## Facts

- GM sold vehicles in Michigan; purchasers paid Michigan sales tax on the vehicle purchase price, which included a written limited warranty.
- Under Michigan’s Use Tax Act, use tax generally applied to using, storing, or consuming tangible personal property in the state, but an exemption prevented double taxation when property was transferred for consideration already subject to sales tax.
- GM’s written warranty obligated warranty-period repairs or replacement parts; Treasury treated warranty replacement parts as not subject to use tax because buyers’ purchase price (already sales-taxed) included the warranty.
- Separate from the written warranty, GM operated a discretionary “goodwill adjustment” program allowing dealers (with GM authorization) to repair or replace parts after warranty expiration or outside warranty coverage.
- The goodwill program was described in internal materials to dealers, was case-by-case, and was not guaranteed to all customers.
- Buyers paid no separately identified charge for goodwill coverage, and customer-facing warranty documents did not create a contractual right to goodwill repairs.
- Treasury assessed use tax on the value of parts supplied under the goodwill program, reasoning the parts were provided without consideration included in the taxable vehicle sale.
- The Michigan Court of Claims upheld the assessment; the Michigan Court of Appeals affirmed; the Michigan Supreme Court granted review.

## Issues

1. Whether replacement parts furnished under GM’s discretionary goodwill adjustment program were exempt from use tax because they were allegedly transferred for consideration included in the original, sales-taxed vehicle purchase price.
2. Whether the goodwill program constituted a contractual obligation or bargained-for component of the retail sale, as opposed to a voluntary post-sale policy.

## Decision

- The Michigan Supreme Court affirmed the Court of Appeals and the Court of Claims.
- The court held that GM’s goodwill adjustment program was not part of the consideration for the retail sale of GM vehicles.
- Because the goodwill program’s value was not included in the gross proceeds of the original sales-taxed sale, parts transferred under goodwill did not qualify for the Use Tax Act exemption.
- GM therefore owed use tax on parts supplied under the goodwill program.

## Legal Principles

- Property is exempt from Michigan use tax to the extent it is transferred for consideration that has already been subjected to Michigan sales tax, preventing double taxation of the same consideration.
- Express warranty benefits included in the vehicle’s purchase price may support exemption for warranty replacement parts because the buyer’s consideration for the vehicle includes the warranty.
- Discretionary, noncontractual post-sale benefits do not constitute consideration for the original sale absent proof they were included in the taxed purchase price.
- Tax exemptions are strictly construed in favor of the taxing authority, and the taxpayer bears the burden of proving entitlement to an exemption.

## Conclusion

Because GM did not show that purchasers paid consideration for the goodwill program as part of the taxable vehicle sale, replacement parts furnished under goodwill were not exempt from use tax, and Treasury’s assessment was upheld.


Gen. Motors Corp. v. Mich. Dep’t of Treasury, 644 N.W.2d 734 (Mich. 2002)