HOUSE BILL No. 5650 March 10, 1998, Introduced by Reps. Bodem, Scranton, Richner, Dobb, Goschka, Dalman, Profit, Kukuk and Cropsey and referred to the Committee on Tax Policy. A bill to amend 1937 PA 94, entitled "Use tax act," by amending sections 4 and 4k (MCL 205.94 and 205.94k), section 4 as amended by 1996 PA 436 and section 4k as amended by 1996 PA 477. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 4. The tax levied does not apply to the following: 2 (a) Property sold in this state on which transaction a tax 3 is paid under the general sales tax act,Act No. 167 of the4Public Acts of 1933, being sections 205.51 to 205.78 of the5Michigan Compiled Laws1933 PA 167, MCL 205.51 TO 205.78, if the 6 tax was due and paid on the retail sale to a consumer. 7 (b) Property, the storage, use, or other consumption of 8 which this state is prohibited from taxing under the constitution 03284'97 CSC 2 1 or laws of the United States, or under the constitution of this 2 state. 3 (c) Property purchased for resale, demonstration purposes, 4 or lending or leasing to a public or parochial school offering a 5 course in automobile driving except that a vehicle purchased by 6 the school shall be certified for driving education and shall not 7 be reassigned for personal use by the school's administrative 8 personnel. For a dealer selling a new car or truck, exemption 9 for demonstration purposes shall be determined by the number of 10 new cars and trucks sold during the current calendar year or the 11 immediately preceding year without regard to specific make or 12 style according to the following schedule of 0 to 25, 2 units; 26 13 to 100, 7 units; 101 to 500, 20 units; 501 or more, 25 units; but 14 not to exceed 25 cars and trucks in 1 calendar year for demon- 15 stration purposes. Property purchased for resale includes promo- 16 tional merchandise transferred pursuant to a redemption offer to 17 a person located outside this state or any packaging material, 18 other than promotional merchandise, acquired for use in fulfill- 19 ing a redemption offer or rebate to a person located outside this 20 state. 21 (d) Property that is brought into this state by a nonresi- 22 dent person for storage, use, or consumption while temporarily 23 within this state, except if the property is used in this state 24 in a nontransitory business activity for a period exceeding 15 25 days. 26 (e) Property the sale or use of which was already subjected 27 to a sales tax or use tax equal to, or in excess of, that imposed 03284'97 3 1 by this act under the law of any other state or a local 2 governmental unit within a state if the tax was due and paid on 3 the retail sale to the consumer and the state or local governmen- 4 tal unit within a state in which the tax was imposed accords like 5 or complete exemption on property the sale or use of which was 6 subjected to the sales or use tax of this state. If the sale or 7 use of property was already subjected to a tax under the law of 8 any other state or local governmental unit within a state in an 9 amount less than the tax imposed by this act, this act shall 10 apply, but at a rate measured by the difference between the rate 11 provided in this act and the rate by which the previous tax was 12 computed. 13 (f) Property sold to a person engaged in a business enter- 14 prise and using and consuming the property in the tilling, plant- 15 ing, caring for, or harvesting of the things of the soil or in 16 the breeding, raising, or caring for livestock, poultry, or 17 horticultural products, including transfers of livestock, poul- 18 try, or horticultural products for further growth. At the time 19 of the transfer of that tangible personal property, the trans- 20 feree shall sign a statement, in a form approved by the depart- 21 ment, stating that the property is to be used or consumed in con- 22 nection with the production of horticultural or agricultural pro- 23 ducts as a business enterprise. The statement shall be accepted 24 by the courts as prima facie evidence of the exemption. This 25 exemption includes agricultural land tile, which means fired clay 26 or perforated plastic tubing used as part of a subsurface 27 drainage system for land used in the production of agricultural 03284'97 4 1 products as a business enterprise and includes a portable grain 2 bin, which means a structure that is used or is to be used to 3 shelter grain and that is designed to be disassembled without 4 significant damage to its component parts. This exemption does 5 not include transfers of food, fuel, clothing, or similar tangi- 6 ble personal property for personal living or human consumption. 