Tomra of North America Inc v. Department of Treasury

Michigan Supreme Court
Lansing, Michigan
Syllabus
Chief Justice: Justices:
Bridget M. McCormack Stephen J. Markman
Brian K. Zahra
Chief Justice Pro Tem:
Richard H. Bernstein
David F. Viviano Elizabeth T. Clement
Megan K. Cavanagh
This syllabus constitutes no part of the opinion of the Court but has been Reporter of Decisions:
prepared by the Reporter of Decisions for the convenience of the reader. Kathryn L. Loomis
TOMRA OF NORTH AMERICA, INC v DEPARTMENT OF TREASURY
Docket Nos. 158333 and 158335. Argued November 7, 2019 (Calendar No. 3). Decided
June 16, 2020.
TOMRA of North America, Inc., brought two separate actions in the Court of Claims
against the Department of Treasury, seeking a refund for use tax and sales tax that plaintiff had
paid on the basis that plaintiff’s sales of container-recycling machines and repair parts were exempt
from taxation under the General Sales Tax Act (GSTA), MCL 205.51 et seq., and the Use Tax Act
(UTA), MCL 205.91 et seq. Plaintiff moved for summary disposition, seeking a ruling on the
question whether plaintiff’s container-recycling machines and repair parts perform, or are used in,
an industrial-processing activity under the GSTA and UTA. The Court of Claims, MICHAEL J.
TALBOT, J., denied plaintiff’s motion and instead granted summary disposition in favor of
defendant, holding that plaintiff’s container-recycling machines and repair parts were not used in
an industrial-processing activity and that plaintiff therefore was not entitled to exemption from
sales and use tax for the sale and lease of the machines and their repair parts. The Court of Claims
found that the tasks that plaintiff’s machines performed occurred before the industrial process
began, reasoning that the activities listed in MCL 205.54t(3) and MCL 205.94o(3) are only
industrial-processing activities when they occur between the start and end of the industrial process
as defined by MCL 205.54t(7)(a) and MCL 205.94o(7)(a), respectively. Plaintiff appealed, and
the Court of Appeals consolidated the appeals. The Court of Appeals, GADOLA, P.J., and
RIORDAN, J. (K. F. KELLY, J., dissenting), reversed, declining to interpret MCL 205.54t(7)(a) and
MCL 205.94o(7)(a) as placing a temporal limitation on the activities listed in MCL 205.54t(3) and
MCL 205.94o(3), respectively. 325 Mich. App. 289 (2018). Defendant sought leave to appeal in
the Supreme Court, and the Supreme Court granted the application. 503 Mich. 987 (2019).
In a unanimous opinion by Justice VIVIANO, the Supreme Court held:
Plaintiff’s sales of container-recycling machines and repair parts were exempt from
taxation under the industrial-processing exemption because the temporal limitation specified in the
general statutory definition of industrial processing under MCL 205.54t(7)(a) of the GSTA and
MCL 205.94o(7)(a) of the UTA did not apply to the enumerated list of industrial-processing
activities in MCL 205.54t(3) and MCL 205.94o(3), respectively; the rule of strict construction of
tax exemptions was inapplicable in this case because the statutes were unambiguous.
1. There is a canon of construction that tax exemptions must be strictly construed in favor
of the government, i.e., against the finding of an exemption. The preference against tax exemptions
is a judicially created substantive canon, meaning that it is premised on certain policies or political
objectives instead of its usefulness in uncovering a statute’s ordinary meaning. Because the canon
requiring strict construction of tax exemptions does not help reveal the semantic content of a
statute, it is a canon of last resort. That is, courts should employ it only when an act’s language,
after analysis and subjection to the ordinary rules of interpretation, presents ambiguity. In this
case, the canon was inapplicable because the statutes were unambiguous: their ordinary meaning
was discernible by reading the text in its immediate context and with the aid of appropriate canons
of construction.
