Tuesday, May 31 2011
Court of Appeals Overrules Tax Tribunal
In Kalanquin v. Township of Richfield, Michigan Court of Appeals, No. 297342, May 19, 2011, the Court of Appeals ruled the Michigan Tax Tribunal erroneously uncapped the taxable value of property, resulting in a higher local property tax assessment, because it failed to apply the terms of the relevant statutory exception pertaining to a transfer of ownership. Whether a property's taxable value remained capped was intrinsically linked to whether there was a transfer of ownership, but the tribunal's decision dealt only with broad generalizations about the exemptions dealing with testamentary transfers and transfers via trust instruments.
The plain terms of the applicable statutory exception clearly provided that a transfer of ownership did not include a transfer pursuant to a judgment or order of a court of record making or ordering a transfer, unless a specific monetary consideration was specified or ordered by the court for the transfer. In this case, the decedent's personal representatives initiated probate proceedings, and the probate court ordered that the property be transferred from the decedent's living trust to the decedent's testamentary trust. A probate court was clearly a court of record because it had the same powers as the circuit court to hear and determine any matter and make any proper orders to fully effectuate the probate court's jurisdiction and decisions. Therefore, this case did not involve a transfer of ownership.
Monday, May 30 2011
Taxpayers Must Use the Single Factor Sales Apportionment
Public Act 40 (H.B. 4479) of 2011, effective May 25, 2011, provides that taxpayers subject to the Michigan business tax, the corporate income tax, the franchise tax on financial institutions, or the personal income tax are required to apportion or allocate their income according to the state law provisions and not the Multistate Tax Compact provisions, beginning January 1, 2011. Previously, taxpayers could choose to apportion or allocate their income under either the applicable state law or the Multistate Tax Compact provisions. The Multistate Tax Compact provides for an equally weighted apportionment factor consisting of property, payroll, and sales. Michigan law requires apportionment based on a 100% sales factor.
Friday, May 27 2011
Thousands of Property Tax Classification Appeals Affected
In an appeal of nine consolidated property tax cases, the Michigan Supreme Court ruled that circuit courts have subject matter jurisdiction over appeals from State Tax Commission. Property classification decisions, because they constitute final decisions that are quasi-judicial and affect private rights, fall within the ambit of Article 6, Section28, of the Michigan Constitution, which guarantees judicial review. The Legislature lacked the authority to abolish the right to judicial review by enacting a statute. As a consequence, the court declared the final sentence of Code Section 211.34c(6) unconstitutional because it denied appeal in the courts of State Tax Commission classification decisions and the Legislature did not provide other means for judicial review of classification decisions.
The Michigan Court of Appeals suggested that a taxpayer could pay the tax and then seek a refund in the Michigan Tax Tribunal. However, nothing in the Tax Tribunal Act granted the Michigan Tax Tribunal jurisdiction over State Tax Commission classification decisions. Moreover, the Tax Tribunal ruled in 2010 that it lacked jurisdiction over State Tax Commission classification decisions. As a result of the Tax Tribunal's decision and the Court of Appeals opinion, the taxpayers were left with no forum in which to challenge classification decisions, notwithstanding their constitutional right to judicial review.
Aside from requiring a final quasi-judicial decision that affected private rights, Article 6, Section 28, provided that a decision must be subject to direct review by the courts "as provided by law." The local assessors and the State Tax Commission argued that "as provided by law" meant that the Legislature had the authority to limit the jurisdiction of the circuit courts. The Michigan Supreme Court, however, held that the phrase "as provided by law" did not grant the Legislature the authority to circumvent the protections that the section guaranteed. If it did, those protections would lose their strength because the Legislature could render the entire provision as mere surplusage.
Midland Cogeneration Venture Limited Partnership v. Naftaly, Michigan Supreme Court, Nos. 140814, 140817, 140818, 140819, 140820, 140821, 140822, 140823, and 140824, May 23, 2011
Tuesday, May 17 2011
Opinion No. 7258, Michigan Attorney General, May 6, 2011
The Michigan Attorney General has opined that a municipality cannot require purchasers of property that is foreclosed due to a property tax delinquency to pay delinquent utility-service charges incurred by former owners of the foreclosed property before the municipality will provide utility services to the new owners of the property. Under the general property tax provisions, a judgment of foreclosure extinguishes all liens and interests related to unpaid utility-service charges against the property. A municipality may, however, seek to recover the charges by including the delinquent charges in the cost of the property at the time it is offered for sale under the general property tax provisions or by instituting other lawful action against the former owners.
Monday, May 16 2011
Assessments Sent to Taxpayers Who Failed to Respond to Letter Dated April 5, 2011.