7 This exemption does not include tangible personal property per- 8 manently affixed and becoming a structural part of real estate. 9 (g) Property sold to the following: 10 (i) An industrial processor for use or consumption in indus- 11 trial processing. Property used or consumed in industrial pro- 12 cessing does not include tangible personal property permanently 13 affixed and becoming a structural part of real estate; office 14 furniture, office supplies, and administrative office equipment; 15 or vehicles licensed and titled for use on public highways other 16 than a specially designed vehicle, together with parts, used to 17 mix and agitate materials added at a plant or jobsite in the con- 18 crete manufacturing process. Industrial processing does not 19 include receipt and storage of raw materials purchased or 20 extracted by the user or consumer, or the preparation of food and 21 beverages by a retailer for retail sale. As used in this subdi- 22 vision, "industrial processor" means a person who transforms, 23 alters, or modifies tangible personal property by changing the 24 form, composition, or character of the property for ultimate sale 25 at retail or sale to another industrial processor to be further 26 processed for ultimate sale at retail. Sales to a person 27 performing a service who does not act as an industrial processor 03284'97 5 1 while performing the service may not be excluded under this 2 subdivision, except as provided in subparagraph (ii). 3 (ii) A person, whether or not the person is an industrial 4 processor,whenIF the property is a computer used in operating 5 industrial processing equipment; equipment used in a computer 6 assisted manufacturing system; equipment used in a computer 7 assisted design or engineering system integral to an industrial 8 process; or a subunit or electronic assembly comprising a compo- 9 nent in a computer integrated industrial processing system. 10 (h) Property or services sold to the United States, an unin- 11 corporated agency or instrumentality of the United States, an 12 incorporated agency or instrumentality of the United States 13 wholly owned by the United States or by a corporation wholly 14 owned by the United States, the American red cross and its chap- 15 ters or branches, this state, a department or institution of this 16 state, or a political subdivision of this state. 17 (i) Property or services sold to a school, hospital, or home 18 for the care and maintenance of children or aged persons, oper- 19 ated by an entity of government, a regularly organized church, 20 religious, or fraternal organization, a veterans' organization, 21 or a corporation incorporated under the laws of this state, if 22 not operated for profit, and if the income or benefit from the 23 operation does not inure, in whole or in part, to an individual 24 or private shareholder, directly or indirectly, and if the activ- 25 ities of the entity or agency are carried on exclusively for the 26 benefit of the public at large and are not limited to the 27 advantage, interests, and benefits of its members or a restricted 03284'97 6 1 group. The tax levied does not apply to property or services 2 sold to a parent cooperative preschool. As used in this subdivi- 3 sion, "parent cooperative preschool" means a nonprofit, nondis- 4 criminatory educational institution, maintained as a community 5 service and administered by parents of children currently 6 enrolled in the preschool that provides an educational and devel- 7 opmental program for children younger than compulsory school age, 8 that provides an educational program for parents, including 9 active participation with children in preschool activities, that 10 is directed by qualified preschool personnel, and that is 11 licensedby the department of consumer and industry services12 pursuant toAct No. 116 of the Public Acts of 1973, being sec-13tions 722.111 to 722.128 of the Michigan Compiled Laws1973 PA 14 116, MCL 722.111 TO 722.128. 15 (j) Property or services sold to a regularly organized 16 church or house of religious worship except the following: 17 (i) Sales in which the property is used in activities that 18 are mainly commercial enterprises. 19 (ii) Sales of vehicles licensed for use on the public high- 20 ways other than a passenger van or bus with a manufacturer's 21 rated seating capacity of 10 or more that is used primarily for 22 the transportation of persons for religious purposes. 