2. The GSTA imposes taxes on the sale of goods, and the UTA imposes taxes on goods
purchased outside the state for use in the state. To avoid the double taxation of a product that
would result from exacting both use and sales taxes, the Legislature exempted certain property
used or consumed in industrial processing from the taxes in each act. Pursuant to MCL
205.54t(1)(b) and (c) of the GSTA and MCL 205.94o(1)(b) and (c) of the UTA, the exemption
covers, among other things, tangible personal property that is intended for ultimate use in and is
used in industrial processing by an industrial processor or is used by a person, whether or not an
industrial processor, to perform an industrial-processing activity for or on behalf of an industrial
processor. The industrial-processing exemption provides both a general definition of industrial
processing, MCL 205.54t(7)(a); MCL 205.94o(7)(a), and also a list of specific activities that
constitute industrial-processing activities, MCL 205.54t(3); MCL 205.94o(3). Subsection (7)(a)
generally defines industrial processing as the activity of converting or conditioning tangible
personal property by changing the form, composition, quality, combination, or character of the
property for ultimate sale at retail or for use in the manufacturing of a product to be ultimately sold
at retail. Subsection (7)(a) further provides that industrial processing begins when tangible
personal property begins movement from raw-materials storage to begin industrial processing and
ends when finished goods first come to rest in finished-goods-inventory storage. The second
sentence of Subsection (7)(a) thus establishes a temporal period during which industrial processing
must occur, spanning from when property begins movement from raw-materials storage into
processing until the finished goods enter inventory storage. Subsection (3) states that industrial
processing includes 11 enumerated activities. In this case, plaintiff’s machines facilitated the
collection of raw materials outside the time frame described in Subsection (7)(a). However,
Detroit Edison Co v Dep’t of Treasury, 498 Mich. 28 (2015), explained that Subsection (7)(a) and
Subsection (3) are discrete inquiries—Subsection (7)(a) does not establish a threshold requirement
for an exemption as long as Subsection (3) applies. Some of the activities listed in Subsection (3)
fall outside the period specified in the general definition but are still considered industrial-
processing activities. Extending the temporal limitation in Subsection (7)(a) to all requests for
exemptions would leave portions of Subsection (3) without meaning or function within the statute.
Instead, interpreting Subsection (3) as the more specific provision resolves the conflict and accords
the statutes their most natural and ordinary meanings. Therefore, the Court of Appeals correctly
held that the temporal limitation in Subsection (7)(a) does not apply to the industrial-processing
activities listed in Subsection (3).
Affirmed and remanded to the Court of Claims for further proceedings.
©2020 State of Michigan
Michigan Supreme Court
Lansing, Michigan
OPINION
Chief Justice: Justices:
Bridget M. McCormack Stephen J. Markman
Brian K. Zahra
Chief Justice Pro Tem: Richard H. Bernstein
David F. Viviano Elizabeth T. Clement
Megan K. Cavanagh
FILED June 16, 2020
STATE OF MICHIGAN
SUPREME COURT
TOMRA OF NORTH AMERICA, INC.,
Plaintiff-Appellee,
v Nos. 158333 and
158335
DEPARTMENT OF TREASURY,
Defendant-Appellant.
BEFORE THE ENTIRE BENCH
VIVIANO, J.
At issue is whether plaintiff TOMRA of North America, Inc.’s container-recycling
machines and repair parts are excluded as a matter of law from qualifying for the industrial-
processing-activity exemptions under MCL 205.54t of the General Sales Tax Act (GSTA),
MCL 205.51 et seq., and MCL 205.94o of the Use Tax Act (UTA), MCL 205.91 et seq.
Specifically, we must determine whether the temporal limitation specified in the general
statutory definition of “industrial processing,” MCL 205.54t(7)(a); MCL 205.94o(7)(a),
applies to the enumerated list of “industrial processing” activities in MCL 205.54t(3) and
MCL 205.94o(3), respectively. To answer this question, we first clarify that because the
statutes are unambiguous, the interpretive principle that tax exemptions are strictly
construed is inapplicable to this case. Under the proper interpretive standards, we hold that
the temporal limitation in MCL 205.54t(7)(a) and MCL 205.94o(7)(a) does not apply to
the activities listed in MCL 205.54t(3) and MCL 205.94o(3), respectively.
I. FACTS AND PROCEDURAL HISTORY
TOMRA sells and leases reverse-vending machines, the bottle- and can-recycling
machines commonly found in grocery stores used to help retailers comply with Michigan’s
bottle-deposit law, MCL 445.571 et seq. The company also sells repair parts for the
machines. The machines sort the bottles and cans, which are then placed in bins and
brought to a recycling facility. The facility then sells the bottles and cans to manufacturers
who use the materials in other products.
