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BlogsPublications | January 4, 2017
2 minute read

COA upholds prior ruling that a custom-furnishing carpenter is liable for use tax as construction contractor because its products met the fixtures test

A company in the business of producing and installing custom office furnishing and interior finishes is a contractor liable for use tax, and not a retailer, because its products meet the “3-part fixture test” under Tuinier v Bedfort Charter Twp, 235 Mich App 663, 668; 599 NW2d 116 (1999). Further, it is not an industrial processor entitled to an exemption under the Use Tax Act (UTA). Ultimately such a company affixes its product to real estate for its customers, no matter how unobtrusive the hardware used to attach its products is or how easily those products may be removed.

In Brunt Associates, Inc. v Department of Treasury, No. 328253, the Michigan Court of Appeals deemed the argument of whether petitioner’s products became “fixtures” once installed to be irrelevant to the issue at hand, which was whether petitioner is a contractor.  The Michigan Court of Appeals granted motion for reconsideration and vacated its prior opinion with minor clarification and applying the “3-part fixture test.”

The test for whether personal property has become sufficiently affixed to real property such that it should be treated as part of the realty requires Michigan courts to examine: (1) whether the property was actually or constructively annexed to the real estate; (2) whether the property was adapted or applied to the use or purpose of that part of the realty to which the property in question is connected or appropriated; and (3) whether the property owner intended to make the property a permanent accession to the realty. Granger Land Dev Co. v Department of Treasury, 286 Mich App 601, 611; 780 NW2d 611 (2009), quoting Tuinier 286 Mich App at 611 (other citations omitted).

The Michigan Court of Appeals determined that the first two prongs were not in dispute because the petitioner’s products were actually physically attached to the realty and the products were adapted for the specific needs and space of its consumers. The Court further held that the petitioner’s products were also intended to be permanent accessions to realty because of the nature of the products and the essential functions they fulfill in the businesses of petitioner’s customers, and the petitioner testified that the products were rarely removed, usually for repair only, and subsequently reinstalled thereby fulfilling the third prong of the test.

Thus, the Michigan Court of Appeals, through further analysis, re-affirmed the Tax Tribunal’s decision and held that a company that sells and installs finished carpentry is liable for use tax as a construction contractor.