23 (k) A vessel designed for commercial use of registered ton- 24 nage of 500 tons or more, if produced upon special order of the 25 purchaser, and bunker and galley fuel, provisions, supplies, 26 maintenance, and repairs for the exclusive use of a vessel of 500 27 tons or more engaged in interstate commerce. 03284'97 7 1 (l) Property purchased by a person engaged in the business 2 of constructing, altering, repairing, or improving real estate 3 for others to the extent the property is affixed to and made a 4 structural part of the real estate of a nonprofit hospital or a 5 nonprofit housing entity qualified as exempt pursuant to section 6 15a of the state housing development authority act of 1966,Act7No. 346 of the Public Acts of 1966, being section 125.1415a of8the Michigan Compiled Laws1966 PA 346, MCL 125.1415A. A non- 9 profit hospital or nonprofit housing includes only the property 10 of a nonprofit hospital or the homes or dwelling places con- 11 structed by a nonprofit housing entity, the income or property of 12 which does not directly or indirectly inure to the benefit of an 13 individual, private stockholder, or other private person. 14 (m) Property purchased for use in this statewhereIF 15 actual personal possession is obtained outside this state, the 16 purchase price or actual value of which does not exceed $10.00 17 during 1 calendar month. 18 (n) A newspaper or periodical classified under federal 19 postal laws and regulations effective September 1, 1985 as second 20 class mail matter or as a controlled circulation publication or 21 qualified to accept legal notices for publication in this state, 22 as defined by law, or any other newspaper or periodical of gen- 23 eral circulation, established at least 2 years, and published at 24 least once a week, and a copyrighted motion picture film. 25 Tangible personal property used or consumed, and not becoming a 26 component part of a copyrighted motion picture film, newspaper or 27 periodical, except that portion or percentage of tangible 03284'97 8 1 personal property used or consumed in producing an advertising 2 supplement that becomes a component part of a newspaper or peri- 3 odical is subject to tax. For purposes of this subdivision, tan- 4 gible personal property that becomes a component part of a news- 5 paper or periodical and consequently not subject to tax, includes 6 an advertising supplement inserted into and circulated with a 7 newspaper or periodical that is otherwise exempt from tax under 8 this subdivision, if the advertising supplement is delivered 9 directly to the newspaper or periodical by a person other than 10 the advertiser, or the advertising supplement is printed by the 11 newspaper or periodical. 12 (o) Property purchased by persons licensed to operate a com- 13 mercial radio or television station if the property is used in 14 the origination or integration of the various sources of program 15 material for commercial radio or television transmission. This 16 subdivision does not include a vehicle licensed and titled for 17 use on public highways or property used in the transmitting to or 18 receiving from an artificial satellite. 19 (p) A person who is a resident of this state who purchases 20 an automobile in another state while in the military service of 21 the United States and who pays a sales tax in the state where the 22 automobile is purchased. 23 (q) A vehicle for which a special registration is secured in 24 accordance with section 226(12) of the Michigan vehicle code, 25Act No. 300 of the Public Acts of 1949, being section 257.226 of26the Michigan Compiled Laws1949 PA 300, MCL 257.226. 03284'97 9 1 (r) A hearing aid, contact lenses if prescribed for a 2 specific diseasewhichTHAT precludes the use of eyeglasses, or 3 any other apparatus, device, or equipment used to replace or sub- 4 stitute for any part of the human body, or used to assist the 5 disabled person to lead a reasonably normal lifewhenIF the 6 tangible personal property is purchased on a written prescription 7 or order issued by a health professional as defined by section 4 8 of formerAct No. 264 of the Public Acts of 19741974 PA 264, 9 or section 21005 of the public health code,Act No. 368 of the10Public Acts of 1978, being section 333.21005 of the Michigan11Compiled Laws1978 PA 368, MCL 333.21005, or eyeglasses pre- 12 scribed or dispensed to correct the person's vision by an oph- 13 thalmologist, optometrist, or optician. 