Opinion
353163
06-24-2021
M.L. CHARTIER EXCAVATING, INC., Plaintiff-Appellant, v. DEPARTMENT OF TREASURY, Defendant-Appellee.
UNPUBLISHED
Court of Claims LC No. 18-000081-MT
Before: Gadola, P.J., and Sawyer and Riordan, JJ.
PER CURIAM.
Plaintiff M.L. Chartier Excavating, Inc., appeals as of right the trial court's judgment affirming defendant Department of Treasury's final assessment for use taxes for the November 1, 2011 through December 31, 2014 tax period. On appeal, plaintiff argues that the trial court erred by ruling that it was not entitled to the "rolling stock" exemption set forth in MCL 205.94k of the Use Tax Act, MCL 205.951 et seq. Specifically, plaintiff argues that (1) defendant engaged in impermissible rulemaking by issuing and following the guidance of Revenue Administrative Bulletin (RAB) 2016-2; (2) the trial court erred by relying on Midwest Power Line, Inc v Dep't of Treasury, 324 Mich.App. 444; 921 N.W.2d 543 (2018), to conclude that plaintiff was not an "interstate fleet motor carrier" under MCL 205.94k(6)(d) because that case was wrongly decided; and (3) under the proper interpretation of MCL 205.94k(6)(d), plaintiff is an "interstate fleet motor carrier" entitled to the exemption at issue. We affirm.
I. FACTS AND PROCEEDINGS
Plaintiff is a corporation headquartered in Fair Haven, Michigan. Plaintiff's longstanding customer base is primarily utility companies, including oil and gas entities. Plaintiff engages in several activities to serve these customers, including well pad construction (such as dirt removal and leveling, as well as clearing a path to the well pad), servicing oil rigs, digging and cleaning rig pits, environmental remediation, and other excavating and trucking or transportation services. Plaintiff's largest capital asset is its trucks and trailers-including flat beds, drop decks, tankers, roll off trailers, lowboys, gravel trains, single dump trucks, and cement box tankers-that it acquired specifically to haul and transport its customers' materials and waste. Depending on a customer's needs, plaintiff's daily activities for the tax period at issue often included either delivering materials at an upcharge or excavating and loading contaminated soil or liquid and transporting it to a waste site. In performing these activities, plaintiff's trucks and trailers frequently crossed state lines carrying, at various times, its own equipment and employees to perform the job, necessary materials, or a customer's contaminated waste.
For the 2011 through 2014 tax years, plaintiff claimed the rolling-stock exemption from the use tax for some of its trucks and trucking equipment that regularly crossed state lines. In 2015, defendant initiated an audit of plaintiff's use taxes for the November 1, 2011 through December 31, 2014 tax period. During the audit, defendant determined that plaintiff had improperly claimed the rolling-stock exemption because it did not qualify as an "interstate fleet motor carrier" under MCL 205.94k(6)(d). Thereafter, defendant issued its Final Audit Determination, which concluded that plaintiff was not entitled to the rolling-stock exemption, as well as an Intent to Assess, reflecting a use-tax deficiency of $150,078 based on the audit, as well as a penalty of $15,007 and interest of $22,271.
In October 2017, plaintiff sought an informal hearing to challenge the denial of the rolling-stock exemption. Plaintiff argued that it had shown that over 10% of its fleet mileage is out-of-state, satisfying the statutory definition of "interstate fleet motor carrier." The hearing referee disagreed and recommended that the assessment be upheld. Thereafter, defendant issued a Decision and Order of Determination adopting the referee's recommendation and issued a Final Assessment directing plaintiff to pay the $191,472 use-tax deficiency, including accumulated penalties and interest.
Plaintiff then filed a complaint in the Court of Claims, alleging that it was entitled to the rolling-stock exemption. The case proceeded to a three-day bench trial. Plaintiff presented nine witnesses and extensive documentary evidence concerning the rolling-stock exemption. At the close of the evidence, the parties submitted proposed findings of fact and conclusions of law. As an initial matter, plaintiff argued that Midwest Power Line, Inc adopted an incorrect definition of "interstate fleet motor carrier" requiring that a person be "primarily" engaged in interstate transportation-for-hire because, by definition, a person that engages in a mere 10% of interstate transportation-for-hire would never qualify. Plaintiff alternatively argued that Midwest Power Line is nonetheless distinguishable from the present case because plaintiff holds itself out to the public as a transportation-services company, and a majority of its assets are attributable to transportation. Moreover, unlike Midwest Power Line, plaintiff's transportation activities were not incidental to the services offered; rather, the evidence showed that plaintiff was hired to transport waste from Ohio to Pennsylvania and from Wisconsin to Michigan, as well as to transport customer supplies for the construction of oil rigs. According to plaintiff, the evidence adduced at trial showed that its primary purpose is to transport property of others, as the majority of its expenses relate to its transportation fleet and services, it uses dozens of trucks, and it uses up to 40 drivers.
