MARILYN J. KELLY, J.
In this tax dispute, plaintiff World Book, Inc., appeals from a Court of Appeals decision in favor of defendant Revenue Division of the Department of Treasury, state of Michigan. We are asked to decide two issues. The first is whether plaintiff's sales transactions involving Michigan customers are properly taxable under Michigan's Use Tax Act
We hold that plaintiff's transactions are properly taxable under the Use Tax Act. However, because we find that imposition of the defendant's liability for the taxes was improper in this case, we do not address the question of a Commerce Clause violation. Instead, we hold that plaintiff is not required to pay its customers' use taxes where World Book used reasonable business care in trying to collect them.
Plaintiff is a Delaware corporation with its principal office in Illinois. It maintains no permanent facilities in Michigan. Instead, it markets encyclopedias and other educational material to its customers through the use of salespersons who make door-to-door sales calls in Michigan. The salespersons take orders for the encyclopedias and accept deposits from customers. Orders are then sent to plaintiff's headquarters in Illinois and, if approved, shipped from the inventory in Illinois to the customer by common carrier.
Both parties acknowledge that plaintiff's transactions involving Michigan customers are subject either to Michigan's Use Tax Act or General Sales Tax Act. Normally this would end the matter, as the rates under both taxing schemes are the same
Plaintiff filed tax returns taking the bad debt deduction for 1988-91, the pertinent years. The defendant, ruling that plaintiff's transactions involving Michigan customers are taxable under the Use Tax Act, issued an
Following the defendant's appeal, the Court of Appeals reversed the judgment of the Court of Claims in a unanimous opinion. 222 Mich.App. 203, 564 N.W.2d 82 (1997). It concluded that the appropriate test for determining whether a retail sale takes place in Michigan, for purposes of the General Sales Tax Act, is whether the sale was consummated within the state. After deciding that the transactions in the instant case took place in Illinois, the Court of Appeals held that the Use Tax Act applies to plaintiff's sales. It then held that the failure of the act to provide a bad-debt deduction is not a violation of the Commerce Clause of the United States Constitution. This Court granted plaintiff's application for leave to appeal. 458 Mich. 860, 587 N.W.2d 638 (1998).
A. Correct Tax Characterization
The first question is whether the Court of Appeals was correct in finding that plaintiff's transactions involving Michigan customers were taxable under the Use Tax Act.
Under the General Sales Tax Act, persons "engaged in the business of making sales at retail" must pay an annual tax "for the privilege of engaging in that business...." MCL 205.52(1); MSA 7.522(1). "Sale at retail" is defined in relevant part as:
As it is a "privilege tax," the sales tax is imposed directly on the seller. However, the seller may pass it on to the purchaser and collect it at the point of sale. Sims v. Firestone Tire & Rubber Co., 397 Mich. 469, 245 N.W.2d 13 (1976); Detroit & Cleveland Navigation Co. v. Dep't of Revenue, 342 Mich. 234, 238, 69 N.W.2d 832 (1955).
In contrast with the General Sales Tax Act, the Use Tax Act provides for an excise tax for the "privilege of using, storing, or consuming tangible personal property in this state at a rate equal to 6%[
The provisions of the General Sales Tax Act and the Use Tax Act are complementary. Elias Bros Restaurants, Inc, supra at 153, 549 N.W.2d 837. Thus, as a general rule, property for which a consumer has already paid a use tax is not subject to the provisions of the General Sales Tax Act. Id. at 153, n. 19, 549 N.W.2d 837. Similarly, the Use Tax Act does not apply to property sold in Michigan on which Michigan sales tax has already been paid, if the tax was due and paid on the retail sale to a consumer. MCL 205.94(a); MSA 7.555(4)(a). Also, use tax is not owed on goods already subjected to certain other sales or use taxes in another state. MCL 205.94(e); MSA 7.555(4)(e).