TOMRA claimed that its machines were exempt from both the GSTA and the UTA
under each act’s industrial-processing exemption.1 After an audit by defendant, the
Department of Treasury, TOMRA sought a determination from the Court of Claims that
its machines fall within the industrial-processing exemptions. In granting summary
disposition to the department, the Court of Claims found that the tasks that TOMRA’s
machines perform occur before the industrial process begins; therefore, TOMRA could not
avail itself of the industrial-processing exemptions. The Court of Claims reasoned that the
activities listed in MCL 205.54t(3) (establishing that industrial processing includes 11
1
See MCL 205.54t; MCL 205.94o.
2
enumerated activities) and MCL 205.94o(3) (same) are only industrial-processing
activities when they occur between the start and end of the industrial process as defined by
MCL 205.54t(7)(a) and MCL 205.94o(7)(a), respectively.
The Court of Appeals, in a split, published decision, reversed the Court of Claims,
declining to interpret MCL 205.54t(7)(a) and MCL 205.94o(7)(a) as placing a temporal
requirement on the activities listed in MCL 205.54t(3) and MCL 205.94o(3), respectively.2
The Court explained, “The statute does not state that industrial processing must begin this
way but rather states that when tangible personal property begins movement from raw-
materials storage to begin industrial processing, one can rest assured that industrial
processing has begun.”3 The Court held that MCL 205.54t and MCL 205.94o do not
preclude industrial processing from “occur[ring] without the initial step of moving raw
materials from storage, or when tangible items are never in raw-materials storage,” and
reversed and remanded.4 Judge K. F. KELLY dissented, arguing that the temporal limitation
applied to the activities listed in MCL 205.54t(3) and MCL 205.94o(3).5
2
TOMRA of North America, Inc v Dep’t of Treasury, 325 Mich. App. 289, 301; 926 NW2d
259 (2018).
3
Id.
4
Id. at 302-303.
5
Id. at 304 (K. F. KELLY, J., dissenting).
3
II. STANDARD OF REVIEW
“We review de novo a trial court’s determination regarding a motion for summary
disposition. Summary disposition is appropriate if there is no genuine issue regarding any
material fact and the moving party is entitled to judgment as a matter of law.”6
III. ANALYSIS
A. INTERPRETIVE STANDARDS
Before addressing the question presented in this case, we first take this opportunity
to clarify the interpretive standards applicable to statutory tax exemptions. In every case
requiring statutory interpretation, we seek to discern the ordinary meaning of the language
in the context of the statute as a whole.7 But with regard to tax exemptions, the oft-repeated
rule is that they must be strictly construed in favor of the government, i.e., against the
finding of an exemption.8 Stated more fully, this canon of construction provides that “ ‘[a]n
intention on the part of the legislature to grant an exemption from the taxing power of the
State will never be implied from language which will admit of any other reasonable
construction. Such an intention must be expressed in clear and unmistakable terms, or
must appear by necessary implication from the language used . . . .’ ”9 The Court of
6
Clam Lake Twp v Dep’t of Licensing & Regulatory Affairs, 500 Mich. 362, 372; 902
NW2d 293 (2017) (quotation marks and citations omitted).
7
Ally Fin Inc v State Treasurer, 502 Mich. 484, 493; 918 NW2d 662 (2018).
8
See, e.g., Evanston YMCA Camp v State Tax Comm, 369 Mich. 1, 7; 118 NW2d 818
(1962).
9
Detroit v Detroit Commercial College, 322 Mich. 142, 148-149; 33 NW2d 737 (1948),
quoting 2 Cooley, Taxation (4th ed), § 672, p 1403.
4
Appeals below referred to this commonly recited principle, and the department invokes it
in this Court.10 We therefore must determine, at the outset, the canon’s proper function.
The preference against tax exemptions is a judicially created substantive canon,
meaning that it is premised on certain policies or political objectives instead of its
usefulness in uncovering a statute’s ordinary meaning.11 In other words, it loads the dice
in favor of one interpretation, not because that interpretation is more likely to be
semantically correct but because it better serves policy objectives. The justification for the
canon has long been tied to political theory. When it first appeared in our caselaw in 1854,
the Court explained that tax exemptions were “construed strictly” because they were “in
derogation of equal rights.”12 “Equal rights” referred to the Jacksonian-era political
doctrine—which found its way into the law in various capacities—that legislation favoring
10
TOMRA, 325 Mich. App. at 296.
