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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 
Thursday, May 29 2014

Senate Bill 943 Would Create Three Sales Tax Holidays

Senator Mark Jansen has introduced legislation which would create three separate sales tax holidays if enacted.  Senate Bill 943 was introduced last week.  It would create three sales tax holidays; one each for back to school, one for Pure Michigan tourism and hunting.

The back to school holiday would occur from Aug. 29 to Sept. 1, 2013.

The Pure Michigan tourism products tax holiday would be from May 30 to June 1, 2014.

The hunting holiday would be from Nov. 4 to Nov. 9, 2014.

The proposal, similar to those in other states, would be a one year trial designed to give the legislature a year to measure the impact from both an economic development and tax collection point of view.

The bill is very complicated.  It adds three new exemptions to the sales tax act.  The items that can be purchased sales tax free are listed all with dollar limits.  Because of its complexity, it will not be very popular with retailers.

The bill has been referred to the Senate Finance Committee.

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  Email
Monday, May 12 2014

Taxpayer's Certified Public Accountant, It's Official Representative, Must Be Provided A Copy of Each Letter or Notice Sent to That Taxpayer

Section 8.  [MCL 205.8]

If a taxpayer files with the department a written request that copies of letters and notices regarding a dispute with that taxpayer be sent to the taxpayer's official representative, the department shall send the official representative, at the address designated by the taxpayer in the written request, a copy of each letter or notice sent to that taxpayer. A taxpayer shall not designate more than 1 official representative under this section for a single dispute.

As reported by the Michigan Tax Tribunal:

Fradco, Inc v Dep’t of Treasury; SMK, LLC v Dep’t of Treasury, April 1, 2014.

In this consolidated appeal, the Michigan Supreme Court was asked to decide whether the Department of Treasury, when a taxpayer has an appointed representative, must issue notice to both the taxpayer and the taxpayer’s representative before the 35-day appeal period prescribed in MCL 205.22(1) begins to run. 

In Fradco, Inc, the taxpayer requested that the Department send information with respect to tax matters to the designated CPA, to whom the Department did mail the January 22, 2009 preliminary decision and order of determination. However, the Department sent the September 17, 2009 Final Assessment only to Fradco and not to the designated CPA.  The CPA ultimately received a copy of the Final Assessment, following inquiries to the Department, on July 20, 2010.

In SMK, LLC, a CPA was designated as the representative for the sales tax audit, with the Department faxing the CPA a notice of April 23, 2010.  The Department sent the final assessment to SMK only on June 15, 2010.  Following inquiries from the CPA, the Department sent the final assessment on July 23, 2010.  The Department sought summary disposition from the Tribunal, arguing that the Tribunal lacked jurisdiction as the appeal had not been filed within 35 days of the Department’s Final Assessment, as required by MCL 205.22(1).  The Tribunal denied the Department’s motion and cancelled the assessment, finding that MCL 205.8 provided a parallel notice requirement when a request is properly filed regarding notices to be sent to a representative and that notice to SMK alone was not sufficient to start the 35-day appeal period.

The Court of Appeals affirmed the Tribunal’s determination.

The Supreme Court affirmed in part and vacated in part the Court of Appeals decision, holding that:

  • Under the Revenue Collection Act, MCL 205.1 to 205.31, the Department has two notice obligations; MCL 205.28(1)(a), requiring the Department to give notice to the taxpayer, and MCL 205.8, requiring the Department to give notice to the taxpayer’s designated representative.
  • MCL 205.22 dictates procedures surrounding an appeal and does not make reference to either 205.28(1)(a) or 205.8.  “Accordingly, there is no statutory indication suggesting that we hold MCL 205.8’s taxpayer representative notice requirement in lower esteem than the MCL 205.28(1)(a) taxpayer notice requirement.”  The Supreme Court stated that MCL 205.22 “confirms the notice statutes’ parity” and “[w]hen notice is required, the department must notify the taxpayer and any representative duly appointed by the taxpayer.”
  • The Supreme Court vacated a portion of the Court of Appeals’ decision that read “Because Petitioner filed its appeal within 35 days after its representative received notice from respondent, the Tax Tribunal had jurisdiction to hear petitioner’s appeal” reasoning that “[t]o the extent that this can be read to mean the appeal period begins when a taxpayer’s representative receives notice, we conclude it is erroneous.”  The Supreme Court stated that instead, the appeal period begins to run upon the Department’s compliance with MCL 205.28(1)(a) by giving the taxpayer actual notice of a final assessment through personal service or certified mail and under MCL 205.8 by sending a copy of the notice of final assessment to the address of the taxpayer’s representative as provided in the taxpayer’s written request.

