SALT Report 1891 – The Michigan Court of Appeals ruled that a tire retailer was entitled to a sales tax credit on previously remitted sales tax because it provided cash refunds, including sales tax, to customers who returned damaged tires.
At the time of purchase the Taxpayer would give his customers the option of purchasing a certificate that would entitle them to a full cash refund on any tires that were irreparably damaged within three years of original purchase. Or, the certificate would allow the customer to purchase a replacement tire at a price equal to the price of the damaged tire. If the customer chose to purchase a replacement tire, the Taxpayer would remit sales tax and use tax to the Department.
In 2007, the Taxpayer requested a refund of the use tax that was remitted on the replacement tires on the grounds that he had paid both sales tax and use tax for those tires. The Department denied the Taxpayer’s request stating that the tires must be returned within a certain time frame and in the same condition as they were sold to qualify for the returned goods tax credit. The Taxpayer appealed.
The Court of Appeals overturned the Department’s decision and granted the Taxpayer a credit for the returned tires because the replacement tires that were purchased were considered retail goods that were subject to sales tax, not use tax. The Court explained that because the use tax is complimentary to sales tax, the two taxes cannot be imposed on the same transaction. In other words, because the Taxpayer was entitled to a sales tax credit for returned goods on the original tire purchase and the subsequent replacement tires that were sold at retail, the Taxpayer was entitled to a return of the use tax that he remitted to the Department for the replacement tires.
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