Plaintiff urges the Court of Claim's rationale that, because plaintiff engages in "sufficient local activity" in Michigan, its sales come within the purview of the General Sales Tax Act, regardless of where they occur. However, as the Court of Appeals noted, the question of "substantial activity" relates
Defendant requests that we hold that the definition of "sale at retail" under the General Sales Tax Act includes only sales consummated within Michigan. It argues that such a finding would be consistent with the act's definition of a taxable "sale at retail:" "a transaction by which the ownership of tangible personal property is transferred for consideration...." MCL 205.51(1)(b); MSA 7.521(1)(b). Defendant also argues that the requested holding comports with the concept that sales tax is imposed upon sellers for the privilege of selling personal property at retail within Michigan. Detroit & Cleveland Navigation Co, supra at 238, 69 N.W.2d 832. We agree.
We find that the United States Supreme Court decision in Oklahoma Tax Comm. v. Jefferson Lines, Inc.,
Consequently, we hold that the correct test for deciding whether a sales transaction is subject to a sales, not a use, tax is whether it was consummated within the state. Only a transaction consummated within Michigan is a taxable "sale at retail"
Our holding lessens the danger of double taxation. It comports with the principle that the sales tax is to be imposed on sellers for the privilege of selling personal property at retail in this state and this state only. Detroit & Cleveland Navigation Co, supra at 238, 69 N.W.2d 832. Therefore, the question before us becomes whether plaintiff's sales to its Michigan customers were consummated in Michigan. We hold that they were not.
Under the facts presented, plaintiff's sales transactions were consummated in Illinois. Although its independent contractors solicited orders from customers and entered into tentative agreements with them in Michigan, the purchase applications were approved in Illinois. Moreover, title to the encyclopedias was transferred to the Michigan purchasers in Illinois when plaintiff placed them on a common carrier for shipment. MCL 440.2401(2); MSA 19.2401(2).
Under the language of Oklahoma Tax Comm., supra, plaintiff was "through selling" the encyclopedias when it approved the transactions in Illinois and loaded the encyclopedias onto a common carrier for shipment. As we stated in the similar case of J.B. Simpson, Inc. v. O'Hara,
Therefore, we hold that the "sale at retail" to plaintiff's customers occurred in Illinois, not in Michigan. As a result, we conclude that the Court of Appeals correctly found that the instant transactions were properly subject to the provisions of the Use Tax Act, not the General Sales Tax Act.
B. Plaintiff's Tax Liability Under the Use Tax Act
Because the Use Tax Act applies to plaintiff's transactions involving Michigan customers, we need to determine plaintiff's tax liability under the act. Specifically, we are asked to decide whether the unavailability of a bad debt deduction in the Use Tax Act violates the Commerce Clause of the United States Constitution. However, we conclude that it is unnecessary to reach this issue. We find, instead, that defendant improperly held plaintiff liable for the uncollected use taxes, since plaintiff was without fault in failing to collect the taxes from its Michigan consumers.
As correctly noted by the Court of Appeals in Michigan Bell Telephone Co. v. Dep't of Treasury,
MCL 205.97; MSA 7.555(7) states:
Each consumer storing, using or otherwise consuming in this state tangible personal property or services purchased for or subsequently converted to such purpose or purposes shall be liable for the tax imposed by this act, and such liability shall not be extinguished until the tax has been paid to the department. The payment to the department of the tax, interest and any penalty assessed by the department shall relieve the seller, who sold the property or services with regard to the storing, use or other consumption on which the tax was
Unlike the General Sales Tax Act, where the primary tax liability falls on the seller, the use tax is a tax on the consumption of goods. It is levied "for the privilege of using, storing, or consuming tangible personal property ... or services...." MCL 205.93(1); MSA 7.555(3)(1). See also National Bank of Detroit v. Dep't of Revenue, 334 Mich. 132, 141, 54 N.W.2d 278 (1952).
However, the use tax also requires each seller to collect the "tax imposed by this act from the consumer." MCL 205.95(a); MSA 7.555(5)(a). In addition, it imposes certain tax liabilities for the seller's failure to do so:
Finally, the use tax provides criminal sanctions for a seller's failure to comply either with the collection requirements or with any other provisions of the act:
The question presented is whether the cited sections, when read together, recast a seller's collection duties under the Use Tax Act. Does the seller become primarily responsible to pay the tax when, through no fault of its own, it cannot collect it? We join with the Court of Appeals in Michigan Bell, supra, in holding that these sections do not require a seller to become, in effect, its customers' use-tax payment guarantor.
