the old stove were incidental to the primary purpose. The defendant charged the plaintiff a nominal fee for the delivery and haul away services compared to the cost of the stove.

Plaintiff's Position

The plaintiff argued that the delivery and haul away services were not taxable. The opinion failed to enumerate the plaintiff's reasons. The plaintiff also asserted that he was misled because the defendant advised him that the services were taxable when he contends they are not taxable. The plaintiff argued that the result is a violation of the Michigan Consumers Protection Act.

Defendant's Position

The defendant offers delivery and haul away services solely to customers that purchase its products. The services did not change the value of the stove. The defendant argued the tax was properly charged pursuant to MCL 205.52(1), which defines the gross proceeds, the basis to which the tax rate is applied. The relevant part of the definition includes the cost of the service purchased.

Court's Opinion

The Court of Appeals referred to the Michigan Supreme Court decision in Catalina Marketing, which examined services incidental to the transfer of tangible personal property. If the true object of the transaction is the service, then no tax would apply. If the true object is the transfer of tangible personal property and the service is incidental, then the tax would apply to the total gross proceeds. In this case, the court affirmed the decision of the trial court that the delivery and haul away services are taxable.

View the ruling here.

(Timothy W. Herman v. Best Buy Stores L.P., No. 251499, State of Michigan Court of Appeals, March 15, 2005)

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