Friday, March 30 2012
Capital Gain Excluded from SBT Tax Base
In Reynolds Metals Company, LLC v. Department of Treasury, Michigan Court of Appeals, No. 300001, March 20, 2012, affirming the lower court, the Court of Appeals held that a taxpayer was not a unitary business with a joint venture that was sold; therefore, the capital gain on the sale was properly excluded from the taxpayer's tax base under the Michigan Single Business Tax (SBT).
The court noted that the unitary business principles applied to the SBT because, like income taxes, the value added under a value-added tax (such as the SBT) often cannot be assigned to a single source. The court examined whether the taxpayer, through its ownership of the subsidiary, operated a unitary business with the subsidiary's joint venture. The factors to determine if a business is unitary are: functional integration, centralization of management, and economies of scale.
The taxpayer did not participate in the day-to-day management decisions, employees did not overlap, and the joint venture had its own autonomy to determine policies. Even though there was a limited exchange of technology and services, these were done at arm's-length terms. With regard to economies of scale, the taxpayer did not benefit from central purchasing of materials or services. Similarly, there was no joint production or sale of products. Accordingly, the court held that the companies were insufficiently connected to be a unitary business. As such, the capital gain from the sale of the subsidiary was properly excluded from the SBT base.
Thursday, March 29 2012
Notices Regarding Offsets Constituted a Decision or Assessment
In Chrysler Financial Services Americas, L.L.C. v. Department of Treasury, Michigan Court of Appeals, No. 302299, March 20, 2012, the Court of Appeals rules the Court of Claims lacked subject matter jurisdiction to grant a refund because notices regarding offsets constituted a "decision" or "assessment" within the meaning of the applicable statutory provision pertaining to an appeal of a contested assessment and the limited liability company (LLC) failed to appeal the offsets within the 90-day statutory period. The LLC, which was a financial services company, filed its complaint more than three years after the notices were sent.
In this case, the Department of Treasury informed the LLC that it seized money owed to the LLC and applied the amount to accounts receivable of a related automotive corporation. The LLC claimed that the Department of Treasury intercepted the funds improperly and without authority and failed to assert a valid defense to the LLC's claim for a refund. The LLC also argued that the notices that the Department of Treasury sent informing the LLC of the offsets did not constitute assessments, decisions, or orders within the meaning of the statutory provision, and, therefore, the 90-day time period did not apply.
Because the statutory provision did not define the terms "assessment","decision", or "order", and because the terms were not legal terms of art, the Michigan Court of Appeals consulted a lay dictionary. The most pertinent definitions of "decision" were "something that was decided" or a "resolution." In accordance with these definitions, the appellate court decided that the notices constituted decisions of the Department within the meaning of the statutory provision. The notices informed the LLC that the Department decided to seize its funds and apply the funds to the tax liability of the automotive corporation. Therefore, according to the appellate court, the notices could properly be characterized as "something that was decided" or a "resolution." Because the LLC failed to timely appeal the offsets, the court of claims was divested of subject matter jurisdiction to decide the LLC's challenge to the offsets.
Friday, March 23 2012
Assessment Comparables to Include the Region or Area Where the Property is Located
In Ilankamban v. Township of Pittsfield,Michigan Court of Appeals, No. 303113, March 13, 2012, the Michigan Tax Tribunal did not commit an error of law when it stated that there was no requirement that the true cash value (TCV) of a taxpayer's residential property be calculated for property tax assessment purposes using comparables located in the same neighborhood as the property. In support of its assessment, the township submitted sales evidence comparing the taxpayer's property to comparable parcels located in adjacent neighborhoods. The taxpayer argued that TCV must be calculated by using comparables located within the property's immediate neighborhood.
The Michigan Court of Appeals held that, contrary to the taxpayer's argument, the place where the property is at the time of assessment does not refer only to the property's immediate neighborhood. Rather, the place where the property is at the time of assessment should be understood more broadly to include the region or area where the property is located. Therefore, when the sale-comparison or market approach is used to determine TCV, an assessor is required to make adjustments based on the property's location. The need to make adjustments for location presupposes that an assessor be allowed to use comparables not necessarily within the property's immediate neighborhood.
Thursday, March 22 2012
Property Owner's Appraisals Lacked Credibility
In Marwaha v. City of Rosehill, Michigan Court of Appeals, No. 299546, December 20, 2011, a taxpayer's small claims petition protesting a property's assessed true cash value and taxable value for local property tax purposes was properly denied by the Michigan Tax Tribunal because the appraisals that the taxpayer submitted lacked credibility, all the comparables chosen were bank-owned, and the taxpayer did not provide evidence to indicate that the sales were arms's-length and subject to normal market conditions. According to the taxpayer, the use of bank-owned properties in sales studies was approved by the State Tax Commission. However, the fact that bank-owned property sales may be used in sales studies did not mean that the Tax Tribunal was required to find the sales to be credible evidence of true cash value in the absence of evidence showing the sales to have been conducted at arm's length.
The taxpayer also alleged that the Tax Tribunal erred as a matter of law by affirming the city's valuation figure simply because the tribunal found the taxpayer's valuation figure to be unpersuasive and because it failed to make an independent finding regarding valuation. However, the Tax Tribunal found that the methodology used by the city was sound and that the figures the city arrived at were persuasive. The Tax Tribunal was not forbidden from accepting the city's valuation as the basis of its determination of true cash value.