11
See generally Slocum, Ordinary Meaning: A Theory of the Most Fundamental Principle
of Legal Interpretation (Chicago: University of Chicago Press, 2015), p 174
(“[S]ubstantive canons are judge created and represent a wide range of concerns that are
relevant to the law” and that “are not tied to particular linguistic phenomena . . . .”); Scalia
& Garner, Reading Law: The Interpretation of Legal Texts (St. Paul: Thomson/West,
2012), p 362 (“But almost always, the only announced justification for the rule [of narrow
construction] is to the effect that it is necessary to achieve the beneficial purposes of the
law.”); Posner, Statutory Interpretation—in the Classroom and in the Courtroom, 50 U Chi
L Rev 800, 807 (1983) (“But I know of no neutral, nonpolitical basis on which a judge can
decide whether the legislature should be forced by some version of strict construction to
legislate less . . . .”).
12
Detroit Young Men’s Society v Detroit, 3 Mich. 172, 179 (1854). Earlier cases touched
on the issue but did not make such a clear interpretive pronouncement. See Lefevre v
Detroit, 2 Mich. 586, 591 (1853) (noting, among other things, that the Legislature’s
inclusion of certain exempt properties suggested the exclusion of others); People v Detroit
& P R, 1 Mich. 458, 460 (1850) (noting that because the company’s charter was silent
regarding taxation, there was no exemption).
5
one class or group should be limited, if allowed at all.13 This rationale, in the context of
taxes, has continued to buttress the canon in our cases.14 The canon does not, then, shed
13
See Green v Graves, 1 Doug 351, 366-367 (Mich, 1844) (discussing “the doctrine of
equal rights and equal privileges, so much cherished by the people,” that militated against
monopoly power or privilege); see also Gillman, The Constitution Besieged: The Rise and
Demise of Lochner Era Police Powers Jurisprudence (Durham: Duke University Press,
1993), p 7 (discussing the “Jacksonian ethos that emphasized equal rights and the dangers
of legislating special privileges for particular groups and classes” instead of equal laws for
the general public); Binney, Restrictions Upon Local and Special Legislation in State
Constitutions (Philadelphia: Kay & Brother, 1894), p 6 (discussing the “very general
feeling of hostility to all local and special legislation” benefiting particular groups or areas
and the legal restrictions that developed to stem this legislation); Cooley, Constitutional
Limitations (5th ed), pp 486-487 (“Equality of rights, privileges, and capacities
unquestionably should be the aim of the law; and if special privileges are granted, or special
burdens or restrictions imposed in any case, it must be presumed that the legislature
designed to depart as little as possible from this fundamental maxim of government. . . .
Special privileges are always obnoxious, and discriminations against persons or classes are
still more so; and, as a rule of construction, it is to be presumed they were probably not
contemplated or designed.”); Rosen, Class Legislation, Public Choice, and the Structural
Constitution, 21 Harv J L & Pub Pol’y 181, 182-183 (1997) (“Jacksonian judges and
treatise writers pointed to state due process, equal protection, and special legislation clauses
to argue that states were not free to pass ‘special’ laws, or ‘class legislation,’ but had to
legislate in the ‘public interest,’ or ‘for the purpose of benefiting the polity as a whole.’ ”)
(citation omitted); Schlesinger, Jr, The Age of Jackson (Boston: Little, Brown & Co, 1945),
p 316 (“The [Jacksonian] prescription of free enterprise thus became government action to
destroy the ‘blighting influence of partial legislation, monopolies, congregated wealth, and
interested combinations’ in the interests of the ‘natural order of society.’ ”) (citation
omitted); White, Foreword to Leggett, Democratick Editorials: Essays in Jacksonian
Political Economy (Indianapolis: Liberty Fund, 1984), pp xvii-xviii (“The equal rights
principle meant . . . that the law may not discriminate among citizens, benefiting some at
the expense of others. Few government programs could pass through this filter. Strict
application of the equal rights principle thus led [its proponents] naturally to favor
minimization of government powers. Every extension of the sphere of government action
beyond the Jeffersonian night-watchman duties . . . created a privileged aristocratic class
at the expense of the productive laboring class.”).
