The Michigan Supreme Court held that sales of container (bottle and can) recycling machines and repair parts qualify for the state’s sales and use tax exemption on machinery used in industrial processing. The Michigan Department of Treasury (DOT) had argued that the tasks the container-recycling machines perform occur before the industrial process begins and therefore do not qualify for the industrial processing exemption.
The industrial-processing exemption provides both a general definition of industrial processing as well as a list of specific activities that constitute industrial-processing activities. The section of the statute that provides a general definition of industrial processing also provides that industrial processing begins when tangible personal property begins movement from raw-materials storage to begin industrial processing and ends when finished goods first come to rest in finished-goods-inventory storage. This section thus establishes a time period when industrial processing must occur in order for the exemption to apply. A separate section of the statute states that industrial processing includes 11 enumerated activities.
In this case, the container-recycling machines facilitated the collection of raw materials outside the time frame specified in the “general definition” section of statute. The Michigan Supreme Court ruled that the time period limitation in the “general definition” section of statute could not apply to another subsection of the same statue, namely the section that identifies specific activities that qualify as industrial processing. According to the Court, the two sections of the statute are discrete inquiries. For example, some of the specifically enumerated activities – such as Research and Development – cannot occur during the time frame specified in the “general definition” section of statute. The Court refused to apply the time frame specified in the “general definition” section of statute to the other section because doing so would leave portions of the specifically enumerated activities without meaning or function. Relying on the more specific section of the statute resolves the conflict. As such, sales of the container-recycling machines qualify for the exemption on machinery used in industrial processing.
This case serves as a useful reminder that activities that are not considered traditional manufacturing or processing activities may qualify for manufacturing or processing exemptions in a state, so study those statutes closely! (TOMRA of North America v. Department of Treasury, State of Michigan Supreme Court)