In Consumers Energy Company v. Department of Treasury, No. 150520-1, the Michigan Supreme Court reversed the Court of Appeals’ decision that Consumers’ electrical and natural gas distribution equipment were exempt from the Use Tax under MCL 205.94o. The Court remanded the case to the Court of Claims for reconsideration and application of Detroit Edison Co. v. Dep’t of Treasury to determine the percentage of exempt use to total use.
Last year, the Michigan Court of Appeals concluded that Consumers’ electrical distribution equipment changed the “form, composition, quality, combination, or character” of electricity before it reached customers. Additionally, the court reasoned that Consumers’ natural gas distribution equipment changed the character of the natural gas by making it safe and usable to customers. Lastly, the court concluded that contractors paid a sales tax for repair-related items that were used for Consumers’ natural gas customers, barring the application of a Use Tax. Therefore, the court held that Consumers’ electrical and natural gas distribution equipment were exempt from the Use Tax under MCL 205.94o, and the items purchased by third-party contractors were not subject to the Use Tax.