14
See, e.g., Wexford Med Group v City of Cadillac, 474 Mich. 192, 204; 713 NW2d 734
(2006) (“[B]ecause tax exemptions upset the desirable balance achieved by equal taxation,
they must be narrowly construed.”); Retirement Homes of Detroit Annual Conference of
6
any light on whether the ordinary language of a statute enacted by the Legislature provides
a tax exemption. Perhaps for this reason, our caselaw—especially in recent opinions—has
also stressed that the canon cannot overcome the plain text, and in a few cases, we have
not relied on or mentioned it at all.15
United Methodist Church, Inc v Sylvan Twp, 416 Mich. 340, 348; 330 NW2d 682 (1982)
(“A property tax exemption is in derogation of the principle that all property shall bear a
proportionate share of the tax burden and, consequently, a tax exemption will be strictly
construed.”); In re Smith Estate, 343 Mich. 291, 297; 72 NW2d 287 (1955) (“[O]ur point
of departure in the interpretation of any taxing act is the consideration that a preference in
or an exemption from taxation must be clearly defined and without ambiguity. Taxation,
like rain, falls on all alike. True, there are, in any taxing act, certain exceptions, certain
favored classes, who escape the yoke. But one claiming the unique and favored position
must establish his right thereto beyond doubt or cavil.”); cf. East Saginaw Mfg Co v East
Saginaw, 19 Mich. 259, 277-280 (1869) (finding no exemption and noting the danger that
various classes, such as railroads or manufacturers, could seek perpetual exemptions from
taxation and that strict construction was justified because a state should not lightly be taken
to have given away its power to tax); 3A Singer, Sutherland Statutes and Statutory
Construction (8th ed, April 2020 update), § 66:9 (“This rule of strict construction derives
from the same rationale supporting strict construction of positive revenue laws, that the
burdens of taxation should be distributed equally and fairly among members of society.”).
15
See, e.g., Ally Fin Inc, 502 Mich. at 491-492 (noting the canon but observing that “we
have also explained ‘that this requirement does not permit a “strained construction” that is
contrary to the Legislature’s intent’ ”), quoting SBC Health Midwest, Inc v City of
Kentwood, 500 Mich. 65, 71; 894 NW2d 535 (2017), in turn quoting Mich United
Conservation Clubs v Lansing Twp, 423 Mich. 661, 664-665; 378 NW2d 737 (1985);
Gardner v Dep’t of Treasury, 498 Mich. 1; 869 NW2d 199 (2015) (interpreting a tax
exemption without mention of strict construction); Stone v Michigan, 467 Mich. 288; 651
NW2d 64 (2002) (same); Mich United Conservation Clubs, 423 Mich. at 665 (“However,
this rule [of strict construction] does not mean that we should give a strained construction
which is adverse to the Legislature’s intent.”), citing City of Ann Arbor v Univ Cellar, Inc,
401 Mich. 279, 288-289; 258 NW2d 1 (1977); Webb Academy v Grand Rapids, 209 Mich.
523, 536; 177 N.W. 290 (1920) (noting the canon but stating that it could not “be extended
so far as to defeat the legislative intent”) (quotation marks and citation omitted); Detroit
Home & Day Sch v Detroit, 76 Mich. 521, 525; 43 N.W. 593 (1889) (“Where language is so
plain as to convey a clear and intelligible meaning, we have no right to go beyond it, and
impose another meaning. The language of the Legislature in exemption from taxation is
as much entitled to obedience as that imposing taxation.”); Schaub v Seyler, 504 Mich. 987,
7
We take this opportunity to clarify that because the canon requiring strict
construction of tax exemptions does not help reveal the semantic content of a statute, it is
a canon of last resort. That is, courts should employ it only “when an act’s language, after
analysis and subjection to the ordinary rules of interpretation, presents ambiguity.”16 In
the present case, the canon is inapplicable because, as we explain below, the statutes are
unambiguous: their ordinary meaning is discernible by reading the text in its immediate
context and with the aid of appropriate canons of interpretation.17
B. THE EXEMPTION
The GSTA imposes taxes on the sale of goods, and the UTA imposes taxes on goods
purchased outside the state for use in the state.18 To avoid the double taxation of a product
991 (2019) (VIVIANO, J., concurring) (noting that strict-construction rules represent “a
method of interpretation that has largely fallen out of favor”).
16
Singer, § 66:9; see also Madugula v Taub, 496 Mich. 685, 696; 853 NW2d 75 (2014)
(“When a statute’s language is unambiguous, ‘the Legislature must have intended the
meaning clearly expressed, and the statute must be enforced as written. No further judicial
construction is required or permitted.’ ”) (citation omitted).
17
See Mayor of Lansing v Pub Serv Comm, 470 Mich. 154, 164-166; 680 NW2d 840 (2004)
(noting that ambiguity can occur if a statutory provision “ ‘irreconcilably conflict[s]’ with
another provision” but that “a finding of ambiguity is to be reached only after ‘all other
conventional means of [] interpretation’ have been applied and found wanting”) (citations
omitted; alterations in original).
