Use tax audit; Industrial processing exemption; MCL 205.94o(1)(c) & (3)(b); Research or experimental activities; MCL 205.94o(3)(b); “Industrial processor”; MCL 205.94o(7)(b); “Product”; MCL 205.94o(7)(c); “Necessary”; The Tax Tribunal’s (TT) subject-matter jurisdiction; MCL 205.22(1); Toaz v Department of Treasury; Whether a claim was fraudulently pled; MCR 1.109(E)(5)

The court held that the TT had subject-matter jurisdiction over this case, and did not err by finding petitioner-Strata was not entitled to the industrial processing use tax exemption, denying petitioner’s summary disposition motion, and granting summary disposition for respondent-Treasury. Respondent conducted a tax use audit on petitioner and determined it owed a balance for failure to pay tax for purchases of capital assets and expenses. Petitioner claimed the assets and expenses were exempt as materials used in industrial processing. The TT found petitioner was not entitled to a use tax exemption. On appeal, the court first rejected respondent’s contention that the TT lacked subject-matter jurisdiction to hear this case. The TT found petitioner sufficiently pled its petition to invoke the subject-matter jurisdiction of the TT. It “contested the entire tax assessment in its petition.” Respondent did not allege petitioner “fraudulently pleaded that claim.” As such, the TT had subject-matter jurisdiction over the claim when the petition was filed. The court then rejected petitioner’s claim “that its purchases were eligible for the industrial processing exemption to the use tax under MCL 205.94o(1)(c) and (3)(b) because it performed research or experimental activities for or on behalf of an industrial processor.” First, the court found petitioner’s “provision of trial patients was not incident to the development, discovery, or modification of trial drugs.” Second, it failed to show “its activity was ‘necessary’ for the trial drug to ‘satisfy a government standard or to receive government approval.’” Given this, and the fact that “the formulation of the trial drug’s compound generally does not change after Strata provides patients for drug trials,” the court concluded that petitioner’s “activity is not required for its pharmaceutical company partners to obtain FDA approval. Instead, Strata is merely a service provider that may enhance the likelihood that the drug trials succeed.” Thus, petitioner “failed to meet its burden to show that its activity was necessary for a drug to satisfy a government standard or receive governmental approval.” Affirmed.