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Michigan Supreme Court Lansing, Michigan

Opinion
DAIMLERCHRYSLER CORPORATION, Petitioner-Appellee, v STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY, Respondents-Appellees, and CITY OF AUBURN HILLS, Respondent-Appellant.

Chief Justice:

Justices:

Clifford W. Taylor

Michael F. Cavanagh Elizabeth A. Weaver Marilyn Kelly Maura D. Corrigan Robert P. Young, Jr. Stephen J. Markman

FILED JULY 30, 2008

No. 133394

FORD MOTOR COMPANY, Petitioner-Appellee, v STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY, Respondents-Appellees, and No. 133396

CITY OF DEARBORN, Intervening Respondent-
Appellant.


FORD MOTOR COMPANY, Petitioner-Appellee, v STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY, Respondents-Appellants, and CITY OF DEARBORN, Intervening RespondentAppellee. Nos. 133400-133402

DETROIT DIESEL CORPORATION, Petitioner-Appellee, Cross-Appellant, v STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY, Respondents-Appellants, Cross-Appellees, and No. 133403

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CHARTER TOWNSHIP OF REDFORD, Intervening Respondent-
Appellee.


FORD MOTOR COMPANY, Petitioner-Appellee, v STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY, Respondents-Appellants. No. 133404

DAIMLERCHRYSLER CORPORATION, Petitioner-Appellee, Cross-Appellant, v STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY, Respondents-Appellants, and TOWNSHIP OF SYLVAN, Respondent-Appellee. No. 133405

DAIMLERCHRYSLER CORPORATION, Petitioner-Appellee, 3

v STATE TAX COMMISSION and DEPARTMENT OF ENVIRONMENTAL QUALITY, Respondents-Appellants, and CITY OF AUBURN HILLS, Respondent-Appellee.

No. 133406

BEFORE THE ENTIRE BENCH YOUNG, J. These consolidated appeals concern a tax exemption that aims to improve Michigan's environment by encouraging entities to reduce air pollution they create in Michigan. Based on the plain language of the statute, we hold that in order to for equipment to be exempt, it must be installed or acquired for the primary purpose of regulating or curbing the spread of pollution in Michigan. Further, the equipment must actually and physically limit pollution. None of the equipment that is the subject of this appeal meets these tests. Therefore, the Court of Appeals erred by partially overturning the decision of the Department of Environmental Quality (DEQ) and the State Tax Commission (STC) to that effect and holding that petitioners' test cells qualify for the exemption. We reverse the Court of Appeals in part and restore the DEQ and STC decisions concluding that none of the equipment qualifies for the tax exemption. 4


FACTS AND PROCEDURAL HISTORY The material facts in these consolidated appeals are undisputed. Pursuant to federal law, before issuing a certificate allowing for sales of new vehicles, the Environmental Protection Agency (EPA) must "test or require to be tested" new motor vehicles or new motor vehicle engines to ensure compliance with emission standards that the EPA promulgates.1 To that end, the agency has created a testing regime, requiring vehicle manufacturers to submit an application with an enormous amount of supporting data.2 Ford Motor Company, DaimlerChrysler Corporation, and Detroit Diesel (petitioners) installed test cells. The test cells are large buildings that can replicate many temperature conditions. They also house equipment that allows for up to 40 different types of tests and data collection.3 Petitioners' test cells are used in the manufacturing process to ensure compliance with the regulations. In addition to its test cell, Detroit Diesel installed a new engine production line to meet federal emissions regulations.

1 2 3

42 USC 7525(a)(1) and 7521. See 40 CFR 86.1 et seq.

Narrative Statement attached to DaimlerChrysler Auburn Hills Application for Tax Exemption Certificate, July 14, 2003, pp 5-11. The Auburn Hills DaimlerChrysler test cell is similar to the test cells of the other petitioners. The individual specifications of each test cell do not control the disposition of this case. Therefore, this Auburn Hills DaimlerChrysler test cell summary can serve as a general example for purposes of analysis.

