Wednesday, October 31 2012
Written Petition Must be Filed by May 31
In Parker v. City of Detroit, Michigan Court of Appeals, No. 304436, October 23, 2012, the Michigan Tax Tribunal properly dismissed on a lack of jurisdiction a taxpayer's claim that it was unlawful for a city to levy a 2006 solid waste property tax only on commercial properties and not residential properties because the taxpayer failed to timely file his challenge to the tax. The Tax Tribunal explained that the 2006 solid waste tax was included in the July tax bill and the taxpayer did not file his Petition with the Tax Tribunal until April 25, 2009, which was after the 35-day window for filing after receipt of the tax bill had closed.
The Michigan Court of Appeals noted, however, that the 35-day window was a catch-all provision and held that in order to invoke the Tax Tribunal's jurisdiction for assessment disputes with respect to property classified as commercial real property, a party must file a written Petition on or before May 31 of the tax year involved. The taxpayer admitted that the property involved in the dispute was classified as commercial property. Accordingly, to dispute a 2006 assessment, the taxpayer needed to have filed a written Petition by May 31, 2006.
The taxpayer further challenged the tribunal's inherent authority to dismiss a claim for lack of subject matter jurisdiction without first holding a hearing. However, the tribunal did not have an affirmative duty to hold a hearing on the issue of subject matter jurisdiction before making a determination on the issue.
Tuesday, October 30 2012
Education Was Not Provided by the State and Supported by Public Taxation
In Michigan Laborers' Training & Apprenticeship Fund v. Township of Breitung, Michigan Court of Appeals, No. 303723, October 23, 2012, a taxpayer that was an unincorporated, irrevocable trust was not entitled to a local Michigan property tax exemption as an educational institution because it did not qualify as an educational institution. The taxpayer provided education and training to individuals who wished to work in the field of construction craft labor and was a specialized school operated for the purpose of training its students to enter a specialized field of employment and not an educational institution. Therefore, the taxpayer did not fit into the general scheme of education provided by the state and supported by public taxation.
In addition, a substantial portion of the taxpayer's student body was unable to attend a state-supported college or university to continue their education in the same major field of study. Further, the taxpayer failed to provide any evidence that its major fields of study were offered by state-supported colleges and universities. There was no state-supported program whereby participants could become apprentices or journeymen.
Monday, October 29 2012
Taxpayer Unsuccessfully Argued the Public-Service Improvement Mistakenly Increased Value
In Nixon Road Holding Co., LLC v. Township of Delta, Michigan Court of Appeals, No. 303519, October 23, 2012, the Michigan Tax Tribunal's order upholding local property taxes imposed on three parcels of property was upheld because the taxpayer failed to provide any valuation disclosures showing that the property was improperly assessed and because the taxpayer's proposed valuation method of dividing the purchase price of the parent parcel by the number of child parcels was not an accepted method of calculating true cash value.
The taxpayer also argued that the township had mistakenly included in its calculations the value of public-service improvements that the taxpayer had made to the property for the purposes of platting and dividing the parent parcel. The Tax Tribunal found, however, that the property became uncapped for purposes of property taxes when the taxpayer acquired it, and the taxpayer did not show that any increase in taxable value following the uncapping event resulted from public-service improvements. Furthermore, the taxpayer did not submit any evidence demonstrating that any later assessments improperly included public-service improvements as additions.
Thursday, October 25 2012
Lessor Ceded Control of Aircraft to Lessee
In NACG Leasing v. Department of Treasury, Michigan Court of Appeals, No. 306773, October 16, 2012, a taxpayer that leased an aircraft to a related entity was not liable for Michigan use tax because it ceded total control over the aircraft to its lessee.
For purposes of the Use Tax Act, "use" is defined as the "exercise of a right or power over tangible personal property incident to the ownership of that property including transfer of the property in a transaction where possession is given." In the present case, the taxpayer executed the lease contemporaneously with its purchase of the aircraft and ceded total control to the lessee. The lessee was already in possession of the aircraft prior to the taxpayer's purchase, and this possession was uninterrupted. The lessee was responsible for all repairs, insurance, and taxes and bore the risk of loss of the aircraft. The purchase and simultaneous lease of an aircraft that was in possession of the lessee does not incur use tax liability for a taxpayer when complete control of the aircraft is ceded to the lessee.
