Friday, October 29 2010
Michigan Business Tax Proposed Rules Receive Tentative Approval - Next Step is Public Hearings
The following is an update on the current status of the Michigan Business Tax (MBT) General Rules in the promulgation process.
The Legislative Service Bureau (LSB) has given informal approval to the MBT Rules, with some suggested style edits for compliance with the format of the Michigan Administrative Code.
Treasury has incorporated LSB's edits into the draft Rules dated October 14, 2010, and returned this latest edition of the Rules to the State Office of Administrative Hearings and Rules (SOAHR). After SOAHR confirms that LSB's recommended changes have been made, the October 14 edition will be published on SOAHR's website.
Work necessary before a public hearing can be scheduled is underway.
Friday, October 22 2010
MBT Late Payment Penalties Will Not Be Assessed When an Annual Return Is Filed Early and the Payment is Made on the Due Date
The following statement from the Department of Treasury seems to clear up some confusion regard the imposition of late payment penalties.
"As was stated before, the blog is incorrect as to both the law and the department's practice. To clarify, a taxpayer that files an annual return prior to its due date will not incur penalty and interest on an amount owed provided the entire amount owed is paid on or before the original due date. (This is, of course, an issue separate from the question of timely and adequate payment of estimates. And this conclusion does not apply if the payment is made during the period for which a filing extension has been granted.)
If there is any case in which penalty and interest have been asserted by the department for an annual return payment that was made after the return was filed but within the original filing deadline, that was a processing error by the department. An affected taxpayer should contact the MBT unit of Customer Contact Division and the error will be corrected."
Wednesday, October 20 2010
Treasury Issues FAQ M80 to Revise FAQ M45 to Remove the Phrase "Purchased in the Tax Year" in Reference to Deduction of Fuel
The FAQ, which is not the official position of the Department of Treasury, restates their position that fuel is "material used to produce heat or power by burning". In a proposed rule, the Department excludes electricity from the definition of "fuel'. Also, the Department limits the deduction of fuel to only when "directly connected to, producing or managing inventory purchased in the tax year or operating or maintaining depreciable assets". The FAQ excludes fuel purchased for general space heating of a commercial office building. Considerable debate is anticipated as the proposed rule goes to public comment and public hearings.
Whether fuel is a "purchase from other firm" under MCL 108.1113(6) depends upon whether the taxpayer's use of the fuel powers inventory or a depreciable asset acquired by the taxpayer during the tax year.
"Purchases from other firms" includes in pertinent part:
(a) inventory, as defined in MCL 208.1111(4), acquired during the tax year;
(b) assets acquired during the tax year of a type that are or will become eligible for depreciation, amortization, or accelerated capital cost recovery under the internal revenue code for federal income tax purposes; and
(c) to the extent not included in inventory (subparagraph (a)) or depreciable assets (subparagraph (b)), materials and supplies, including repair parts and fuel.
Materials and supplies in subparagraph (c) are those items taxpayer acquired during the tax year to be used or consumed in, and directly connected to, producing or managing inventory acquired (subparagraph (a)) or operating or maintaining depreciable assets acquired (subparagraph (b)) during the tax year. Therefore, fuel acquired in the tax year to be used in, and directly connected to, producing or managing inventory purchased in the tax year or operating and maintaining depreciable assets would be a "purchase from other firms" and deducted from gross receipts when determining the modified gross receipts tax base.
"Fuel" is not expressly defined in the MBT, but the term commonly refers to material used to produce heat or power by burning. In the example posed, gasoline purchased to power automobiles the taxpayer uses is not a "purchase from other firms" because automobiles used by taxpayer are not taxpayer's inventory. Gasoline purchased to power taxpayer's automobiles might be a "purchase from other firms" to the extent that such automobiles acquired during the tax year are depreciable assets for federal income tax purposes. Passenger automobiles, both owned and leased, are included as "listed property" under section 280F of the internal revenue code and may be eligible for depreciation deductions for federal income tax purposes, subject to specific rules and limitations. 26 USC § 280F; Treas. Reg § 1.280F-1T et seq.
Equipment and furnaces are generally depreciable assets for federal income tax purposes. Consequently, propane or natural gas purchased to run the equipment or furnace might be "purchases from other firms" if the equipment or furnace powered by the fuel was purchased during the tax year. Natural gas consumed for general space heating of a commercial office building would not be a "purchase from other firms;" however, natural gas purchased to run equipment or furnace designed to maintain temperature or dryness specifications necessary to preserve the quality and integrity of inventory purchased during the tax year might be a "purchase from other firm." Therefore, whether a certain fuel purchased constitutes a "purchase from other firms" will depend upon the facts and circumstances of its use.