18
MCL 205.52(1) (providing, in pertinent part, that “there is levied upon and there shall
be collected from all persons engaged in the business of making sales at retail, by which
ownership of tangible personal property is transferred for consideration, an annual tax for
the privilege of engaging in that business”); MCL 205.93(1) (providing, in pertinent part,
a tax “for the privilege of using, storing, or consuming tangible personal property” that
applies “to a person who acquires tangible personal property or services that are subject to
the tax levied under this act . . . who subsequently converts the tangible personal property
or service to a taxable use”).
8
that would result from exacting both use and sales taxes, the Legislature exempted certain
property used or consumed in industrial processing from the taxes in each act.19 The
exemption covers, among other things, “tangible personal property [that] is intended for
ultimate use in and is used in industrial processing by an industrial processor” or “is used
by [a] person [whether or not an industrial processor] to perform an industrial processing
activity for or on behalf of an industrial processor.”20
The GSTA’s industrial-processing exemption—which is, for present purposes,
identical to the UTA’s exemption and will be quoted in the text going forward—provides
both a general definition of industrial processing, MCL 205.54t(7)(a), and also a list of
specific activities that constitute industrial-processing activities, MCL 205.54t(3).21 The
general definition in Subsection (7)(a) states:
“Industrial processing” means the activity of converting or
conditioning tangible personal property by changing the form, composition,
quality, combination, or character of the property for ultimate sale at retail or
for use in the manufacturing of a product to be ultimately sold at retail.
Industrial processing begins when tangible personal property begins
movement from raw materials storage to begin industrial processing and ends
when finished goods first come to rest in finished goods inventory storage.[22]
19
MCL 205.54t; MCL 205.94o.
20
MCL 205.54t(1)(b) and (c); MCL 205.94o(1)(b) and (c).
21
The parallel provisions in the UTA are located at MCL 205.94o(7)(a) and MCL
205.94o(3), respectively.
22
MCL 205.54t(7)(a). The UTA states:
“Industrial processing” means the activity of converting or
conditioning tangible personal property by changing the form, composition,
quality, combination, or character of the property for ultimate sale at retail or
for use in the manufacturing of a product to be ultimately sold at retail or
9
The definition’s second sentence establishes a temporal period during which
industrial processing must occur, spanning from when the property begins movement from
raw-materials storage into processing until the finished goods enter inventory storage.
Subsection (3) states:
Industrial processing includes the following activities:
(a) Production or assembly.
(b) Research or experimental activities.
(c) Engineering related to industrial processing.
(d) Inspection, quality control, or testing to determine whether
particular units of materials or products or processes conform to specified
parameters at any time before materials or products first come to rest in
finished goods inventory storage.
(e) Planning, scheduling, supervision, or control of production or
other exempt activities.
(f) Design, construction, or maintenance of production or other
exempt machinery, equipment, and tooling.
(g) Remanufacturing.
(h) Processing of production scrap and waste up to the point it is stored
for removal from the plant of origin.
(i) Recycling of used materials for ultimate sale at retail or reuse.
(j) Production material handling.
affixed to and made a structural part of real estate located in another state.
Industrial processing begins when tangible personal property begins
movement from raw materials storage to begin industrial processing and ends
when finished goods first come to rest in finished goods inventory storage.
[MCL 205.94o(7)(a).]
10
(k) Storage of in-process materials.[23]
Machines and other equipment “used in an industrial processing activity and in their repair
and maintenance” are eligible for the exemption, as are other types of property.24
The question in this case is whether TOMRA’s container-recycling machines and
repair parts qualify for the exemption under Subsection (3) even if they would not
otherwise meet the temporal limitation in the general definition under Subsection (7)(a).
The question arises because, as the Court of Appeals dissent noted, TOMRA’s machines
here “simply facilitate the collection of raw materials” outside the time frame described in
Subsection (7)(a), i.e., the period beginning when the materials begin to move from raw-
materials storage and ending when the finished goods are first stored as inventory.25 Thus,
if Subsection (7)(a) lays down a mandatory requirement, then TOMRA would not be
entitled to an exemption even if it was engaged in one of the industrial-processing activities
expressly set forth in Subsection (3).