Wednesday, October 24 2012
Court of Appeals Uphols the Tax Tribunal Determination of Adequate Records
In Plum Hollow Market Inc. v. Department of Treasury, Michigan Court of Appeals, No. 305505, October 16, 2012, an assessment for additional Michigan sales tax was upheld against a grocery and liquor retailer because the taxpayer failed to maintain adequate records.
The taxpayer did not keep its daily cash register receipts (Z-rings), nor did it maintain records of inventory items that were made into prepared foods. In light of the inadequacy of the taxpayer's records, the auditor was permitted to use other sources of information, such as supplier invoices, to determine the amount of tax due.
Tuesday, October 23 2012
Units Were Withdrawn from a Condominium Master Deed
In Aberdeen of Brighton, L.L.C. v. City of Brighton, Michigan Court of Appeals, No. 301826, October 16, 2012, for local property tax years 2008, 2009, and 2010, the Michigan Tax Tribunal correctly determined that the highest and best use of a taxpayer's 72 units was an apartment complex, rather than individual condominium units, because the units were withdrawn from the condominium master deed and, therefore, were incapable of being sold as condominium units. Moreover, the 72 units were not marketed by the taxpayer as individual condominium units. Accordingly, to separately value and assess the 72 units as condominium units was contrary to the actual facts and inconsistent with the highest and best use of the units. Moreover, to build and sell the 72 units as condominium units was not financially feasible.
Monday, October 22 2012
Assessor's Property Tax Cards, Testimony Found to be Sufficient
In McPherson Mansion LLC v. City of Howell, Michigan Court of Appeals, No. 305705, October 16, 2012, the Michigan Tax Tribunal's adoption of the assessed valuation on the property tax rolls as its independent determination of value of a parcel of property was proper because the Tax Tribunal's determination was supported by competent and substantial evidence.
The city submitted the tax cards for the property, which included the property's assessed value for the tax years at issue. Included in the tax cards for each year was a true cash value calculation based on the cost approach to valuation. The cost approach was one of the three traditional methods of determining true cash value that was accepted and relied upon by the tribunal and the courts. Further, the city's assessor stated that she determined cost by applying a cost value from the state assessor's manual. These calculations were reflected in the tax cards and showed a cost based on the property's square footage. The tax cards, along with the state assessor's testimony, provided competent and substantial evidence supporting the Tax Tribunal's determination.
Friday, October 19 2012
Relationship Test Not Satisfied By Common Ownership
In Winget v. Department of Treasury, Michigan Court of Appeals, No. 302190, October 16, 2012,
affirming the lower court, the appellate court held that taxpayers were not permitted to combine business income from separate entities for Michigan personal income tax purposes.
The court did not permit the taxpayers to add the property, payroll, and sales of multiple S corporations to establish a single property factor, a single payroll factor, and a single sales factor. Michigan law does not allow separate entities to be treated as a unitary business in the absence of some common ownership at the entity level, and being owned by the same individual taxpayer is insufficient to trigger this relationship requirement. In this case, the taxpayers' S corporations were legally separate and distinct business entities and there was no common ownership at the entity level. Therefore, separate apportionment percentages were properly applied to each S corporation.
Thursday, October 18 2012
From The Michigan CPA Advocate
The status of the MBT Technical Corrections Bill as well as MBT audit issues will be discuss at the MACPA Seminar: Michigan Income Tax & MBT Audit Issues on Tuesday, October 23, 2012 at the Embassy Suites Hotel in Livonia. Register online at the MACPA Website.
The multi-phase MBT technical corrections legislative effort continues to see progress. After Phase 1 was signed into law (PA 304 and 305 of 2011) by Governor Snyder, the MACPA continued the push on the remainder of the 17 original issues.
Phase 2 passed the Senate in July without revision, but has come upon some headwinds in the House Tax Policy Committee due to the Department of Treasury's opposition to some of the items. That opposition is based almost entirely on revenue impact, and not policy. While that is certainly frustrating, the MACPA wishes to continue the forward movement in addressing another portion of the issues and will stay focused on those still remaining as the calendar changes to 2013.
