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Contact Information:
Edward S. Kisscorni, CPA
290 Suncrest Court, SW
Grandville, MI 49418

Office: 616/233-0667
Cell: 616/443-6730
Fax: 616/233-0667

Blog: www.EdKisscorni.com/Blog1
Email: Ed@EdKisscorni.com
 



 



 

 Blog 
Friday, September 28 2012

Amendments, Court Decisions and Audit Issues will be Discussed  

Michigan Income Tax & MBT Audit Issues with Ed Kisscorni & Ron Kaley (KMITB)
Friday, October 05, 2012

Hilton Grand Rapids Airport - Grand Rapids, MI - Western
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

Michigan Income Tax & MBT Audit Issues with Ed Kisscorni & Ron Kaley (KMITC)
Tuesday, October 23, 2012

Embassy Suites - Livonia - Livonia, 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

Sneak Peek at CIT Returns - Treasury has promised to get the 2012 Corporate Income Tax returns out early.  They do not want to repeat the mistakes made with the MBT.

 

Changes to Flow Through Entity Withholding - Senate Bill 1104 is now law, making significant changes to the flow through entity withholding requirements.  The administration is promising more changes in 2013.

 

Unitary Comes to the Individual Income Tax - Several judicial decision in the last two years have brought unitary to the Individual Income Tax.  But it's not the same unitary we are familiar with in the MBT and CIT.  Significant refund opportunities exist.

 

Different Apportionment Sourcing between CIT and IIT - The choice of entity can materially affect the amount of CIT and IIT paid in Michigan because of the different sourcing rules.

 

MBT Technical Amendments - Senate Bill 1037 has passed the Senate by a significant margin.  However, both Treasury and the Administration are fighting the amendments in the House.  The future of SB 1037 will affect future refunds, MBT anudit and litigation for years to come.

MBT Audit Issues - Michigan Business Tax Audits are in process.  A wide variety of issues are popping up.
Posted by: Ed kisscorni AT 01:00 pm   |  Permalink   |  Email
Monday, September 24 2012

Emerging Michigan Sales and Use Tax Issues to be Addressed at MACPA Seminar in Traverse City

 

 Michigan Sales & Use Tax Update 

Michigan Sales & Use Tax with Ed Kisscorni (MSUTB)

Friday, September 28, 2012

Great Wolf Lodge Conference Center - Traverse City, MI - Northern

Program Time: 8:00 AM - 4:00 PM   

Registration Start: 7:30 AM

Credits: 8.0 OT

 

 

I will be in Traverse City on Friday, September 28, 2012 to provide you with the latest information on these Top 10 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.

 

If the top ten issues list above are not enough to bring you up to Traverse City, then come north for some wine tasting and a color tour.

 

Use the links to enroll online or call the MACPA at 855.594.4273 to enroll by phone.

Posted by: Ed Kisscorni AT 02:25 pm   |  Permalink   |  Email
Wednesday, September 12 2012

Tax Tribunal Invokes the Andrie Rule on Michigan Vendors

In Arrow Energy Services, Inc. v. Department of Treasury, Michigan Tax Tribunal, No. 404349, August 20, 2012, a taxpayer that was in the business of servicing oil wells was not liable for Michigan use tax on cement and other raw materials because these items were purchased from a subcontractor that was liable for the tax.  Sales or use tax liability does not fall on the prime or general contractor for materials consumed by its subcontractor.  The party that provided the raw materials and the cement operations proved to be a subcontractor as opposed to the taxpayer's employee because the taxpayer did not retain control over the method of cement operations at the job site.  The fact that the taxpayer was present at the job site and monitored the general progress of the cement work did not mean that the taxpayer exercised control over the work.

 

Though the Department of Treasury claimed that the taxpayer accepted responsibility for the taxes pursuant to its agreement with the subcontractor, the Department of Treasury was not a third-party beneficiary to the agreement. The department failed to show that there was an express promise in the agreement by the taxpayer to act to the benefit of the department.

 

The taxpayer was also not liable for use tax on purchases and equipment rentals from Michigan vendors.  Pursuant to the Michigan Court of Appeals decision in Andrie v. Dep't of Treasury, there is a rebuttable presumption that the Michigan seller paid the sales tax.  In the present case, the Department of Treasury failed to submit evidence that the various sellers did not pay the tax.

 

Also, the taxpayer was not entitled to a refund of use tax paid on the acquisition of certain motor vehicles because any credit for transfer tax paid cannot exceed the use tax imposed.

 

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  Email
Tuesday, September 11 2012

Credit Is Limited to Commercials that Promote or Market other State-Certified Qualified Productions

 

In Michigan Film Coalition v. State of Michigan, et al., Michigan Court of Appeals, No. 304000, August 21, 2012, the Michigan Court of Appeals has held that the film production expenditures credit available against the Michigan Business Tax is limited to commercials that promote or market other state-certified qualified productions.  Therefore, commercials that advertised some other product or service were not eligible for the credit.  The appellate court reversed the trial court, which found that any Michigan-created commercial could be eligible for the credit under M.C.L. 208.1455. In relevant part, the statute defined "state certified qualified production" to include commercials, among other things, but it excluded productions that primarily marketed a product or a service other than a qualified production. The government argued that the trial court's finding essentially made the statutory exception meaningless. The appellate court agreed and noted that statutes cannot be construed to make one part ineffective.  To explain, the court observed that a movie could qualify for the credit and then a commercial promoting the movie would be eligible.  On the other hand, a commercial that advertised some other product or service would not be eligible for the credit.  The dissenting opinion reasoned that the taxpayer did not have standing because there was no actual controversy; that is, the injury that was sought to be prevented was merely hypothetical.