Tuesday, October 19 2010
Ford Motor Credit Co. Asked the U.S. Supreme Court to Consider Retroactivity of Bad Debt Change
A motor vehicle financing company, Ford Motor Credit Co., has asked the U.S. Supreme Court whether a retroactive change in a Michigan sales tax refund statute for bad debts satisfies due process when applied to deny refunds for the preceding five-year period.
In Daimler Chrysler Services North America LLC v. Dep't of Treasury, 723 N.W.2d 569 (2006), the Michigan Court of Appeals held that a motor vehicle financing company was a "taxpayer" entitled to refunds of sales tax paid and remitted by dealerships on installment sales when the purchasers subsequently defaulted. In response, the Michigan Legislature retroactively amended the bad debt sales tax statute to overturn the effect of the decision in DaimlerChrysler.
The taxpayer in the current case filed a refund action asserting that the amendments violated the Due Process Clause of the U.S. Constitution because they imposed an indefinite period of retroactivity and were applied to a five-year period in the taxpayer's case. However, the Court of Appeals affirmed the dismissal of the taxpayer's action for the reasons stated in the contemporaneously argued case of GMAC, LLC v. Dep't of Treasury, 781 N.W.2d 310 (Mich. Ct. of App. 2009). In GMAC, the court held that a seven-year retroactive application of the amendments did not violate due process or the requirement that such legislation be limited to a modest period of retroactivity. The Michigan Supreme Court denied review.
Monday, October 18 2010
Levy of a Local School Debt Service Property Tax Was Improper
In LaFarge Midwest, Inc. v. City of Detroit, Michigan Court of Appeals, No. 289292, October 12, 2010 the levy of a local Michigan school debt service property tax on three parcels of land located within a renaissance zone was improper because the tax was not levied for the payment of obligations approved by the electors of a local governmental unit as provided by the statutory exception that allowed property located in a renaissance zone to be taxed. The 13 mill tax was consistent with the school district electors' approval of money in school building and site bonds. The taxpayer filed a petition with the Michigan Tax Tribunal challenging the tax on the ground that the property was subject to the renaissance zone tax provisions and exempt from the tax.
In this case, the dispute between the parties was centered on the interpretation of the applicable statutory exception to the general exemption. The city argued that the exception applied to the taxpayer's property because the taxes were "levied for the payment of principal and interest of obligations approved by the electors." The taxes were not levied for "obligations pledging the unlimited taxing power of the local governmental unit." The city argued that the statute detailed two separate debt obligations that were excepted from the exemption and that the modifier phrase "of the local governmental unit" applied only to the second type of debt obligation for which taxes may be levied, in accord with the last antecedent rule, and not to the first type of debt obligation that was at issue in this case. The taxpayer argued to the contrary that the phrase "of the local governmental unit" applied and modified both types of debt obligations consistent with the plain language and purpose of the renaissance zone tax provisions. Therefore, according to the taxpayer, because the applicable statute itself required a different interpretation than would be accorded by the last antecedent rule, that rule did not apply.
After applying the conventional means of statutory interpretation, the Michigan Court of Appeals concluded that the phrase "of the local governmental unit" clearly applied to both the "obligations approved by the electors" and the "obligations pledging the unlimited taxing power." There was no ambiguity. Therefore, the Tax Tribunal correctly held that the definition of "local governmental unit" did not include school districts, and the city was properly ordered to remove the school debt service tax from the taxes charged to the taxpayer's property and refund any overpaid taxes.
Tuesday, October 12 2010
A Michigan Business Tax Credit Enacted for Cigarette Dealers
Public Act 200 of 2010 (PA 2010-200) specifies that a taxpayer that is a wholesale dealer, retail dealer, distributor, manufacturer, or seller that had receipts from the sale of cigarettes or tobacco products may claim a credit against the Michigan Business Tax, provided that the taxpayer paid federal and state excise taxes on the tobacco products during the 2008 and 2009 tax years.
The refundable credit is only available for the taxpayer's first tax year that begins after 2010. The credit is equal to the sum of (1) the difference between the taxpayer's modified gross receipts tax liability for the 2008 tax year and the taxpayer's modified gross receipts tax liability if the taxpayer had been allowed to deduct 100% of the federal and state excise taxes instead of 60% of those taxes; and (2) the difference between the taxpayer's modified gross receipts tax liability for the 2009 tax year and the taxpayer's modified gross receipts tax liability if the taxpayer had been allowed to deduct 100% of the federal and state excise taxes instead of 75% of those taxes.