As of today, a potential compromise has been reached as follows:
To be included in Senate Bill 1037 :
Clarify the definition of "officer" for the small business credit
Reasonable Return of Capital for the self-employment tax deduction
Income Base NOL Successorship
Clarify "ultimate destination" for apportionment of tangible personal property
Opposed by Executive Branch:
Cancellation Of Debt (COD) Income
Self-constructed assets for purchases from other firms
Materials and Supplies
Intercompany eliminations for Unitary Business Groups
To be addressed in 1st quarter 2013:
Renaissance Zone Credit
Wednesday, October 17 2012
Homeowner Must Manifest an Intent to Return
Public Act 324 of 2012, effective October 9, 2012, has been enacted to allows a homeowner to retain a local Michigan property tax principal residence exemption after moving into a nursing home or assisted living facility if the homeowner manifests an intent to return to his or her home by satisfying all of the following conditions:
- the owner continues to own the property while residing in the nursing home or assisted living facility;
- the owner has not established a new principal residence;
- the owner maintains or provides for the maintenance of the property while residing in the nursing home or assisted living facility; and
- the property is not occupied, is not for sale, is not leased, and is not used for any business or commercial purpose.
For residential or timber-cutover property that is contiguous to a dwelling, current law specifies that contiguity is not broken by a road, a right-of-way, or property purchased or taken under condemnation proceedings by a public utility for power transmission lines if the two parcels that are separated by the purchased or condemned property were a single parcel before the sale or condemnation. The legislation specifies that continuity also is not broken by a boundary between local tax collecting units.
Tuesday, October 16 2012
Court Found Valid Lease Existed and Timely Election Made
In CCXLS, L.L.C. v. Department of Treasury, Michigan Court of Appeals, No. 297902, October 11, 2012, an aircraft owner was not liable for Michigan use tax based on the purchase price of its aircraft because it entered into a valid lease agreement and timely elected to collect tax based on the lease payments.
In reviewing both the taxpayer's rental rate agreement and the lease/management agreement, the court found that all the necessary elements for a "lease" as defined under MCL 205.92b(k) were met. The agreements evidenced the "transfer of possession or control" of the aircraft "for a fixed or indeterminate term" and "for consideration."
The court also concluded that the Tax Tribunal erred in finding that a taxpayer must elect to pay use tax on rental payments at the time the property is acquired. The relevant statute dictates that a valid election must be made by obtaining a use tax registration "(1) by the earlier of the date set for the first payment of use tax under the lease or rental agreement or (2) 90 days after the lessor first brings the aircraft into this state." The taxpayer made a timely election, as it obtained a use tax registration on November 21, 2007, a date that clearly occurred by the earlier of the date set for the first payment of use tax (December 1, 2007) or 90 days after the aircraft was brought into Michigan (November 27, 2007).
Monday, October 15 2012
Personal Income Tax Unitary Business Apportionment Case Appealed
In the matter of The Estate of Thomas M Wheeler, et al., v. Department of Treasury, Michigan Court of Appeals, No. 302251, July 31, 2012, the Michigan Supreme Court has issued an order granting the application for leave to appeal to hear a Michigan individual income tax case. In that case, the appellate court held that an S corporation and a lower-tier general partnership were unitary, so that the shareholders/taxpayers properly apportioned their income to Michigan under the personal income tax laws. Vacating an earlier opinion, the Michigan Court of Appeals held that an S corporation and a lower-tier general partnership were unitary.
In addition, the Court ordered that a similar case in which the appellate court held that taxpayers were not permitted to combine business income from separate entities for personal income tax purposes be argued. In Malpass v. Department of Treasury, Michigan Court of Appeals, No. 299057, Unpublished December 6, 2011, Approved for Publication January 19, 2012 the Michigan Court of Appeals held that taxpayers were not permitted to combine business income from separate entities for personal income tax purposes. The case was issued earlier as an unpublished decision.
The Estate of Thomas M Wheeler, et. al. v. Department of Treasury, Michigan Supreme Court, No. 145367, Order issued October 4, 2012
Wednesday, October 10 2012
Taxpayer's Customer Had A Direct Pay Authorization
In Knight Facilities Management, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 305787, September 27, 2012, a taxpayer that provided General Motors (GM) with janitorial supplies that were used by GM's janitorial staff was not liable for Michigan use tax on such supplies because they were purchased for resale. The supplies were shipped directly from the taxpayer's supplier to GM facilities. Furthermore, the contract between the taxpayer and GM specified that GM would be billed for the cost of the supplies and equipment.
