The Michigan Supreme Court held that sales of bottle and can recycling machines that help retailers comply with Michigan’s bottle-deposit law may qualify for the state’s sales and use tax exemption applicable to machinery used in an industrial-processing activity.  The Michigan Department of Treasury unsuccessfully argued that the machines may not qualify for the exemption because they facilitated the collection of raw materials for subsequent processing, and the applicable Michigan statute generally defines “industrial processing” as beginning when tangible personal property is moved from raw materials storage and ending when finished goods first come to rest in inventory.

The Court specifically concluded that the general statutory definition highlighted by the Department could not apply to another subsection of the same statute, which identified specific activities that qualify as “industrial processing.”  According to the court, some of the specifically identified activities—such as “research and experimental activities” and the design of exempt machinery—cannot occur during the period identified in the general definition of “industrial processing.”  The Court refused to apply the “temporal” limitation in the general definition of “industrial processing” because doing so would leave portions of the statute specifically identifying qualifying “industrial processing” activities “without meaning or function.”

In reaching its conclusion, the Court clarified that the interpretive canon requiring tax exemptions be strictly construed in favor of the government must be applied only as a “last resort,” or “when an act’s language, after analysis and subjection to the ordinary rules of interpretation, presents ambiguity.”  In the present case, the Court held the canon was inapplicable because the “ordinary meaning” of “industrial processing” for purposes of the exemption at hand was discernible from reading the appropriate statutory text with the aid of other canons of interpretation.

Tomra of North America v. Dept. of Treasury, — N.W.2d —-, 2020 WL 3261606 (Mich. 2020)