The credit effectively eliminates the previous phase-in for the gross receipts deduction for federal and state excise taxes.
Public Act 200 of 2010 is effective October 5, 2010, and applicable as noted in the statute.
Tuesday, October 12 2010
Appeals Dismissed for Failure to Comply With Tax Tribunal's Rules
In Sal-Mar Industrial Corp. v. Township of Macomb, Michigan Court of Appeals, Nos. 291843, 291844, 294151, and 294339, October 5, 2010 the Court of Appeals supported the Michigan Tax Tribunal in that it did not abuse its discretion in dismissing taxpayers' local property tax appeals because of their failure to comply with the Tax Tribunal's rules and orders. In this case, the taxpayers repeatedly, and for a long time, failed to file and exchange their valuation disclosures, witness lists, and exhibition lists. The township, on the other hand, complied with all deadlines but, to its disadvantage, did not receive any evidence from the taxpayers. The Tax Tribunal's dismissal of the taxpayers' petitions without conducting a show-cause hearing also did not violate due process because the taxpayers clearly received notice that their petitions could be dismissed if they did not comply. Further, the taxpayers also had opportunities to be heard by the tribunal. It was clear, however, from the taxpayers' submissions to the tribunal that they had failed to obtain expert appraisers to value their property. A taxpayer that contributed to an alleged error by plan or by negligence could not be allowed on appeal to complain of the error.
Monday, October 11 2010
President of Corporation Held to be Personally Liable for Unpaid Use Tax
In Rolinski v. Michigan Department of Treasury, Michigan Court of Appeals, No. 291667, October 5, 2010 (Rolinski) the Tax Tribunal made an error of law by ruling that there was no genuine issue of material fact regarding a taxpayer's status as a corporate officer who was liable for unpaid Michigan use tax.
Under MCL 205.27a(5), where a corporation fails to pay taxes for which it is liable, a corporate officer that has control or supervision over the return or payment of taxes can be held personally liable for the unpaid taxes. For liability to attach, the corporate officer must have significant, tax-specific involvement with the financial affairs of the corporation. Livingstone v Dep't of Treasury, 434 Mich 771, 780; 456 NW2d 683 (1990). "The signature of any corporate officers, members, managers, or partners on returns or negotiable instruments submitted in payment of taxes is prima facie evidence of their responsibility for making the returns and payments." MCL 205.27a(5).
The Department of Treasury provided copies of corporate filings listing Rolinski as the officer responsible for filing Michigan withholding tax returns for the time period in question. The Department of Treasury included tax returns and checks submitted in payment of taxes signed by Rolinski and another officer. The Department of Treasury also provided a payroll agent notification that was signed by Rolinski, which appointed a third party payroll agent for Michigan withholding taxes. At minimum, the Court of Appeals ruled that Rolinski's signature on a corporate check payable to the State of Michigan, which corresponded to the exact amount owed on the corporation's combined Michigan tax returns, was sufficient to establish Treasury's prima facie case that Rolinski was a liable corporate officer with some extent of control or supervisory authority over the corporation's return or payment of taxes, as required by the statute.
Furthermore, the Court of Appeals noted that the statute did not require that a corporate officer have exclusive authority for all tax affairs of a corporation for derivative liability to apply.
Friday, October 08 2010
Legislature Expands the Definition of Financial Institution for Purposes of the Michigan Business Tax
Public Act 156 of 2010 (PA 156-10) amends the Michigan Business Tax definition of "financial institution". The definition is expanded to include federally chartered farm credit system institutions. The change is retroactive and applicable to taxes levied on or after January 1, 2008. Financial institutions are subject to the franchise tax based on net capital. They are not subject to the business income tax or the modified gross receipts tax portions of the Michigan Business Tax.
Thursday, October 07 2010
Taxpayer Was Denied a Single Business Tax Personal Property Tax Credit Because of a Classification Error Made by the Assessor
In Walter Toebe Construction Co. v. Department of Treasury, Michigan Court of Appeals, No. 291764, July 27, 2010, a taxpayer was denied a credit for property taxes paid against the Michigan single business tax (SBT) because the assessor mistakenly classified a portion of property as commercial personal property instead of industrial personal property, as required by the applicable law. Examining the statutory language for the credit, the appellate court reasoned that the former SBT act did not import the definition of industrial personal property from the property tax act. As such, the classification of the property was essential to determine whether the taxpayer was entitled to claim the credit. The Department of Treasury could rely on the assessor's classification of property and did not need to make an independent assessment of whether the taxpayer's property met the definition. Accordingly, due to the property's misclassification, the taxpayer was not entitled to the credit.