Thursday, May 31 2012
Hearing Referee Excluded Fifteen Sales of Other Property in the City
In Alli v. City of Grosse Pointe Farms, Michigan Court of Appeals, No. 302232, April 24, 2012, an appeal of an assessment of residential property for local property tax purposes, the Michigan Court of Appeals determined that the Tax Tribunal correctly found that the taxpayers failed to provide evidence in support of their property value contentions because the exhibit evidence the taxpayers presented, which consisted of a list of 15 sales of other properties in the city, was excluded by the hearing referee and the taxpayers did not present any other evidence in support of their contentions of value. In addition, the Tribunal's determination of true cash value of the property using the cost-less-depreciation method was not greater than the amount produced by the sales-comparison analysis that the tribunal determined was flawed. Accordingly, the Tribunal did not adopt a greater amount as alleged by the taxpayers. Further, the taxpayers did not show that the use of the cost-less-depreciation method constituted the adoption of a wrong principle or an error of law.
Wednesday, May 30 2012
Fuel Used in Final Testing and Quality Control Exempt from the Motor Fuel Tax
In General Motors Corp. v. Department of Treasury, Michigan Court of Appeals, No. 303822, April 19, 2012, an automotive company was entitled to a Michigan motor fuel tax refund because it qualified as an end user of motor fuel for non-highway purposes. The fuel was placed in the tanks of newly manufactured vehicles at the end of the assembly process. Some of this fuel was used to power the vehicles as they went through final testing and quality control, and some fuel remained in the tanks after the vehicles were transferred to a carrier for shipment out of state. The amount of fuel used in each vehicle was calculated to be the minimum amount necessary to start the vehicle during the loading and transit process.
Moreover, even though not all fuel was actually burned during the process, the term "use" within the meaning of the applicable statute could mean that the fuel was employed for some purpose or could be applied to one's own purposes, as well as to consume, expend, or exhaust. Therefore, a taxpayer would qualify as an end user even when incidental amounts of fuel remained in the vehicles when they were shipped.
Tuesday, May 29 2012
Single Business Tax Apportionment Sales Factor Excludes Royalty Income
In Kelly Services, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 303736, April 19, 2012, affirming the lower court, the Michigan Court of Appeals held that a taxpayer properly excluded royalty income from its sales factor and gross receipts calculations under the former single business tax for the tax years at issue. In the business of providing temporary staffing services, the taxpayer developed trademarks, trade names and know-how to create a common corporate identity and business procedures. The taxpayer received royalty income from licensing the trademarks, trade names and know-how to affiliated companies. The court considered whether the royalty income arose from the transfer of title or possession of the intangible property. No transfer of title occurred here. By definition, royalties are compensation paid to the owner of certain types of property for the use of that property. The royalty income arose from the transfer of the right to use the property, and not from the transfer of the possession of the property. Furthermore, the trademarks, trade names and know-how were not considered (1) stock in trade as they were not inventory, tools or equipment; (2) property of a kind that would be properly included in the taxpayer's inventory; or (3) property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business. The intangible property was licensed only to affiliated parties. Accordingly, the royalty income did not constitute sales, rental or lease receipts, and it did not constitute gross receipts.
Friday, May 25 2012
Normal Repairs, Replacement, and Maintenance Exception Not Applicable to a Two-Story Addition
In Fisher v. Township of White River, Michigan Court of Appeals, No. 303159, April 12, 2012, the value of taxpayers' property was not improperly increased for local Michigan property tax assessment purposes in violation of the Headlee Amendment, Proposal A, and Mathieu-Gast legislation prohibiting an increase in value based on normal repairs, replacement, and maintenance because a two-story addition to the back of the taxpayers' home involved considerable new construction that added value to their home beyond normal repair, replacement, and maintenance. Further, although the Headlee Amendment to the Michigan Constitution (Art. 9, §31), and Proposal A (Art. 9, §3) placed restrictions on increases in property tax, both excluded additions to the property from this protection. "Additions" referred to all increases in value caused by new construction or a physical addition of equipment or furnishings. In this case, the taxpayers' home was badly damaged during a storm and, as a result, the single-story portion at the back of the home was demolished and a two-story addition was constructed in its place.
The Michigan Court of Appeals concluded that the true cash value of the additions, in excess of the repair, replacement, and maintenance value, allowed for an increase in the taxable value of the property. Contrary to the taxpayers' assertions, this was not an uncapping of their home's value but an increase in the taxable value of the home to account for the value added by the addition that was not normal repair, replacement, and maintenance.