At the outset, the parties stipulated that plaintiff's "fleet of trucks and trailers" satisfied the 10% out-of-state mileage requirement under MCL 205.94k(6)(d) for the tax period at issue.
Defendant countered that plaintiff had not proved that its primary purpose was transportation-for-hire. According to defendant, the evidence reflected that plaintiff's primary purpose was excavating services, including well pad preparation and maintenance services. It further argued that plaintiff had failed to establish that it was transporting property of others across state lines, as opposed to its own property to and from job sites. For these reasons, defendant urged the trial court to conclude that plaintiff was not entitled to claim the rolling-stock exemption.
After an extensive review of the evidence, the trial court determined, in a written opinion and order, that plaintiff's claim for the rolling-stock exemption failed. First, the trial court reasoned that under Midwest Power Line, the rolling-stock exemption is limited "to those persons whose primary business is transportation," and it is "insufficient that a taxpayer's business activities incidentally include the transportation of persons or property across state lines." The trial court found that plaintiff had "not met its burden of proof to show that its primary business was for-hire transportation across state lines," stating that "[t]he evidence overwhelmingly establishes that plaintiff's primary business is providing excavation services, including environmental remediation and well pad preparation and maintenance to oil, gas, and utility companies." Second, and alternatively, the trial court found that "plaintiff failed to meet its burden that it was transporting property belonging to others across state lines." The trial court stated that
[t]he overwhelming majority of the documentation submitted by plaintiff did not prove the property it was moving across state lines actually belonged to its customers. . . . [T]o the extent the ownership of the transported property could be ascertained, the record supports the notion that plaintiff's trucks were transporting its own property to and from job sites.
The trial court accordingly entered its judgment in favor of defendant. Plaintiff now appeals.
II. IMPERMISSIBLE RULEMAKING
Plaintiff first argues that defendant engaged in impermissible rulemaking by issuing and following the guidance of RAB 2016-2. According to plaintiff, RAB 2016-2 rewrites the rolling-stock exemption set forth in MCL 205.94k by adding a "primary-business purpose test" that is not included within the statute itself. Because plaintiff did not raise this argument below, it is reviewed for plain error affecting substantial rights. See Henderson v Dep't of Treasury, 307 Mich.App. 1, 9; 858 N.W.2d 733 (2014).
"An RAB is issued under MCL 205.3(f), which allows defendant to issue bulletins that index and explain current department interpretations of current state tax laws." Uniloy Milacron USA Inc v Dep't of Treasury, 296 Mich.App. 93, 100; 815 N.W.2d 811 (2012) (quotation marks and citation omitted). "In order for an agency regulation, statement, standard, policy, ruling, or instruction of general applicability to have the force of law, it must fall under the definition of a properly promulgated rule. If it does not, it is merely explanatory." Danse Corp v City of Madison Heights, 466 Mich. 175, 181; 644 N.W.2d 721 (2002). Thus, if an RAB is not adopted under the rulemaking procedures of the Administrative Procedures Act (APA), MCL 24.201 et seq., it does not have the force of law. See Catalina Marketing Sales Corp v Dep't of Treasury, 470 Mich. 13, 21; 678 N.W.2d 619 (2004).
Here, while plaintiff acknowledges that RAB's are typically interpretive nonbinding tools, it asserts that RAB 2016-2 effectively became a rule absent compliance with the APA rulemaking procedures because defendant used the RAB to deny it the rolling-stock exemption. The portion of RAB 2016-2 that plaintiff asserts that defendant relied upon in denying the exemption provides as follows:
Example 5:
ABC Inc. (ABC) is primarily engaged in the business of carrying its own property with its qualified trucks. On rare occasions, and not as part of ABC's regular course of business, ABC will backhaul property of other businesses. ABC is not engaged in the business of carrying persons or property other than its own property; therefore, ABC may not claim the exemption on its qualified trucks.
Example 6:
ABC Inc. (ABC) is primarily engaged in the business of carrying property of others with its qualified trucks. Occasionally, ABC will use its qualified trucks to haul its own property. Assuming ABC meets all of the other requirements of the exemption, ABC is entitled to an exemption on the entire sales/purchase price of the qualified trucks. [Revenue Admin Bull 2016-2.]
Plaintiff's argument misses the mark. Plaintiff provides no authority for the proposition that following the guidance of a nonbinding statement improperly transforms that statement into a binding rule. Further, regardless of whether defendant implicitly treated RAB 2016-2 as a rule in this case, its validity (or lack thereof) would remain unaffected. This is because both binding agency rules and non-binding agency statements such as RAB's cannot conflict with the statutory language itself. See Detroit Edison Co v Dep't of Treasury, 498 Mich. 28, 46; 869 N.W.2d 810 (2015). Accordingly, the validity of RAB 2016-2 is determined not by whether defendant complied with the APA rulemaking procedures when issuing it, but by whether RAB 2016-2, and the examples it uses, conflict with MCL 205.94k.
