Sales/Use:
Michigan: Retailer Does Not Owe Use Tax on Distributed Ad Materials Because It Lacked Control
Case Nos. 352088 and 352667, Mich. Ct. App. (7/8/21). The Michigan Court of Appeals (Court) affirmed that a nationwide retailer did not “use” its postcards, circulars, coupons, and newspaper inserts (i.e., advertising materials) that were sent to Michigan residents for the Michigan use tax period at issue because it “deferred all aspects of delivery” to a third-party direct mail vendor and did not have sufficient retention of control over the materials after delivery to constitute a taxable “use” as defined under Michigan law. In doing so, the Court rejected, among other claims, the Michigan Department of Treasury’s contention that the retailer used the advertising materials after they had been delivered to Michigan residents, and that an incident of ownership incorporated the right to manage customer use of the advertising materials given that customers needed to present the materials at the retailer’s Michigan stores by a specific date chosen by the retailer. Rather, the Court concluded that:
The retailer no longer exercised a right of power over the advertising materials incident to ownership once in the hands of customers; and
The customers became the owners of the advertising materials and could do with them whatever they wished.
According to the Court, “the mere fact that a customer might not be able to redeem a coupon or take advantage of a sale after a certain date” does not translate to the retailer’s “use” of the advertising materials under Michigan law. A dissenting in part and concurring in part opinion follows. Please contact us with any questions.
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