Thursday, May 24 2012
Property Owner Failed to Carry Burden of Proof
In Holland v. City of Taylor, Michigan Court of Appeals, No. 303055, April 12, 2012, a taxpayer's request to reduce his local property tax assessment was denied because the taxpayer failed to meet his burden of proving his allegation that a misapplication of a legal principle and clear violation of law occurred when the Michigan Tax Tribunal considered the highest and best use of his property. The Michigan Court of Appeals held that the highest and best use was a concept fundamental to the determination of true cash value. It recognized that the use to which a prospective buyer would put the property will influence the price that the buyer would be willing to pay. Therefore, the highest and best use was an appropriate consideration for determining true cash value pursuant to the cost approach.
The taxpayer also failed to meet his burden of proof regarding the true cash value of his property. Although the taxpayer presented general information regarding the real estate collapse and home listings, he did not present evidence of an appraisal or the approved methods for determining true cash value or fair market value as adopted by the Michigan Tax Tribunal and the Michigan courts.
Wednesday, May 23 2012
Every Flow-Through Entity in Michigan Must Withhold on Every Nonresident Individual or Trust
The Michigan Department of Treasury has issued guidance (Withholding for Flow-Through Entities, Michigan Department of Treasury, April 2012) discussing withholding tax requirements for flow-through entities. A flow-through entity is an S corporation, partnership, limited partnership, limited liability partnership, or a limited liability company not taxed as a corporation.
Every flow-through entity in Michigan must withhold on every member that is a nonresident individual or trust. This withholding is calculated at the personal income tax rate on the distributive share of taxable income reasonably expected to accrue, after allocation or apportionment, to the nonresident. Furthermore, a flow-through entity with business activity in Michigan that reasonably expects to accrue more than $200,000 in apportioned or allocated business income for the tax year must withhold on the distributive share of each member that is a corporation at the corporate income tax rate. Finally, a flow-through entity with business activity in Michigan that reasonably expects to accrue more than $200,000 in apportioned or allocated business income for the tax year must also withhold on the distributive share of each member that is a flow-through entity. This withholding is usually calculated at the corporate income tax rate with the exception that if the upper-tier flow-through entity can identity the ultimate taxpayer in a lower tier as a nonresident individual, then the personal income tax rate may be used. Also, no withholding is required if the ultimate taxpayer is a resident individual.
Quarterly returns (Form 4917, Flow-Through Withholding Quarterly Return) for a calendar year taxpayer are due April 15, July 15, October 15, and January 15. The annual reconciliation return (Form 4918, Flow-Through Withholding Annual Reconciliation Form) is due February 28. Fiscal year taxpayers should use corresponding due dates.
Tuesday, May 22 2012
Property Owner Convinced Tribunal that Sales Comparisons Were Not Reliable
In Turvey v. Township of Manchester, Michigan Court of Appeals, No. 303578, April 10, 2012, the Michigan Tax Tribunal found that a township properly assessed a taxpayer's real property for the 2009 and 2010 local property tax years because the property's record card indicated that the township's cost less depreciation calculations were correct. The Tribunal made an independent determination and found that there were no errors in the township's cost less depreciation calculations and no sales data to the contrary. Although the Tribunal agreed with the taxpayer that the township's sales comparison analysis was unreliable, the tribunal found that this did not affect the ultimate determination of the property's true cash value because the cost less depreciation approach still supported the township's assessment of the property's true cash value.
Monday, May 21 2012
Industrial Cranes, Compressor System and Cameras Deemed to be Personal Property
In Tennine Corp. v. City of Grand Rapids, Michigan Court of Appeals, No. 301124, April 12, 2012, a city properly assessed a taxpayer's overhead industrial cranes, compressor system, and cameras for the 2005, 2006, and 2007 local Michigan property tax years because the personal property was not reported on the taxpayer's personal property statements. In this case, a company purchased real estate that included the industrial cranes and the compressor system. Shortly after the sale, the company quitclaimed the property to the taxpayer. The taxpayer then leased the property back to the company. Security cameras were subsequently installed on the property.
The taxpayer argued that the city improperly assessed personal property tax on the taxpayer for the value of the cranes, the compressor, and the cameras, which resulted in unlawful double taxation. The taxpayer specifically argued that the cranes and the compressor were fixtures and were already properly taxed as the taxpayer's real property, and that the company owned the cameras and had already paid the personal property tax for the cameras.
The Michigan Court of Appeals held that the cranes and the compressor were not fixtures because there was substantial evidence that the taxpayer did not intend for these items to be fixtures. A 1995 appraisal conducted pursuant to the information given by the taxpayer's general manager characterized the cranes and the compressor as personal property, and the company's 2007 equipment list included the cranes and the compressor as "non-real property."
Further, the cameras were not the company's personal property and had not already been valued on the company's personal property tax roll for the 2005, 2006, and 2007 tax years. The company's 2007 audit showed that the company did not report the cameras on its personal property statements for the relevant tax years and that the company claimed that the cameras were the taxpayer's property.