III. ROLLING-STOCK EXEMPTION
Plaintiff argues that Midwest Power Line was incorrectly decided because it is inconsistent with the plain language of MCL 205.94k(6)(d), given that the statute does not include a "primary" or "primarily" requirement. Plaintiff further argues that under the proper interpretation of MCL 205.94k, it is entitled to claim the rolling-stock exemption for the tax period at issue. We review de novo questions of statutory interpretation. PNC Nat'l Bank Ass'n v Dep't of Treasury, 285 Mich.App. 504, 505; 778 N.W.2d 282 (2009).
MCL 205.94k provides, in relevant part, as follows:
(4) For taxes levied after December 31, 1992, the tax levied under this act does not apply to the storage, use, or consumption of rolling stock used in interstate commerce and purchased, rented, or leased by an interstate fleet motor carrier. A refund for taxes paid before January 1, 1997 shall not be paid under this subsection if the refund claim is made after June 30, 1997.
(6) As used in this section:
(d) "Interstate fleet motor carrier" means a person engaged in the business of carrying persons or property, other than themselves, their employees, or their own property, for hire across state lines, whose fleet mileage was driven at least 10% outside of this state in the immediately preceding tax year.
(g) "Qualified truck" means a commercial motor vehicle power unit that has 2 axles and a gross vehicle weight rating in excess of 10, 000 pounds or a commercial motor vehicle power unit that has 3 or more axles.
(i) "Rolling stock" means a qualified truck, a trailer designed to be drawn behind a qualified truck, and parts or other tangible personal property affixed to or to be affixed to and directly used in the operation of either a qualified truck or a trailer designed to be drawn behind a qualified truck.
The analogue to MCL 205.94k of the UTA, MCL 205.54r of the Sales Tax Act, MCL 205.51 et seq., provides, in relevant part, that "[a] sale of rolling stock purchased by an interstate motor carrier or for rental or lease to an interstate motor carrier and used in interstate commerce" is exempt from the sales tax. MCL 205.54r(1)(b). MCL 205.94k was amended in 2002 to add the word "fleet" to "interstate motor carrier" for the purposes of the UTA. See 2002 PA 669.
"To qualify for the use tax exemption the rolling stock must be both used in interstate commerce and purchased, leased, or rented by an interstate motor carrier . . . ." Alvan Motor Freight, Inc v Dep't of Treasury, 281 Mich.App. 35, 46; 761 N.W.2d 269 (2008).
In Midwest Power Line, the issue before this Court was whether the petitioner, which provided "repair and maintenance services to electrical utilities," was entitled to the rolling-stock exemption for carrying "customers' property across state lines incidentally to its business of providing repair services." Midwest Power Line, 324 Mich.App. at 445. This Court concluded that it was not entitled to the exemption, reasoning as follows:
[T]he Legislature's use of "the" in the phrase "the business of carrying persons or property . . . for hire across state lines" indicates the intent to focus not on what activities a business might include, but on the primary purpose of the business. That is, to qualify as an "interstate fleet motor carrier" the primary purpose of the
business must be to transport persons or property for hire across state lines. It is insufficient that their business activities might incidentally include such actions.
In this case, petitioner is not hired by the utility companies to transport power-line supplies across state lines. Rather, it is hired to repair storm damage to power lines and to restore power to the affected areas. The fact that petitioner picks up those supplies from the customers' supply depots and transport them to the job site is merely incidental to its primary task of repairing the power systems. The fact that petitioner hauls customers' property across state lines is not, by itself, sufficient to establish that it is an "interstate fleet motor carrier."
We conclude that an "interstate fleet motor carrier" is a business that is particularly engaged in providing transportation for hire. In this case, that is not petitioner's particular business. . . . [Id. at 447-448.]
According to plaintiff, Midwest Power Line stands for the erroneous proposition that a person is entitled to claim the rolling-stock exemption only if its "primary" business activity is interstate transportation-for-hire. Plaintiff alternatively contends that Midwest Power Line is factually and legally distinguishable from the instant case. In either event, plaintiff contends, the trial court erred by denying its claim for the exemption on the basis that the exemption is limited "to those persons whose primary business is [interstate] transportation" under Midwest Power Line.