Tuesday, October 09 2012
Taxpayer Changed the Form, Composition, or Character of the Circuit Boards
In K & S Industrial Services, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 305516, September 27, 2012, a taxpayer that operated a circuit board repair business was not liable for Michigan use tax on test beds and stands used to diagnose and repair the boards and on utilities consumed during the diagnostic process because it qualified for the industrial processing exemption.
The Use Tax Act, applicable during the audit period, advised that a taxpayer qualifies as an industrial processor "if (1) it alters the form, composition, or character of tangible personal property; and (2) the property is ultimately sold at retail or sold to another industrial processor for processing for ultimate sale at retail."
The taxpayer's customers transferred title to the defective circuit boards, and the taxpayer sold the reconditioned boards at a set price back to its customers. The Court of Appeals held that a strict reading of the statutes applicable to the relevant period resulted in the conclusion that the taxpayer changed the form, composition, or character of the circuit boards. Furthermore, Rule 205.90, Mich. Admin. Code, expressly specifies that the "design, construction and maintenance of factory, machinery, equipment, and tooling" qualifies as an exempt industrial processing activity.
Monday, October 08 2012
Tax Tribunal Impermissibly Automatically Accepted the Original Assessment
In TG Lansing, LLC v. City of Lansing, Michigan Court of Appeals, No. 305918, September 27, 2012, the Michigan Tax Tribunal's judgment affirming the original assessed, taxable, and true cash valuations of a limited liability company's parcel of property for property tax assessment purposes was incorrect because the Tax Tribunal failed to make an independent determination of the true cash value of the property. The Tax Tribunal concluded that the company's expert had not provided credible evidence supporting his claimed lower valuations, but that the city had also not provided credible evidence supporting its claimed revised higher valuations.
The Michigan Court of Appeals held that the Tax Tribunal did not err in concluding that the company's evidence was unconvincing. Moreover, the city had not appealed the Tax Tribunal's finding that its expert was also not credible and that the property was not underassessed.
However, the Tax Tribunal then apparently simply found that the original assessment values were fair and reasonable with no other stated reasoning or evidence in support of that conclusion. The true cash values adopted by the Tax Tribunal were in fact inexplicably greater than the valuations provided by either party's expert. Therefore, given the lack of underlying evidence in support, the Tax Tribunal appeared to have impermissibly automatically accepted the original assessment.
Friday, October 05 2012
Five Ballot Proposals Would Amend the State Constitution
There are a myriad of proposals, six to be exact, that will be on the November 6 ballot. All but one will amend our State Constitution. I encourage everyone to familiarize yourselves with these proposals. Following are links to the language you will see on your November ballot. Please study and review them and pass them on to your clients.
Ballot Proposal 1:
Ballot Proposal 2:
Ballot Proposal 3:
Ballot Proposal 4:
Ballot Proposal 5:
Ballot Proposal 6:
Thursday, October 04 2012
Amendments, New Legislation, Court Decisions and Aggressive Audit Techniques will be Discussed
Michigan Sales & Use Tax with Ed Kisscorni (MSUTC)
Friday, October 19, 2012
MSU Management Education Center - Troy, MI - Metro Detroit
Program Time: 8:00 AM - 4:00 PM
Registration Start: 7:30 AM
Credits: 8.0 OT
Standard Price: $260 MACPA Members, $360 Non-members
I will be in Troy on Friday, October 19, 2012 to provide you with the latest information on these Top 10 Michigan Sales and Use Tax Issues:
1. Statue of Limitations - The Department of Treasury has been extending some use tax audits to ten years. The Michigan legislature put an end to it and made it retroactive. However, Treasury has a different view on the retroactive part.
2. Michigan Vendor Liability - The Department of Treasury had been picking up use tax on purchases from a Michigan vendor. The Michigan courts seems to have put an end to this practice. The issue of who is liable for the tax is still cloudy.
3. Michigan Lessor Liability - The Department of Treasury has been taxing leasees of tangible personal property. The Michigan courts have made it clear that the lessor and not the leasee is liable for the tax.
4. Sale of Tangible Personal Property or Sale of a Service - The courts are using the Michigan Supreme Court decision in Catalina Marketing to determine in a single mixed transaction or a bundled transaction if it's subject to tax. Treasury is a little behind.
5. Sale of Tangible Personal Property or an Affixation to Realty - The Department of Treasury is broadly asserting the three part test of realty. Exemptions are at stake.
6. Refund Claims for Overpaid Sales Tax - In audit situations, Treasury auditors are not always pointing out refund opportunities. The rules are complicated.
