News and Insights

Michigan Appeals Court Rules that Electricity Purchased by Telecommunications Companies Does Not Qualify for Industrial Processing Exemption

Tax Development Dec 11, 2014

In MidAmerican Energy Company v. Department of Treasury, Michigan Court of Appeals, No. 316902, December 4, 2014, the Michigan Court of Appeals (“Court”) ruled that purchases of electricity by telecommunications companies were not eligible for Michigan’s industrial processing exemption. In Michigan Compiled Laws 205.54t, the state provides a sales tax exemption for taxpayers who modify tangible personal property for sale or use of tangible personal property to produce wholly new tangible personal property.

The taxpayers argued that purchases of electricity, which is tangible personal property, are exempt when they either modify the electricity into telecommunications signals or use the electricity to create telecommunications signals, which are a new form of tangible personal property. The Court ruled that although the telecommunications signals are electricity at some point in the transmission process, they are not electricity at every state. Furthermore, the Court provided that the absence of the term “telecommunications signals” from Michigan Compiled Laws 205.51a(q) and the inclusion of other specific terms in the definition of “tangible personal property” indicated that the Legislature did not intend for telecommunications signals to fall within the definition of tangible personal property. Additionally, the taxpayers were not able to support their contention that telecommunications signals “can be seen, weighed, measured, felt, or touched, or [are] in any other manner perceptible to the senses.”


Jim Kranjc

Bradley O’Donnell