14 (s) WaterwhenIF delivered through water mains or in bulk 15 tanks in quantities of not less than 500 gallons. 16 (t) The purchase of machinery and equipment for use or con- 17 sumption in the rendition of any combination of services, the use 18 or consumption of which is taxable under section 3a(a) or (c) 19 except that this exemption is limited to the tangible personal 20 property located on the premises of the subscriber and to central 21 office equipment or wireless equipment, directly used or consumed 22 in transmitting, receiving, or switching or the monitoring of 23 switching of a 2-way interactive communication. As used in this 24 subdivision, central office equipment or wireless equipment does 25 not include distribution equipment including cable or wire 26 facilities. 03284'97 10 1 (u) A vehicle not for resale used by a nonprofit corporation 2 organized exclusively to provide a community with ambulance or 3 fire department services. 4 (v) Tangible personal property purchased and installed as a 5 component part of a water pollution control facility for which a 6 tax exemption certificate is issued pursuant to part 37 (water 7 pollution control facilities; tax exemption) of the natural 8 resources and environmental protection act,Act No. 451 of the9Public Acts of 1994, being sections 324.3701 to 324.3708 of the10Michigan Compiled Laws1994 PA 451, MCL 324.3701 TO 324.3708, or 11 an air pollution control facility for which a tax exemption cer- 12 tificate is issued pursuant to part 59 (air pollution control 13 facility; tax exemption) ofAct No. 451 of the Public Acts of141994, being sections 324.5901 to 324.5908 of the Michigan15Compiled LawsTHE NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION 16 ACT, 1994 PA 451, MCL 324.5901 TO 324.5908. 17 (w) Tangible real or personal property donated by a manufac- 18 turer, wholesaler, or retailer to an organization or entity 19 exempt pursuant to subdivision (i) or (j) or section 4a(a) or (b) 20 ofAct No. 167 of the Public Acts of 1933, being section 205.54a21of the Michigan Compiled LawsTHE GENERAL SALES TAX ACT, 1933 PA 22 167, MCL 205.54A. 23 (x) The storage, use, or consumption by a domestic air car- 24 rier of an aircraft purchased after December 31, 1992 for use 25 solely in the transport of air cargo that has a maximum certifi- 26 cated takeoff weight of at least 12,500 pounds. For purposes of 27 this subdivision, the term "domestic air carrier" is limited to 03284'97 11 1 entities engaged in the commercial transport for hire of cargo or 2 entities engaged in the commercial transport of passengers as a 3 business activity. 4 (y) The storage, use, or consumption by a domestic air car- 5 rier of an aircraft purchased after June 30, 1994 that is used 6 solely in the regularly scheduled transport of passengers. For 7 purposes of this subdivision, the term "domestic air carrier" is 8 limited to entities engaged in the commercial transport for hire 9 of cargo or entities engaged in the commercial transport of pas- 10 sengers as a business activity. 11 (z) The storage, use, or consumption by a domestic air car- 12 rier of an aircraft, other than an aircraft described under 13 subdivision (y), purchased after December 31, 1994, that has a 14 maximum certificated takeoff weight of at least 12,500 pounds and 15 that is designed to have a maximum passenger seating configura- 16 tion of more than 30 seats and used solely in the transport of 17 passengers. For purposes of this subdivision, the term "domestic 18 air carrier" is limited to entities engaged in the commercial 19 transport for hire of cargo or entities engaged in the commercial 20 transport of passengers as a business activity. 21 (AA) THE STORAGE, USE, OR CONSUMPTION BY A DOMESTIC AIR CAR- 22 RIER OF AN AIRCRAFT PURCHASED AFTER DECEMBER 31, 1996 FOR USE IN 23 THE TRANSPORT OF AIR CARGO, PASSENGERS, OR A COMBINATION OF AIR 24 CARGO AND PASSENGERS THAT HAS A MAXIMUM CERTIFIED TAKEOFF WEIGHT 25 OF AT LEAST 6,000 POUNDS. FOR PURPOSES OF THIS SUBDIVISION, THE 26 TERM "DOMESTIC AIR CARRIER" IS LIMITED TO ENTITIES ENGAGED IN THE 03284'97 12 1 COMMERCIAL TRANSPORT FOR HIRE OF AIR CARGO, PASSENGERS, OR A 2 COMBINATION OF AIR CARGO AND PASSENGERS AS A BUSINESS ACTIVITY. 