Defendant would have this Court interpret the Use Tax Act at M.C.L. § 205.99; MSA 7.555(9) as permitting defendant to assess the tax against a seller whenever the consumer does not pay it. It argues that the language of this section does not excuse the seller from collecting the use tax from consumers after the seller has reasonably attempted to do so. Essentially, plaintiff asks us to interpret the Use Tax Act in a way that requires a seller to become, without condition, its customers' use-tax payment guarantor. We decline to do so.
We note first that the appropriate party to pay a use tax is the consumer, not the seller. Previously, in Lockwood v. Comm'r of Revenue,
As a practical proposition [the use tax and the sales tax] are assessed on different privileges, and the legal incidence of the tax falls in one case on the retailer and in the other on the user, storer or consumer. The fact that the seller of the goods designed for use, storage or consumption in Michigan is required by the statute to collect on behalf of the State the amount due from the purchaser does not alter the situation. The use tax is not imposed on such seller, but, rather, on the party exercising the privilege of use, storage or consumption, as the case may be. One may be charged with the duty of collecting a tax
We have been mindful of this primary difference between the sales and use tax, in examining the relevant provisions of the Use Tax Act. We hold that, before the seller is subjected to either tax liability under M.C.L. § 205.99; MSA 7.555(9), or criminal penalties under M.C.L. § 205.106; MSA 7.555(16), the Use Tax Act requires intent or fault by the seller in its inability to collect the tax from its customers.
When construing these statutory sections, we apply the accepted rule that the terms of statutory provisions having a common purpose should be read in pari materia. Jennings v. Southwood, 446 Mich. 125, 136, 521 N.W.2d 230 (1994). The object of this rule is to give effect to the legislative purpose as found in statutes on a particular subject. Id. at 137, 521 N.W.2d 230. Conflicting provisions of a statute must be read together to produce an harmonious whole and to reconcile any inconsistencies wherever possible. Gross v. General Motors Corp., 448 Mich. 147, 164, 528 N.W.2d 707 (1995); Weems v. Chrysler Corp., 448 Mich. 679, 699-700, 533 N.W.2d 287 (1995).
We hold that our reading of the Use Tax Act is consistent with the Legislature's intent that a seller be held liable for the use tax of its consumers only when the seller acts wrongfully. MCL 205.106, M.S.A. § 7.555(16). The criminal penalties it imposes fall only upon a seller who "fails, neglects or refuses to collect the tax as required by this act...." "Fails" could be read as imposing absolute liability. However, its conjunction with the terms "neglect" and "refuses" causes us to conclude that the Legislature intended to require fault by the seller as a basis for criminal liability.
Similarly, M.C.L. § 205.99; MSA 7.555(9), imposing tax liability on a seller who fails to collect a use tax when required to do so, can be read as imposing strict liability on the seller. However, we view the provisions together with M.C.L. § 205.106; MSA 7.555(16), M.C.L. § 205.93; MSA 7.555(3), and M.C.L. § 205.97; MSA 7.555(7). We conclude that the Legislature intended the seller to suffer the tax obligation only if the seller's inability to collect the tax was based on some fault of the seller.
If the seller were liable for use tax when unable to collect it from its customers through no fault of its own, the tax would fall onto the seller. It would, in effect, convert the use tax to a sales tax. See Lockwood, supra at 527, 98 N.W.2d 753. Such a holding would effectively remove the distinction between the General Sales Tax Act and the Use Tax Act and render portions of M.C.L. § 205.93; MSA 7.555(3) surplusage or nugatory. One of the primary rules of statutory construction is to avoid a construction that would achieve such a result. Altman v. Meridian Twp., 439 Mich. 623, 635, 487 N.W.2d 155 (1992). Thus, we hold that a construction requiring fault on the part of the seller is appropriate under the circumstances of the case.
Defendant required plaintiff to pay use taxes on its uncompleted transactions despite the fact that plaintiff never received payment for the goods sold.
Therefore, we reverse the decision of the Court of Appeals and hold that plaintiff is entitled to a refund of the tax paid.
WEAVER, C.J., and MICHAEL F. CAVANAGH, TAYLOR, CORRIGAN, and YOUNG, JJ., concurred with MARILYN J. KELLY, J.
BRICKLEY, J., concurred in the result only.