The Michigan Court of Appeals handed down a ruling on July 8, 2021 affirming a lower court decision that use tax is not due by a retailer on advertising materials shipped to Michigan customers by an out of state direct mail company. The case was originally brought to the Michigan Court of Claims when the plaintiff, Bed Bath and Beyond Inc, filed a complaint to protest use tax assessed on advertising materials during an audit. The lower court ruled in favor of Bed Bath and Beyond Inc, and the Department of Treasury appealed the ruling. The Court of Appeals upheld the ruling, agreeing with the lower court that delivery of advertising materials to Michigan USPS locations by a direct mail company did not create a taxable use of the materials by Bed Bath and Beyond Inc within the state.
The appeals court agreed with the lower court’s reasoning that any amount of control or power over the property within the state would have created a use tax obligation, but that the retailer no longer had actual control over the property after they hired the direct mail company. The court rejected the Department of Treasury’s argument that providing a list of customer addresses with dates of distribution created a taxable use in the state, as the actual method of delivery of the advertising was still within the control of the direct mail company and voided the department’s use tax assessment against the retailer. Direct mail rules vary between states, and as in any other time tangible personal property crosses state lines, it’s important to know what exceptions, sourcing rules, and taxable events could potentially be involved in the transaction. Bed Bath & Beyond, Inc. v. Dep’t of Treas., Dkt Nos. 352088 and 325667 (Mich. Ct. App. Jul. 8, 2021).