3 (BB)(aa)Property or services sold to a health, welfare, 4 educational, cultural arts, charitable, or benevolent organiza- 5 tion not operated for profit that has been issued before June 13, 6 1994 an exemption ruling letter to purchase items exempt from tax 7 signed by the administrator of the sales, use, and withholding 8 taxes division of the department. The department shall reissue 9 an exemption letter to each of those organizations after June 13, 10 1994 that shall remain in effect unless the organization fails to 11 meet the requirements that originally entitled it to this exemp- 12 tion; or to an organization not operated for profit and exempt 13 from federal income tax under section 501(c)(3) or 501(c)(4) of 14 the internal revenue code of 1986., 26 U.S.C. 501.The exemp- 15 tion does not apply to sales of tangible personal property and 16 sales of vehicles licensed for use on public highways, that are 17 not used primarily to carry out the purposes of the organization 18 as stated in the bylaws or articles of incorporation of the 19 exempt organization. 20 Sec. 4k. (1) The tax levied under this act does not apply 21 to parts and materials, excluding shop equipment or fuel, affixed 22 to or to be affixed in this state to an aircraft owned or used by 23 a domestic air carrier that is any of the following: 24 (a) An aircraft for use solely in the transport of air cargo 25 that has a maximum certificated takeoff weight of at least 12,500 26 pounds for taxes levied before January 1, 1997 and at least 6,000 27 pounds for taxes levied after December 31, 1996. 03284'97 13 1 (b) An aircraft that is used solely in the regularly 2 scheduled transport of passengers. 3 (c) An aircraft other than an aircraft described in subdivi- 4 sion (b), that has a maximum certificated takeoff weight of at 5 least 12,500 pounds for taxes levied before January 1, 1997 and 6 at least 6,000 pounds for taxes levied after December 31, 1996, 7 and that is designed to have a maximum passenger seating configu- 8 ration of more than 30 seats and used solely in the transport of 9 passengers. 10 (D) FOR TAXES LEVIED AFTER DECEMBER 31, 1996, AN AIRCRAFT 11 THAT HAS A MAXIMUM CERTIFIED TAKEOFF WEIGHT OF AT LEAST 6,000 12 POUNDS FOR USE IN THE TRANSPORT OF A COMBINATION OF AIR CARGO AND 13 PASSENGERS. 14 (2) For taxes levied after December 31, 1992 and before 15 May 1, 1999, the tax levied under this act does not apply to the 16 storage, use, or consumption of rolling stock used in interstate 17 commerce and purchased, rented, or leased outside of this state 18 by an interstate motor carrier. A refund for taxes paid before 19 January 1, 1997 shall not be paid under this subsection if the 20 refund claim is made after June 30, 1997. 21 (3) For taxes levied after December 31, 1996 and before 22 May 1, 1999, the tax levied under this act does not apply to the 23 product of the out-of-state usage percentage and the price other- 24 wise taxable under this act of a qualified truck or a trailer 25 designed to be drawn behind a qualified truck, purchased, rented, 26 or leased in this state by an interstate motor carrier and used 27 in interstate commerce. 03284'97 14 1 (4) As used in this section: 2 (a) "Domestic air carrier" is limited to entities engaged in 3 the commercial transport for hire of AIR cargo,or entities4engaged in the commercial transport ofpassengers, OR A COMBINA- 5 TION OF AIR CARGO AND PASSENGERS as a business activity. 6 (b) "Interstate motor carrier" means a person engaged in the 7 business of carrying persons or property, other than themselves, 8 their employees, or their own property, for hire across state 9 lines, whose fleet mileage was driven at least 10% outside of 10 this state in the immediately preceding tax year. 11 (c) "Out-of-state usage percentage" is a fraction, the 12 numerator of which is the number of miles driven outside of this 13 state in the immediately preceding tax year by qualified trucks 14 used by the taxpayer and the denominator of which is the total 15 miles driven in the immediately preceding tax year by qualified 16 trucks used by the taxpayer. Miles driven by qualified trucks 17 used solely in intrastate commerce shall not be included in cal- 18 culating the out-of-state usage percentage. 19 (d) "Qualified truck" means a commercial motor vehicle power 20 unit that has 2 axles and a gross vehicle weight rating in excess 21 of 10,000 pounds or a commercial motor vehicle power unit that 22 has 3 or more axles. 23 (e) "Rolling stock" means a qualified truck, a trailer 24 designed to be drawn behind a qualified truck, and parts affixed 25 to either a qualified truck or a trailer designed to be drawn 26 behind a qualified truck. 03284'97 Final page. CSC