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A Better Partnership
April 27, 2012

COA Opinion: Tug and barge are separate vessels for purposes of exemption under Use Tax Act

Michigan's Use Tax Act imposes a 'tax for the privilege of using, storing, or consuming tangible personal property in this state.' MCL 205.93(1). The Act provides a tax exemption for fuel, supplies and repairs for vessels that are 500 tons or more and engaged in interstate commerce. The plaintiff in Andrie, Inc. v. Department of Treasury, argued that a tug and barge, which operated together, constituted a single 'vessel' under the Act. The Michigan Court of Appeals disagreed, holding that under a plain reading of the statute, the exemption is intended to apply to a single vessel that is 500 tons or more, not two vessels that are connected or that operate as a single unit. 'If the Legislature intended the exemption to apply to multiple vessels working in unison,' the court reasoned, 'it easily could have stated as such.' Therefore, the tugs, which were less than 500 tons, did not qualify for the tax exemption.

The Court of Appeals agreed with the trial court that the barges, which were more than 500 tons, were exempt from the use tax. As to the barges, the Court of Appeals affirmed the trial court's determination that voyages between Michigan ports were intestate commerce and therefore subject to the exemption, because the barges were transporting goods that were traveling in commerce between states. Finally, the court held that the trial court properly determined that the purchase of certain personal properly in Michigan was not subject to the use tax, because such purchases would have been subject to Michigan sales tax. A transaction subject to sales tax is necessarily exempt from use tax, the court held.

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