Wednesday, March 21 2012
Withholding for Pension Recipients, Michigan Department of Treasury, March 2012
The Michigan Department of Treasury has provided guidance regarding the personal income withholding tax requirement for pensions. Effective January 1, 2012, the Michigan tax treatment of pension and retirement benefits changed. Under state law, pension and retirement benefits include most payments reported on Form 1099-R for federal income tax purposes. Such benefits include defined benefit pensions, IRA distributions, and most payments from defined contribution plans. Military pensions, Social Security, and Railroad benefits are exempt from the personal income tax, as well as rollovers that are excluded from federal adjusted gross income.
Pension administrators are required to withhold if the pension administrator is subject to Michigan's taxing jurisdiction. If there is no withholding, the taxpayer will likely need to make estimated payments to prevent paying interest and penalty on the annual income tax return. Taxpayers should file Form MI W-4P, Withholding Certificate for Michigan Pension or Annual Payments, for each pension or annuity.
Finally, the taxability of the pension benefits depends on the age of the recipient. For taxpayers filing jointly, the age of the older spouse is used.
Tuesday, March 20 2012
Taxpayer Failed to File a Petition Within 35 Days
In Eberhart v. Department of Treasury, Michigan Court of Appeals, No. 299532, March 8, 2012, the Michigan Tax Tribunal's dismissal of the Petitioner's appeal of a use tax assessment was upheld based on the Tax Tribunal's conclusion that it lacked jurisdiction. The Petitioner was the sole shareholder of the taxpayer, and the assessment issued by the Department of Treasury was based on corporate officer liability. The Tax Tribunal lacked subject matter jurisdiction as the taxpayer failed to appeal the assessment within 35 days of the issuance of the assessment, as required by statute.
Though the Petitioner contended that the Department of Treasury lacked personal jurisdiction over the corporate taxpayer, he failed to raise this issue within the 35-day period for appeals of an assessment. Furthermore, the Petitioner's procedural due process right was not violated, as he made no claim that he was deprived of notice of the assessment. Also, the Petitioner's argument that Michigan taxpayers were the responsible parties for the use tax assessed was an improper collateral attack on a final assessment.
Monday, March 19 2012
Taxpayer Failed to File a Petition Within 35 Days
In Holtz v. Department of Treasury, Michigan Court of Appeals, No. 301703, March 1, 2012, the Michigan Tax Tribunal's dismissal of the Petitioner's appeal of an assessment for unpaid use tax was upheld based the Tribunal's lack of jurisdiction. The Petitioner, who was the CEO and Chairman of the taxpayer during the relevant period, was found liable as a corporate officer. The Department of Treasury sent the final assessment to the Petitioner via certified mail, and there was no evidence that it was returned as undelivered. Pursuant to statute, the Petitioner had 35 days in which to appeal the final assessment; however, the appeal was not filed until several months later. Furthermore, the Department's notice did not violate the Petitioner's right to due process, as proof of actual receipt is not required, only "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections."
Tuesday, March 06 2012
Feed Mill Not Engaged in Agricultural Production
In Sietsema Farms Feeds, L.L.C. v. Department of Treasury, Michigan Court of Appeals, No. 302033, February 28, 2012, a feed mill was not entitled to an agricultural production exemption from Michigan use tax on certain equipment used in its feed operations because the taxpayer did not use the property in the "breeding, raising, or caring for livestock, poultry, or horticultural products" as required by statute. The taxpayer utilized the equipment to produce animal feed which was then sold to hog and turkey farms. In order to qualify for the exemption, the taxpayer must actually use the property to feed livestock and poultry. The court also affirmed the Tax Tribunal's denial of the industrial processing exemption, as the taxpayer failed to present a persuasive argument that the tribunal's decision was an error of law or was otherwise unsupported by the evidence.
Monday, March 05 2012
Money Received From Homestead Tax Credit Not Treated as Income
In Ferrero v. Township of Walton, Michigan Court of Appeals, No. 302221, February 23, 2012, the Court of Appeals held that money received by a taxpayer in 2009 was not treated as income for purposes of determining whether the taxpayer qualified for a local Michigan homestead property tax poverty exemption because the money was characterized as a refund and a tax refund was not income. The township denied the taxpayer's application for the exemption because it considered her homestead property tax credit as income which, when added to her Social Security, placed her above the income threshold amount for claiming the poverty exemption. The Michigan Court of Appeals held, however, that although there was a distinction between a tax refund and a tax credit, a tax credit can function like a tax refund in some cases.
In this case, the 63-year-old taxpayer claimed a homestead property tax credit when filing her 2008 tax return in early 2009. Her 2008 property taxes were paid and she qualified to receive the homestead tax credit for 2008. Because she had no state income tax liability, the amount of the credit against her property taxes paid could not be returned to her as a reduction in her income tax. Therefore, the sum was paid to her after she filed her 2008 income tax return in 2009.
The taxpayer's homestead property tax credit plainly functioned as a refund. A tax refund is not income because a refund returns money to the taxpayer that need not have been paid. The tax credit did not confer income, nor was it a program to transfer new monies to individuals. Rather, it was to rebate a portion of the property taxes a person had already paid. When the taxpayer's income was properly calculated, it fell below the threshold amount for claiming the poverty exemption.
A dissenting opinion noted that the homestead property tax credit was an age and means-tested program to distribute money to recipients based on their need in order to ameliorate the burden of their homestead property taxes and was not a refund of taxes incorrectly paid. Therefore, according to the dissent, the homestead property tax credit was income for purposes of calculating eligibility for the poverty exemption.