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All the petitioners sought tax exemptions from the STC under part 594 of the Natural Resources and Environmental Protection Act (NREPA)5 for their test cells, and Detroit Diesel also petitioned for an exemption for its engine line. Part 59 provides real and personal property tax exemptions, as well as sales and use tax exemptions for certain air pollution control facilities.6 The law requires that the STC refer applications to the DEQ. The DEQ concluded that none of petitioners' equipment qualified for an exemption under part 59 because their primary purpose was not to reduce pollution, but to test products for compliance with federal emissions standards and to manufacture engines that comply with those standards. The DEQ also found that all the equipment actually generated some pollution during the testing or manufacturing processes, instead of physically disposing of air pollution or controlling it as the law requires. The STC agreed and denied all the exemptions. Petitioners appealed to various circuit courts. Ford's four exemption denials were reversed, while denials for DaimlerChrysler and Detroit Diesel were affirmed.

4 5 6

MCL 324.5901 et seq. MCL 324.101 et seq.

Ford had previously applied for and received a tax exemption under part 59 for its Allen Park test cell facility in 2001. While the applications involved in the instant action were pending in 2004, DEQ notified Ford that it was requesting revocation of its exemption for the Allen Park facility because the facility did not meet the requirements of part 59. The STC rejected the revocation, though, concluding that an exemption certificate under part 59 cannot be revoked. That exemption dispute is not before the Court.

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The Court of Appeals granted the appellate applications of all the aggrieved parties and consolidated the cases on appeal. Its published opinion held that tax exemptions must be issued for all petitioners' test cells. The Court of Appeals concluded that the primary purpose of the test cells is to reduce pollution and that they need not physically or directly reduce pollution in order to qualify as taxexempt. However, the Court of Appeals affirmed the denial of an exemption for Detroit Diesel's engine manufacturing line on the ground that its primary purpose was engine manufacturing, not pollution reduction. The Court also held that no due process violation occurred during the STC's consideration of Detroit Diesel's application for a tax exemption.7 This Court granted leave to appeal.8 STANDARD OF REVIEW The Court reviews de novo motions for summary disposition.9 Issues of statutory construction are also reviewed de novo.10 ANALYSIS The primary issue on appeal is whether the Court of Appeals erred in its application of the tax exemption of part 59 of NREPA. As noted, the Court of

We agree with the Court of Appeals that the full hearing conducted by the STC satisfied Detroit Diesel's due process rights.
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7

480 Mich 880 (2007). Spiek v Dep't of Transportation, 456 Mich 331, 337; 572 NW2d 201 City of Taylor v Detroit Edison Co, 475 Mich 109, 115; 715 NW2d 28

(1998).
10

(2006).

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Appeals reached different conclusions for the petitioners' test cells and Detroit Diesel's engine line. With regard to the test cells, the Court held [I]t is plainly apparent to us that the test cells were "installed or acquired for the primary purpose of controlling or disposing of air pollution" and that the test cells were designed and are operated "primarily for the control, capture, and removal of pollutants from the air, and [are] suitable, reasonably adequate, and meet[] the intent and purposes of part 55 . . . ."[11] However, with regard to Detroit Diesel's engine line, the Court reached the opposite conclusion, holding that "[c]learly, the engine line . . . is not `operated primarily for the control, capture, and removal of pollutants from the air . . . .'"12 While the Court of Appeals quoted language from the proper statutory provisions, the Court did not offer a construction of that language. Instead, the Court held that it was plain and clear which equipment was eligible and which was not. As will be discussed later, the statutory provisions provide no principled basis for distinguishing between the different equipment involved in this appeal. Under the plain language of these provisions, neither the test cells nor the engine line qualify for the exemption. MCL 324.5901 defines "facility," in part, as machinery, equipment, structures, or any part or accessories of machinery, equipment, or structures, installed or acquired for the primary purpose of controlling or disposing of air pollution that if

Ford Motor Co v State Tax Comm, 274 Mich App 108, 113; 732 NW2d 591 (2007) (alterations in Ford Motor).
12

11

Id. at 118.

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released would render the air harmful or inimical to the public health or to property within this state. An exemption for a particular "facility" requires a determination by the DEQ that "the facility is designed and operated primarily for the control, capture, and removal of pollutants from the air, and is suitable, reasonably adequate, and meets the intent and purposes of part 55[13] and rules promulgated under that part."14 Thus, the equipment must meet the requirements of both

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