Michigan

Michigan

November 20, 2014

MICHIGAN utilities do not have to pay sales and use taxes on new equipment that they will use to distribute electricity and gas.

The sales and use tax rate in Michigan is 6%. Sales taxes are collected on sales of equipment in state. Use taxes are collected on equipment bought out of state and brought into the state for use in Michigan. 

A Michigan appeals court ruled in October that equipment used to distribute electricity or gas is exempted from taxes under an “industrial processing exemption.” The exemption applies to equipment that will be used to convert or condition “tangible personal property” for use in manufacturing a product that will ultimately be sold at retail. The court said electricity and gas are tangible. The utility sells them to retail customers. The issue, it said, is whether the utility converts or conditions electricity or gas in the process of distributing it to customers. The court said it does.

It said the utility had to prove that it changes the “form, composition, quality, combination, or character” of the electricity or gas while moving it to consumers. The utility presented exhaustive evidence, the court said, that the electricity and gas are not safe or usable when they first enter the distribution lines or pipes. They are converted on the way to consumers.

The case is Consumers Energy Company v. Department of Treasury. The Michigan Department of Treasury had tried to collect $21.2 million in taxes from Consumers Energy after an audit of the  period October 1997 through December 2004. The court reached the same conclusion in an earlier case involving Detroit Edison.