Wednesday, June 30 2010
The Michigan Tax Tribunal Properly Established the True Cash Value of Property in Broughton Development [Broughton Development v. Township of Macomb, Michigan Court of Appeals, No. 290893, June 17, 2010]
The judgment of the Michigan Tax Tribunal establishing the true cash value for local property taxation purposes of a taxpayer's real property was correct because, on the whole, the Tribunal's findings were supported by competent, material, and substantial evidence. The taxpayer argued that the tribunal failed to determine the highest and best use of the property.
However, the record reflected that the parties agreed that the highest and best use was important in determining the true cash value of the property. Moreover, the tribunal considered the highest and best use to be future residential development because it relied on and discussed the valuations and comparison sales presented by the township's assessor, which in turn were based on the conclusion that the highest and best use was residential development.
The taxpayer also argued that the Tribunal, in analyzing the highest and best use, erred in failing to account for the fact that the property was currently zoned agricultural. However, although the property was zoned for agricultural use, it was master-planned for single-family residential development and legally permissible uses included residential or agricultural use.
Furthermore, the taxpayer provided no evidence on which the Tribunal could rely to determine whether to reduce the true cash value of its property because it was zoned agricultural. The township assessor also testified that the entire township had been agricultural in the past but was being developed as residential. More importantly, there was little if any difference in value between a property that was zoned agricultural or residential due to the economic downturn and collapse of the real estate market at the time of assessment.
Tuesday, June 29 2010
The Michigan Department of Treasury (Treasury) is holding that payments from a Section 403(b) plan, which Treasury considers to be analogous to payments from a Section 401(k) plan is subject to Michigan Income Tax.
It is Treasury's position that distributions from such plans are not eligible for the subtraction to the extent they are attributable to employee elective contributions that exceed the employee contribution required by the plan to obtain the maximum employer contribution. For example, if the plan requires employees to contribute 3% to the plan to obtain the maximum employer contribution, the portion of the account balance attributable to employee contributions in excess of 3% is not eligible for the subtraction. The solution to this problem is to rollover the account to an IRA if the individual is 59 ½ or older or disabled. If the individual does not meet either of those requirements, substantially equal periodic distributions from an IRA made under Section 72(t)(2)(iii)(iv) for five years or attainment of age 59 ½, whichever period is longer, would qualify. See Treasury's Revenue Administrative Bulletin 1988-30, and pages 66 and 67 of Treasury's Taxpayer Assistance Manual. See page 66 for the exception for equal periodic distributions from IRAs.
Larry Larimee, the MACPA representative on the Individual Taxes Advisory Group of the Michigan Department of Treasury contributed to this article.
Monday, June 28 2010
A Sales Tax Appeal of a Bad Debt Deduction Decision is Denied on June 17, 2010 by the Michigan Supreme Court. This case grew out of the Daimler Chrysler case (Daimler Chrysler Service of North America, LLC v. Department of Treasury, Michigan Court of Appeals, Jul;y 25, 2006) where the bad debt deduction was allowed only to be omitted on a retro active basis for all other (than Daimler Chrysler) taxpayers including GMAC, LLC and Ford Motor Credit.
The Michigan Supreme Court has denied the application for leave to appeal a decision of the Michigan Court of Appeals [GMAC LLC v. Department of Treasury, Michigan Court of Appeals, No. 289261, November 19, 2009] (GMAC)
In GMAC, the Court of Appeals held that finance companies that provided financing for motor vehicle purchases were not entitled to a refund of sales tax pursuant to the bad debt deduction statute. The Court of Appeals concluded that the retroactive amendment to the bad debt deduction statute expressly limited the deduction to an entity that was legally required to remit the tax and that this amendment was intended to reestablish the original legislative intent
Judge Stephen Markham in dissenting stated: I would grant leave to appeal to address the following questions: (1) whether the Due Process Clause of Const 1963, art 1, § 17 says anything different concerning the constitutionality of retroactive application of state tax laws than does Article V of the United States Constitution; and (2) whether it is relevant in enacting retroactive tax laws that the Legislature asserting that such laws are "curative," and intended to express the "original intent of the Legislature," is not the Legislature that enacted the laws in question but a subsequent Legislature. I would direct that this case be argued and submitted together with Ford v Dep't of Treasury, No. 140624.