The Discovery Projects Unit of the Michigan Department of Treasury will be mailing 2785 Bill for Taxes Due - (Intent to Assess) dated May 13, 2011. These assessments were generated from income tax letters sent to taxpayers dated April 5, 2011. The telephone numbers listed on the Bill for Taxes Due - (Intent to Assess) are the Projects Unit and Collections.
These are individual income tax assessments issued to people, filers and nonfilers, who did not respond to the April 5, 2011 letter. The letters are sent based on information the Department of Treasury received from the Internal Revenue Service due to IRS audits or income reported to the IRS that they did not report in Michigan and/or to the IRS.
The Revenue Act gives the Department of Treasury authority to exchange information with other governmental entities. Often the differences can be easily explained. However, it is very important to respond to the first letter notice. It is extremely important to respond to the Bill for Taxes Due - (Intent to Assess). The taxpayer has 60 days from the date on the Bill for Taxes Due - (Intent to Assess), May 13, 2011, to request an informal conference.
Friday, May 13 2011
According to the Michigan Department of Treasury, the 2010 tax year is the last year that Michigan will support the 2D barcode program for electronically filing personal income tax returns. The state expects tax preparers who are e-filing federal income tax returns to also e-file Michigan income tax returns.
Thursday, May 12 2011
The Michigan Department of Treasury has revised a notice stating that while disregarded entities for federal tax purposes are required to file Michigan Business Tax (MBT) returns, the due date to file the returns is extended to October 31, 2011 (previously, June 30, 2011).
The notice had created considerable confusion among tax practitioners. Also, many unintended consequences have been uncovered. A MBT technical corrections bill may be introduced into the legislature soon. The MBT technical corrections bill will have language to conform the MBT filing method to the federal filing method.
Wednesday, May 11 2011
In Karen's Helping Hands, Inc. v. City of Riverview, Michigan Court of Appeals, No. 295621, April 26, 2011, a corporation was entitled to the Michigan charitable institution property tax exemption because it was a nonprofit institution that was organized chiefly for charity. In reaching its decision, the court considered the evidence in light of the factors that come into play when determining whether an entity is charitable.
The corporation's articles of incorporation stated that the corporation's purpose was to operate an adult foster care facility, and this implied an intent to benefit persons needing adult foster care. The Tax Tribunal found that the corporation never turned away, for a discriminatory reason, any proposed resident recommended by a managed care organization. The organization maintained four homes where persons with developmental disabilities and mental illness lived, and this helped to relieve persons of their suffering. The corporation only charged its residents what they received in government benefits.
The corporation also took its residents out to dinner once a month, bought clothes for them, took them on a two-day trip each year, paid their medication copayments and dental care costs, and allowed them to stay rent-free if they had not yet received approval from Social Security or if they had been denied approval. These expenditures could reasonably be characterized as gifts because they did not result in additional charges.
Monday, May 02 2011
Bills Would Exclude Software Installed On Another Person's Server
Two bills were introduced in the Michigan Senate which would amend the Michigan General Sales Tax Act and the Michigan Use Tax Act to exclude from the definition of "prewritten computer software "granting the right to use prewritten computer software installed on another person's server." I normally do not comment on proposed legislation because so many bills get introduced, but few make it into law. However, these amendments are significant because, if enacted, they would solve an ongoing problem for Michigan businesses.
SENATE BILL No. 335 was introduced April 26, 2011 by Senators PROOS, PAPPAGEORGE, MARLEAU, COLBECK, ROBERTSON, JANSEN, NOFS and BRANDENBURG.
The bill would amend the "sales tax act" [1933 PA 167] to change the definition of "prewritten computer software" to exclude "granting the right to use prewritten computer software installed on another person's server." as follows:
(o) "Prewritten computer software" means computer software, including prewritten upgrades, that is delivered by any means and that is not designed and developed by the author or other creator to the specifications of a specific purchaser. PREWRITTEN COMPUTER SOFTWARE DOES NOT INCLUDE GRANTING THE RIGHT TO USE PREWRITTEN SOFTWARE INSTALLED ON ANOTHER PERSON'S SERVER.
SENATE BILL No. 336 was introduced April 26, 2011 by Senators PROOS, PAPPAGEORGE, MARLEAU, COLBECK, ROBERTSON, JANSEN, NOFS and BRANDENBURG.
The bill would amend the "use tax act" [1937 PA 94] to change the definition of "prewritten computer software" to exclude "granting the right to use prewritten computer software installed on another person's server." as follows:
(o) "Prewritten computer software" means computer software, including prewritten upgrades, that is delivered by any means and that is not designed and developed by the author or other creator to the specifications of a specific purchaser. PREWRITTEN COMPUTER SOFTWARE DOES NOT INCLUDE GRANTING THE RIGHT TO USE PREWRITTEN COMPUTER SOFTWARE INSTALLED ON ANOTHER PERSON'S SERVER.