Telecom Companies Did Not Qualify for Industrial Processing Exemption in Michigan

Purchases of electricity by telecommunications companies were not eligible for Michigan’s industrial processing exemption because telecommunications signals do not qualify as tangible personal property. In Michigan, industrial processing involves either the modification of tangible personal property for ultimate sale at retail or the use of tangible personal property in manufacturing a product to be ultimately sold at retail. In order to qualify for the exemption, a taxpayer must ultimately sell tangible personal property. The telecommunications companies argued that telecommunications signals qualify as tangible personal property as a modified form of electricity or that the signals are a new form of tangible personal property in their own right. While telecommunications signals are electricity at some point in the transmission process, they are not electricity at every stage. The Court of Appeals concluded that the word “electricity” does not include matter that is manifestly not electricity at various stages of its transmission. Additionally, the absence of “telecommunications signals” from the relevant tax statute and the inclusion of other specific terms in the definition indicates that it was not intended for telecommunications signals to fall within the definition of tangible personal property. The taxpayers did not present any convincing evidence that telecommunications signals “can be seen, weighed, measured, felt, or touched, or [are] in any other manner perceptible to the senses.” (MidAmerican Energy Company v. Department of Treasury, Michigan Court of Appeals, No. 316902, December 4, 2014)

Posted on January 18, 2015