“Things of the Soil” Tax Exemption

Michigan Court: Use Tax Exemption for “Things of the Soil” Does Not Cover Lawn Care Businesses

Is lawn care a form of “agriculture”? After all, grass is a plant, so growing and caring for a lawn would seem to fit within the literal meaning of agriculture. Yet most of us associate “agriculture” with producing crops or raising livestock on dedicated farmland–now mowing a lawn in a residential suburb.

A Michigan appeals court recently addressed this subject in connection with a use tax dispute. The case, TruGreen Limited Partnership v. Department of Treasury, involved a state law dating back to the 1930s that, in its current form, exempts from taxation any sale of property to a person “engaged in a business enterprise that uses or consumes the property, directly or indirectly, for either the tilling, planting, draining, caring for, maintaining, or harvesting of things of the soil.”

The specific question before the Court was whether this language applied to a lawn care company–i.e., is grass a “thing of the soil”?

TruGreen Unsuccessfully Seeks Over $1.1 Million in Tax Refunds

The plaintiff in this case, TruGreen, provides seasonal lawn care and related services for customers. TruGreen does not service agricultural clients, such as farms or nurseries. Rather, its business is limited to “turf and ornamental plant care.”

In 2015, TruGreen requested a $4,745.39 use tax refund from the Michigan Department of Treasury. The requested refund was connected to TruGreen’s purchases of “fertilizer, grass seed, and other products” needed in its lawn care business. TruGreen insisted these purchases were exempt from use tax under Michigan’s “things of the soil” law described above.

The Department of Treasury rejected TruGreen’s interpretation of the law. TruGreen then doubled down, not only requesting a conference with a referee; a lawyer hired to advise the state treasurer on sales tax disputes; but also demanding a refund of more than $1.1 million in use taxes paid over a four-and-a-half year period. Although the referee agreed with TruGreen it was entitled to a refund, the state treasurer ultimately declined to issue one.

TruGreen then went to court.  The Michigan Court of Claims, a special trial court that hears civil lawsuits against state agencies, upheld the treasurer’s decision.

TruGreen then filed an appeal with the Michigan Court of Appeals.

In an April 10, 2020, decision, a divided three-judge panel of the Court of Appeals affirmed the Court of Claims. Writing for the two-judge majority, Judge Elizabeth L. Gleicher explained the “[s]tatutory vocabulary” of the state’s use tax exemption “describes a tax subsidy aimed at growing Michigan’s agricultural economy, not ornamental grass and shrubs.”

While grass and trees are technically “things of the soil,” as used in the tax law Gleicher said “that phrase is surrounded by words describing activities that take place on farms,” such as “tilling” and “harvesting.” So while TruGreen “plants grass and cares for it,” Gleicher said the company ‘s work “is unrelated to crop cultivation or agriculture in general.”

Is It OK to Use a Dictionary to Interpret Sales and Use Tax Laws?

The other two judges on the panel issued separate decisions in which they sparred over the proper use of the dictionary in interpreting the use tax exemption. Judge Brock A. Swartzle wrote the dissenting opinion. He said that “things of the soil” had a broader meaning than “agricultural products.”

More precisely, Swartzle said the 1933 edition of the Oxford English Dictionary provided the “most relevant definition” of the word “thing,” which was “ [a]n entity of any kind” and “[a]pplied (usually with qualifying word) to a living being or creature; occasionally to a plant.” Based on this, Swartzle said a “plain reading” of the use tax law clearly applied to grass, trees, and shrubs, as they were “plants” and thus “things of the soil.”

The third member of the appeals panel, Presiding Judge Douglas B. Shapiro, wrote a concurring opinion. He agreed with Judge Gleicher’s conclusion that the phrase “things of the soil” was a “term of art” was clearly intended to cover “crops grown for harvest and sale.”

Shaprio took exception to Judge Swartzle’s reliance on the dictionary to justify his contrary view. Shapiro noted the “use of dictionaries as sources of law is a very recent phenomenon” in the law, and relying on them to interpret the law “dispenses with the constitutional fact that the judiciary is an independent co-equal branch of government and ultimately responsible for the interpretation of statutes and their fair application in individual cases.”