We have never before addressed this issue, but general guidance can be found in
Detroit Edison Co v Dep’t of Treasury.26 In deciding whether the exemption applied to
equipment used in transmitting electricity, we suggested that a taxpayer could claim an
exemption either by satisfying the general definition of industrial processing in Subsection
(7)(a) or by showing that it was engaged in one or more of the enumerated activities listed
23
MCL 205.54t(3); see also MCL 205.94o(3).
24
MCL 205.54t(4)(b); see also MCL 205.94o(4)(b).
25
TOMRA, 325 Mich. App. at 305 (K. F. KELLY, J., dissenting).
26
Detroit Edison Co v Dep’t of Treasury, 498 Mich. 28; 869 NW2d 810 (2015).
11
in Subsection (3). Most directly, we stated that “the statute also provides that certain
specific activities that do not satisfy the general MCL 205.94o(7)(a) definition nonetheless
constitute ‘industrial processing’ activity for purposes of the statute,” such as the activity
described in MCL 205.94o(3)(h).27 In other words, we made it clear that Subsection (7)(a)
and Subsection (3) are discrete inquiries—Subsection (7)(a) does not establish a threshold
requirement for an exemption as long as Subsection (3) applies.28
We agree with the Court of Claims that the tasks that TOMRA’s machines perform
occur before the industrial process begins under the general definition in Subsection (7)(a).
Therefore, we need to address the department’s argument that TOMRA is precluded from
claiming an exemption under Subsection (3) based on the temporal limitation of Subsection
(7)(a).
If we were to hold, as the department urges, that the temporal limitation in
Subsection (7)(a) applies to industrial-processing exemptions sought under Subsection (3),
27
Id. at 49 n 13.
28
See id. at 39 (“If ‘industrial processing’ activity is not occurring under either MCL
205.94o(7)(a) or MCL 205.94o(3), . . . the analysis is complete and the taxpayer is entitled
to no exemption.”); id. at 48 & n 12 (noting that industrial processing “occurs throughout
the electric system under MCL 205.94o(7)(a)” but also recognizing “that ‘industrial
processing’ may occur under other circumstances as well, e.g., MCL 205.94o(3)(d)”)
(citation omitted).
Our additional statement that “the analysis begins” with the general definition in
Subsection (7)(a) does not lead us to a different conclusion. Id. at 39. The statutes in this
case are anomalous because they contain a general definition in one subsection that,
standing alone, does not encompass all the things that another subsection specifically
identifies (and therefore includes) as “industrial processing” activities. Even so, we still
think it makes sense to start with the general definitional section when applying the statutes
(if only because it conforms to our usual practice).
12
we would create a conflict between those two provisions. That is because some of the
activities listed in Subsection (3) fall outside the period specified in the general definition,
i.e., from the movement of raw-materials storage until finished goods are placed in
inventory storage. For example, it is difficult to see how the activity of “[p]lanning” or
“scheduling” of production in Subsection (3) could ever occur within the time frame of
Subsection (7)(a).29 Perhaps an even better example is the “[d]esign, construction, or
maintenance of production or other exempt machinery, equipment, and tooling,” which
must necessarily precede the period of industrial processing defined in Subsection (7)(a).30
Or take “[r]esearch or experimental activities,” which likely must antedate the period by
an even greater margin.31 What is more, Subsection (3)(d) establishes its own time frame
for certain forms of “[i]nspection, quality control, or testing,” which must take place “at
any time before materials or products first come to rest in finished goods inventory
storage.”32 This would be yet another provision rendered either unnecessary or
meaningless if the temporal limitation in Subsection (7)(a) applied to Subsection (3). In
short, accepting the department’s interpretation would lay waste to large swaths of
Subsection (3).
When a potential conflict like this surfaces within a statute, “it is our duty to, if
reasonably possible, construe them both so as to give meaning to each; that is, to harmonize
29
MCL 205.54t(3)(e); see also MCL 205.94o(3)(e).
30
MCL 205.54t(3)(f); see also MCL 205.94o(3)(f).
31
MCL 205.54t(3)(b); see also MCL 205.94o(3)(b).
32
MCL 205.54t(3)(d); see also MCL 205.94o(3)(d).
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them.”33 Indeed, we must always read the text as a whole, “in view of its structure and of
the physical and logical relation of its many parts.”34 This is because “[c]ontext is a
primary determinant of meaning,” and for an interpretation that seeks the ordinary meaning
of the statute, it is the narrower context drawn from neighboring provisions within a statute
that is most appropriate to consider.35 Many principles follow from the emphasis on
context, including the interpretive canon that words should not, if possible, be rendered
surplusage.36 Here, extending the temporal limitation in Subsection (7)(a) to all requests
for exemptions would, as explained above, leave portions of Subsection (3) without
meaning or function within the statute.