7. Parts Affixed to Farm Machinery or Rolling Stock - In audit situations, the Department of Treasury is allowing the farm or rolling stock exemption only on the original purchase.
8. Direct Pay Authorization Not Applicable to Purchase of Services - The courts have limited the Direct Pay Authorization exemption.
9. Cloud Computing - The new techology rage is SaaS (Software as a Service). Is it a taxable purchase of software or an exempt purchase of a service. Some cases have come out of the courts.
10. Rolling Stock Exemption - House Bill 5445, if it becomes law, would expand the exemption to include other property affixed to or to become affixed to a truck or trailer.
In addition to technical issues, we will cover some audit procedures such as indirect auditing and the use of statistical samples and sample projections.
Use the links to enroll online or call the MACPA at 855.594.4273 to enroll by phone.
Wednesday, October 03 2012
PEO Agreement Established and Employer/Employee Relationship
In Adamo Demolition Co. v. Department of Treasury, Michigan Tax Tribunal, No. 427308, September 13, 2012, the Tax Tribunal has held that the Department of Treasury improperly added back compensation to a taxpayer's tax base under the Michigan Single Business Tax (SBT) because employees and an officer at issue were properly leased and compensated through a professional employer organization (PEO) for the applicable tax years.
The taxpayer argued that the PEO agreement established an employer/employee relationship under the SBT statute; therefore, compensation paid to the leased officer and employees should not be added back to the tax base. The taxpayer also argued that the responsibility to maintain the right of direction and control of the employees' work was bifurcated between the operating company and the PEO. The PEO was required to withhold federal income tax and was the employer of record under state law. In addition, the statute clearly stated that the right to direct employees' work could be shared. According to the legislative analysis for the applicable statute, the compensation of the entity whose employment operations are managed by a PEO does not include compensation paid by the PEO to officers and employees of the entity whose employment operations are managed.
The court noted that there was no exception for officers or employees who are also owners of the operating company. In the PEO context, it appeared immaterial whether the officer was the owner of the operating company or not. Thus, the compensation was not added back to the taxpayer's former SBT base.
Tuesday, October 02 2012
Single Business Tax Liability Is Not Discharged in Bankruptcy
In Henderson v. Department of Treasury, Michigan Tax Tribunal, No. 431375, August 24, 2012 the Michigan Tax Tribunal has held that a corporate officer was liable for the single business tax (SBT) because the SBT was an excise tax on a transaction under federal bankruptcy law and, therefore, the tax could not be discharged.
The case arose from a tax liability of a limited liability company, of which the taxpayer was a member. The taxpayer filed for bankruptcy, and the department issued a notice of intent to assess as the taxpayer was a responsible corporate officer. The federal bankruptcy law established the priority of claims for different types of taxes, including an "excise tax on a transaction." A claim for an excise tax is nondischargeable if it arose within three years before the bankruptcy petition was filed. In this case, the SBT return for the tax year at issue was due within three years of the petition being filed. The tribunal examined another case and noted that, under nearly identical facts, the bankruptcy court held that an officer liability assessment arising from the corporation's failure to pay the SBT was a debt for a nondischargeable excise tax on a transaction under the bankruptcy law. For the tax to be considered "on a transaction," it was sufficient that the tax was imposed in connection with a series of transactions. Accordingly, the assessment for the former SBT was upheld.
Monday, October 01 2012
Correcting Deed Did Not Have Retroactive Effect
In Pizzo v. Department of Treasury, Michigan Court of Appeals, No. 305033, September 13, 2012 the taxpayers were not entitled to a Michigan property tax principal residence exemption because a correcting deed that purportedly conveyed the property to the taxpayers as joint tenants with rights of survivorship and was recorded on March 31, 2008, did not have retroactive effect.
In this case, one of the taxpayers occupied the property as her principal residence from 2004 to 2007 and her husband did not reside on the property. An August 14, 2003 quitclaim deed, the original deed, conveyed the wife's entire interest in the property to her husband. At the time the husband was sent a delinquent tax notice on December 13, 2007, he, as the owner of the property, was not entitled to the principal residence exemption because the property was not his principal residence. The wife also was not entitled to the principal residence exemption at that time because there was no documentation that she owned the property. In addition, the original deed failed to indicate that the wife continued to have a life lease on the property after her ownership interest ceased because the life lease was not in writing as required.