The Michigan Supreme Court on June 4 overturned a state Court of Appeals decision that allowed the state to tax General Motors for providing free post-warranty replacement parts.
GM, at the request of customers, sometimes replaces defective parts without charge even if warranty coverage has expired. After a 1993 audit, the state Department of Treasury tried to charge GM $5.5 million in taxes and interest on $82 million in post-warranty parts supplied to customers between Jan. 1, 1986, and Dec. 31, 1992.
The department based the assessment on the use tax, which the state applies to automakers for products they make but do not sell. When an automaker reserves some products for its use, the state assesses a use tax on the factory cost of the product.
The state generally does not charge tax on extended-warranty replacement parts because customers pay for, and are taxed on, the warranty. The department argued in this case that once the warranty ended, GM owed tax on the parts it gave to customers.
"The treasury's view is, 'You bought a car with a carburetor in it, you don't get another carburetor.' End of debate," said Alan Valade, a GM lawyer. "GM says, 'We sell more than just a vehicle.' The question is, what does GM provide when it sells its vehicles?"
Justice Elizabeth Weaver wrote the 5-2 opinion, saying GM had accounted for the cost of the replacement parts in the retail price of its vehicles, which is subject to state sales tax.
A dissenting opinion rejected that notion, adding that most consumers were not aware of the GM policy and probably would not have wanted its cost included in the sticker price.