The Michigan Court of Appeals has held that a non-Michigan publisher and distributor of telephone directories to business and residential customers in Michigan was subject to use tax on the directories because it “used” the directories in Michigan and the price of the directories is to be calculated without a deduction for the costs of materials and services.

There were three issues in this case which were all resolved against the taxpayer.  First, the taxpayer argued that the directories were not subject to Michigan tax because they were shipped from outside of Michigan and the taxpayer did not have use tax nexus in Michigan.  However, the court noted that the carrier contract and the distribution contract showed that the taxpayer did not cede total control of the directories while the directories were transported into Michigan by the contract carrier or when distributed to Michigan businesses and residences by the distributor. 

The second issue involved the "price" or the tax base to which the use tax rate of 6% is imposed.  In calculating the “price” of the directories, the Department of Treasury properly used the cost of the printer's services, along with the cost of the paper, as part of the measure of the use tax it imposed for the taxpayer's use of the directories in Michigan because the taxpayer paid the cost of the paper and the cost of printing services in the complete performance of the transaction. 

The third issue involved the taxpayer's argument of double taxation.  The taxpayer argued the fee charged for taxable telecommunication services included the cost of the directory.  Therefore, imposing an additional charge on the directories constituted double taxation.  The court rejected the taxpayer's double taxation argument that the directories were a tie-in to the telecommunications services provided by its affiliated companies.  The taxpayer did not provide any evidence that the use tax paid by the customers of the telecommunications services provided by its affiliated companies is based, in part, on the costs paid by the taxpayer in purchasing the paper used in the directories or in purchasing the printing companies services. (Ameritech Publishing, Inc. v. Department of Treasury, Michigan Court of Appeals, Docket Number 276374, August 7, 2008, approved for publication September 30, 2008)