There may ultimately be an appeal to the United States Supreme Court on the issue of legislative retroactive amendments designed to overturn judicial decisions.
Sunday, June 27 2010
The four year statute of limitations is enforced in the denial of a Single Business Tax (SBT) refund even though the taxpayer had a signed contractural agreement with the Michigan Economic Growth Authority (MEGA) allowing the tax credits.
In a taxpayer was barred from claiming the MEGA employment credit against the SBT because the amended returns were filed beyond the statute of limitations. The taxpayer and MEGA had entered into a contract regarding the number of jobs to create and other conditions to meet in order for the taxpayer to qualify for the credit. The taxpayer requested, and MEGA granted, credit certification even though the application was not timely. The taxpayer then filed amended returns.
Reversing the trial court, the appellate court determined that contract law was inapplicable. Under the MEGA contract, the taxpayer was rewarded not with cash, but with a tax credit. The former SBT law allowed the taxpayer to apply the credit to the annual tax liability and receive a refund. However, the amended returns had to be filed within the statute of limitations. If the amended returns had been timely filed, the taxpayer would have been entitled to the refund. Accordingly, the credit refunds were denied. [Asama Coldwater Manufacturing, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 290584, June 8, 2010]
Saturday, June 26 2010
The Film Production Expenditures Credit is discussed in a Notice issued by the Department of Treasury on June 25, 2010.
The Michigan Department of Treasury (Treasury) has issued a notice discussing the film production expenditures credit available against the Michigan Business Tax (MBT). Treasury and the Michigan Film Office do not make determinations or issue letters designating who is (or who is not) a qualified vendor for the credit. The credit is available to eligible production companies at a specified percentage of direct production expenditures and qualified personnel expenditures.
For a transaction to qualify as a direct production expenditure, two questions to consider are:
(1) What is the source within Michigan? and
(2) What is the nature of the qualified transactions?
For a source to be within Michigan, the vendor of property or services must have a non-temporary established level of physical presence in the state (i.e., at least one year of bricks and mortar storefront and at least one full-time employee).
Regarding the nature of the transactions, several factors will be considered:
industry standard markups for individual product categories,
orders for goods or services to be used by a production company must be placed with suppliers by the seller,
drop shipment arrangements must be supported by facts and documentation,
the seller should not be directed or bound by the production company's choice of supplier,
the seller must have adequate staffing and the staff must have the requisite skill levels to perform the functions attributed to them,
the seller should bear the risk of the breach of contract, and
the seller should have taken legal title to the goods before the possession of the goods passes to the production company.
This list is not all inclusive. The totality of the facts, circumstances, and supporting documentation will be considered. Treasury has included 17 examples in the notice.
Notice to Taxpayers Regarding Michigan Business Tax Film Production Credit Qualified Vendors, Michigan Department of Treasury, June 22, 2010,
Monday, June 07 2010
In an appeal involving a real property tax dispute, the Michigan Court of Appeals held that the Michigan Tax Tribunal did not err in determining the true cash value of the taxpayer's property. [Lin v. Southfield Township, Michigan Court of Appeals, No. 289276, June 1, 2010]
The taxpayer argued that the Tax Tribunal's determination was wrong because upgrades to comparable properties affected those properties' true cash value when the cost approach was used for valuation. However, the Tax Tribunal rejected the cost approach and used the market approach, and deference must be given to the tribunal regarding the appropriate method of valuation and the interpretation of statutes pertaining to valuation because these were matters within the Tax Tribunal's area of expertise.
In this case, the Tax Tribunal found that the market approach was the only reliable evidence of true cash value. Under the market approach, as outlined in the assessor's manual, the presence of upgrades in comparables and the cost of those upgrades did not necessarily mean that the comparables were more valuable than the subject property that lacked the same upgrades. Moreover, the taxpayer could not cite any provision in the assessor's manual indicating that, when using the market approach, the cost of improvements to comparables had to be considered.
The taxpayer also argued that the Tax Tribunal erred in determining the true cash value of his property because it held that market trend did not affect the property's true cash value. However, the taxpayer did not cite any authority from the law or the appraisal literature to suggest that the tribunal's determination that market trend was not evidence of a particular property's true cash value was a wrong principle.
This case is noteworthy because of the Tax Tribunal's rejection of the cost approach to determination of the true cash value. Many assessors use the cost approach.