We need not reach these questions because, even if the trial court erred by relying on Midwest Power Line or the case was incorrectly decided, as plaintiff argues, we conclude that, in any event, the trial court ultimately reached the correct result by ruling in favor of defendant. MCL 205.94k(6)(d) defines "interstate fleet motor carrier" as "a person engaged in the business of carrying persons or property, other than themselves, their employees, or their own property, for hire across state lines, whose fleet mileage was driven at least 10% outside of this state . . . ." [Emphasis added.] At first glance, the italicized language indicates that a person is determined to be an "interstate fleet motor carrier" by reference to its entire fleet mileage. In other words, MCL 205.94k(6)(d) indicates that once a person is identified as being engaged in the business activity of interstate transportation-for-hire, it will be an "interstate fleet motor carrier" if its entire fleet was driven at least 10% out-of-state. Thus, in cases where a person is engaged in multiple business activities, one of which is interstate transportation-for-hire, MCL 205.94k(6)(d) suggests that the entire fleet for all business activities is considered in determining whether the person satisfies the 10% out-of-state requirement.
Again, we assume without deciding that a person need not "primarily" engage in the business of interstate transportation-for-hire to be entitled to claim the rolling-stock exemption and that such a person may engage in multiple business activities, one of which is interstate transportation-for-hire.
However, the meaning of statutory subsections is determined not in isolation, but by "neighboring statutory provisions for additional context." In re Erwin Estate, 503 Mich. 1, 11; 921 N.W.2d 308 (2018). In our view, when MCL 205.94k and the UTA are read as a whole, it indicates that the 10% out-of-state requirement may only be satisfied by the business activity of interstate transportation-for-hire. In other words, of the portion of the fleet used for interstate transportation-for-hire, 10% of the mileage must be driven out-of-state.
We reach this conclusion for two reasons. First, MCL 205.94k(1) provides an exemption for certain parts and materials that are used by a "domestic air carrier" and affixed to a particular aircraft for the "transport of air cargo and passengers" and the "transport of passengers." See MCL 205.94k(1)(a)-(c). Thus, the domestic-air-carrier exemption is linked to the activity of the particular aircraft at issue. Applying this principle here, the rolling-stock exemption is linked to the activity of the particular rolling stock at issue, i.e., the activity of interstate transportation-for-hire. Second, in contrast to the term "interstate ¶eet motor carrier," the UTA separately refers to an "interstate motor carrier." See MCL 205.92(m) (defining "interstate motor carrier" as "a person who operates or causes to be operated a qualified commercial motor vehicle on a public road or highway in this state and at least 1 other state or Canadian province"). The principal difference between an "interstate fleet motor carrier" and an "interstate motor carrier," in our view, is that the former is limited to those persons who are "engaged in the business of carrying persons or property, other than themselves, their employees, or their own property, for hire," MCL 205.94k(6)(d), whereas the latter is not. Thus, the additional word "fleet" is given meaning by the particular business activity of interstate transportation-for-hire. Consequently, the term "fleet mileage" in MCL 205.94k(6)(d) should be understood with that particular business activity in mind.
In this case, as the trial court found, plaintiff proffered hauling invoices for transactions in which transportation of customers' property across state lines was the hiring objective only for the 2013-2014 tax period. To the extent plaintiff would be entitled to the rolling-stock exemption, it would only be for those years. A review of the hauling invoices shows that the customers' property was hauled alternatively "to OH," "from Indianapolis," or "pick[ed] up Ohio." The invoices also identify certain trucks and apparently trailers used to haul the property. The invoices, however, do not indicate the mileage traveled or whether any of those miles were traveled in Michigan as opposed to out of state. In fact, portions of the invoices that could have been filled in reflecting mileage were left blank. From this evidence alone, it cannot be ascertained whether any of plaintiff's rolling stock that engaged in interstate transportation-for-hire satisfied the 10% out-of-state requirement. Moreover, while the parties stipulated that plaintiff's "fleet of trucks and trailers" satisfied the 10% out-of-state requirement, that stipulation is not synonymous with an admission that plaintiff's rolling stock that provided the interstate transportation-for-hire traveled in Michigan and out of state for purposes of satisfying the 10% out-of-state requirement.
Plaintiff, therefore, failed to meet its burden to show that it was an "interstate fleet motor carrier" under MCL 205.94k(6)(d), and the trial court is affirmed on this alternative ground.
Although the trial court did not engage in this reasoning, "[a] trial court's ruling may be upheld on appeal where the right result issued, albeit for the wrong reason." Gleason v Dep't of Transp, 256 Mich.App. 1, 3; 662 N.W.2d 822 (2003).
IV. CONCLUSION
To claim the rolling-stock exemption under MCL 205.94k, a person must satisfy the definition of "interstate fleet motor carrier" under MCL 205.94k(6)(d). To satisfy that definition, a person must show, in relevant part, that of the portion of the fleet used for interstate transportation-for-hire, 10% of the mileage was driven out-of-state. Plaintiff has failed to do so here. Accordingly, we affirm.