There is no reason to wreak such havoc upon the statutes here. Another contextual
canon harmonizes the provisions and illuminates their ordinary meaning: “ ‘[W]here a
statute contains a general provision and a specific provision, the specific provision
controls.’ ”37 This principle is tailor-made for cases like this one, in which statutory
33
Nowell v Titan Ins Co, 466 Mich. 478, 483; 648 NW2d 157 (2002).
34
Reading Law, p 167.
35
Id.; see also id. at 33 (“This critical word context embraces not just textual purpose but
also (1) a word’s historical associations acquired from recurrent patterns of past usage, and
(2) a word’s immediate syntactic setting . . . .”); Ordinary Meaning, p 147 (“One way to
capture generalizable meanings . . . is to conceive of ordinary meaning as semantic
meaning that is determined based on facts from the narrow context.”).
36
Reading Law, p 167; see also People v Seewald, 499 Mich. 111, 123; 879 NW2d 237
(2016) (“When possible, we strive to avoid constructions that would render any part of the
Legislature’s work nugatory.”).
37
Jones v Enertel, Inc, 467 Mich. 266, 270; 650 NW2d 334 (2002), quoting Gebhardt v
O’Rourke, 444 Mich. 535, 542-543; 510 NW2d 900 (1994) (alteration in original).
14
provisions would otherwise conflict.38 The conflict is dissipated by interpreting “the
specific provision . . . as an exception to the general one.”39
In this case, interpreting Subsection (3) as the more specific provision resolves the
conflict and accords the statutes their most natural and ordinary meanings. Subsection (3)
lists specific activities that constitute industrial processing, whereas the second sentence of
Subsection (7)(a) provides a temporal limitation on the general types of activities described
in the first sentence of that subsection.40 Thus, Subsection (3) is the specific provision with
regard to the activities it enumerates.41 As to those activities, then, Subsection (3) controls
and the time frame in Subsection (7)(a) is inapplicable. This interpretation reflects a
holistic reading of the statutory text and gives each provision its appropriate meaning and
38
RadLAX Gateway Hotel, LLC v Amalgamated Bank, 566 U.S. 639, 645; 132 S. Ct. 2065;
182 L. Ed. 2d 967 (2012) (“The general/specific canon is perhaps most frequently applied
to statutes in which a general permission or prohibition is contradicted by a specific
prohibition or permission.”); Reading Law, p 183 (“If there is a conflict between a general
provision and a specific provision, the specific provision prevails . . . .”). As we stated in
Detroit Edison Co, 498 Mich. at 44, “the rule only applies when there is some statutory
tension or conflict between two possible treatments of a subject . . . .” In that case, the
canon was inapplicable because we found no conflict between the general definition in
Subsection (7)(a) and various express exclusions from that definition carved out in
Subsection (6)(b). Id. at 45.
39
RadLAX Gateway Hotel, LLC, 566 U.S. at 645; see also Reading Law, p 183 (“Under this
canon, the specific provision is treated as an exception to the general rule.”).
40
We do not address whether or how the first sentence of Subsection (7)(a) applies to the
exemptions in Subsection (3) because that issue is not before the Court.
41
See Miller v Allstate Ins Co, 481 Mich. 601, 613; 751 NW2d 463 (2008) (“In order to
determine which provision is truly more specific and, hence, controlling, we consider
which provision applies to the more narrow realm of circumstances, and which to the more
broad realm.”).
15
function. We therefore conclude that the temporal limitation in Subsection (7)(a) does not
apply to the industrial-processing activities in Subsection (3).
IV. CONCLUSION
For the reasons set forth above, we hold that the temporal limitation in Subsection
(7)(a) does not apply to the activities listed in Subsection (3). In reaching this conclusion,
we further conclude that the rule of strict construction of tax exemptions is inapplicable
because the statutes here are unambiguous. On these bases, we affirm the Court of Appeals
decision below and remand the case to the Court of Claims for further proceedings that are
consistent with this opinion.
David F. Viviano
Bridget M. McCormack
Stephen J. Markman
Brian K. Zahra
Richard H. Bernstein
Elizabeth T. Clement
Megan K. Cavanagh
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