 

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  Email
Monday, September 10 2012

Taxpayer Argued Unsuccessfully that the Rule was Arbitrary and Capricious

 

In Thomas and Lobato v. Department of Treasury, Michigan Court of Appeals, No. 303184, August 16, 2012, the Michigan appellate court found that a rule concerning the personal income tax farmland preservation credit was valid.  The taxpayer argued that the rule, which included the farmland preservation credit in federal adjusted gross income and household income, was invalid. The court noted that rules are valid so long as they are not unreasonable.

 

The rule's validity was determined by this test: (1) if the rule was within the subject matter of the enabling statute, (2) if the rule complied with the legislative intent under the enabling statute, and (3) if the rule was arbitrary or capricious. According to the statute, the Legislature intended to grant the Department of Treasury broad powers to properly ascertain the amount of tax owed.  Also, if the rule is rationally related to the purposes of the statute, it is neither arbitrary nor capricious.  Thus, because the department had the authority to promulgate rules regarding the computation of the income tax, and the department used that authority as intended by the Legislature, the court could not declare the rule arbitrary or capricious.

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  Email
Friday, September 07 2012

Claim of a Mutual Mistake of Fact Denied

 

In Estate of Sharon Walters v. Township of Lincoln, Michigan Court of Appeals, No. 305374, August 16, 2012, an estate was not entitled to recover local Michigan property taxes that it erroneously paid in 2007 for tax years 2002 through 2006 because the estate failed to timely challenge the uncapping of the property after the property was transferred to a owner's estate.

 

The estate mistakenly believed that the property was transferred to the new owner on August 7, 2001, the date the previous owner executed, but did not deliver, a quitclaim deed to the new owner.  Accordingly, on May 25, 2007, the township uncapped the property from 2002 through 2007 and charged the estate an additional tax liability.  The new owner paid the taxes sometime after October 8, 2007, and the estate initiated its action with the Michigan Tax Tribunal on August 27, 2010.

 

The estate claimed that it was entitled to recover the amount it paid in 2007 for tax years 2002 through 2006 because the payment was based on a mutual mistake of fact and because its appeal to the Michigan Tax Tribunal was timely.  Although the estate commenced its suit with the Tax Tribunal within three years of the date of the overpayment, the Michigan Court of Appeals ruled that the Tax Tribunal correctly determined that it lacked authority to grant the estate's requested relief. The court noted that a specific statutory provision prevailed over any arguable inconsistency with a more general rule.  Because the specific statutory provision in this case addressed how a party may adjust the taxable value of property following a mistaken, nonexistent transfer of ownership, the estate could not bypass this specific jurisdictional requirement by simply characterizing the overpayment as the result of a mutual mistake of fact under another provision.  The specific provision only permitted the adjustment of tax rolls after an erroneous transfer of ownership for the current and immediately preceding three tax years. Therefore, the estate had nothing to recover from the township.
Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  Email
Thursday, September 06 2012

Single Business Tax Return Must be Within the Four Year Statute of Limitations

 

Last week Friday, August 31st, I posted a Blog on the TMW Enterprises Court of Appeals decision.  (TMW Enterprises, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 302870, August 14, 2012)  That Blog has generated a considerable amount of attention.  We have not heard from the Department of treasury and we do not know if an appeal is in the works.

 

The August 14, 2012 decision of the Michigan Court of Appeals stated that S Corporation income, which flows through to the shareholder for federal income tax purposes, is not included in "business income" for Michigan Single Business Tax.  However, built-in gains and excess passive income would constitute "business income" for Single Business Tax.

 

Following is from the Court of Appeals decision:

 

The SBT imposed a tax on a taxpayer's adjusted tax base. TMW, 285 Mich App at 173.  "Tax base" was defined to mean "business income, before apportionment or allocation as provided in chapter 3, even if zero or negative, subject to the adjustments in this section." MCL 208.9(1); TMW, 285 Mich App at 174.  And, for corporations, "business income" was defined as federal taxable income. Id. "Thus, if a person is a corporation, its business income is its federal taxable income, which in turn is also its tax base." Id.

 

The analysis thus becomes very simple. Plaintiff, as an S corporation, had no federal taxable income, except for its built-in gains and excess passive income. Therefore, only the amount of those built-in gains and excess passive income would constitute "business income" under the SBTA.  And, thus, it only owed an SBT on that amount, as the trial court concluded.

 

What Does the Court of Appeals Decision Mean?

 

All S Corporations, within the four year statute of limitations, should file an amended return to exclude S Corporation income, other than built in gains and excess passive income, from "business income".  The TMW Enterprises decision only address "business income", therefore all other aspects of the return (compensation, additions, subtractions) would remain as filed.

 

Within the Four Year Statute of Limitations 

 

The four year statute of limitations starts with the later of the statutory due date for the return or the extended due date.  It is unclear if the actual file date for the return is used when filed before the extended due date.  To extend the due date the taxpayer must file an extension form.  The running of the statute of limitations is suspended during a period of audit and/or appeal. 

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  Email

 

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