Michigan – Commercial Printing Was Sale of Property, Not Services

SALT Report 2290 – The Michigan Court of Appeals ruled that a Taxpayer who provides mass printing services for its clients was not liable for Michigan Use tax because its business activities constituted the sale of tangible personal property, not services.

The Taxpayer in this case has a facility in Michigan which offers large scale document printing. For example, the Taxpayer processes letters from the State of Michigan to parents who are delinquent on child support payments, as well as letters from a credit company to borrowers regarding their loan payment information.

The Taxpayer receives the information from its customers in PDF format. At that point, the Taxpayer, uses high-speed printers to print the specific documents, and then stuffs the documents into envelopes either mechanically or manually, depending on the size of the order. The Taxpayer does not use the information to supply or develop marketing information, or to perform data mining.

When the Taxpayer filed sales tax returns he allocated the sales from its Michigan facility as sales of tangible personal property. Subsequently, the Taxpayer was audited for the periods of 2004 through 2006. The auditor concluded that the Taxpayer’s Michigan facility was providing a service, as opposed to selling tangible personal property which altered the Taxpayer’s liabilities for the tax years in question. The auditor issued an assessment under the Use Tax Act in the amount of $1,027,273.84. The Taxpayer appealed the assessment.

Upon review, the Appeals Court noted that the Taxpayer’s mass printing operations simply served to produce ready-to-mail documents. This was supported by evidence produced by the Taxpayer that indicated that the “object of the transactions performed at the Michigan facility involved the production of tangible personal property.” Additionally, the Taxpayer provided affidavits from two customers stating that they sought to purchase tangible personal property produced by the Taxpayer and not services.

Based on the evidence presented, the Appeals Court ruled in favor of the Taxpayer as the evidence wholly supported that the Taxpayer was engaged in the business of producing tangible personal property at its Michigan facility. As a result, the Court found that the initial tax assessments were invalid and were dismissed.

For Further Information

Michigan Court of Appeals – Case #309575