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  Email
Friday, May 09 2014

Purchases Determined NOT to be a Purchase of Prewritten Computer Software

Web-Conferencing, Web-Hosting, Payment Processing, Online Legal Research and Information such as Risk Analyses and Property Valuations Deemed to be Services

In Auto-owners Insurance Company v. Department of Treasury, State of Michigan Court of Claims, March 20, 2014, the Michigan Court of Claims has held that a taxpayer’s purchases of cloud computing services were not subject to the use tax. 

The transactions involving the remote access to a third-party provider’s technology infrastructure were properly characterized as nontaxable services and not the sale of prewritten software.  The taxpayer, a property and casualty insurance provider, engaged third parties to provide services, including web-conferencing, web-hosting, payment processing, and online legal research, and information such as risk analyses and property valuations.

The Court of Claims determined that these transactions did not qualify as the sale of prewritten software because the third-party providers did not surrender possession and control of the software to the taxpayer. In 2004, when the relevant statute was amended to add "prewritten software ... delivered by any means" as tangible personal property, the Legislature likely did not contemplate the nature of these transactions because the remote access of a third party’s technological infrastructure was not commonly in use by consumers.

Even if it was assumed that prewritten software was delivered to the taxpayer, the requisite "use" of the software was not made. Under the Use Tax Act, the taxpayer must "exercise a right or power over the property incident to ownership...."

In this case, the taxpayer imposed no such control over the software; the only evidence of control involved the ability to control outcomes by inputting data.  If prewritten software was delivered to and used by the taxpayer, the use was merely incidental to the services rendered by the third-party providers.  For these transactions, the taxpayer sought out services and not software, and the third-party providers were in the business of providing services as opposed to selling or licensing software. Furthermore, the value of the software was incidental to the services accompanying it.

This decision of the Court of Claims is in conflict with an earlier decision involving research services where the customer uses the vendor's software to access information in a data base.  That case is pending before the Court of Appeals.  Also, there are two bills pending before the legislature which would exempt software residing on the vendor's servers.  This is a very unsettled area of law, but a significant area because of the prevalence of services delivered by the internet and the significant dollars involved.

Posted by: Ed Kisscorni AT 04:05 pm   |  Permalink   |  0 Comments  |  Email
Thursday, May 08 2014

New Law Would Eliminate the Personal Property Tax for Thousands of Small Business

Significant bipartisan support in both the House and Senate has resulted in the enactment of an eleven bill package which makes significant changes to the imposition and administration of the personal property tax in Michigan. 

Local governments will receive full reimbursement for lost personal property tax revenue associated with the tax reduction.  In addition, the small "essential services assessment" (ESA) that manufacturers will pay to cover their costs associated with local government police, fire, ambulance and jail services will now be a flat, statewide rate that is fixed in law and requires only one form and payment to be filed and paid to the state.  This part of the proposal will result in an average 80% net tax reduction for these taxpayers.

On August 5, 2014, Michigan voters will be asked whether they approve of directing the reimbursement money to local governments.  If the ballot question is not approved, then presumably, the personal property tax reform will be repealed. 

Ron Kaley is available to consult on matters involving the personal property tax reform.  He will present a detailed discussion of the reforms enacted at the Michigan State and Local Tax Update seminars in Traverse City and Troy in May.

Michigan State and Local Tax Update (30637 - MSLTTC)

Monday, May 12, 2014 

Holiday Inn Traverse City - West Bay - Traverse City, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30637

Michigan State and Local Tax Update (30641 - MSLTTR)

Monday, May 19, 2014

MSU Management Education Center - Troy, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30641

Posted by: Ed Kisscorni AT 04:03 pm   |  Permalink   |  0 Comments  |  Email
Wednesday, May 07 2014

Requirement that the Property Not be for Sale has been Eliminated

Public Act 40 of 2014, effective March 20, 2014, applicable for taxes levied after December 31, 2012 amends the Michigan property tax provision that allows a person who previously occupied a property as a principal residence but now resides in a nursing home or an assisted living facility to retain the tax exemption on that property if the owner manifests an intent to return to the property by satisfying certain requirements.  The requirement that the property not be for sale has been eliminated.

Posted by: Ed Kisscorni AT 03:00 pm   |  Permalink   |  0 Comments  |  Email
Tuesday, May 06 2014

Taxpayer Must  Maintain or Preserve Sufficient Records Which Can Be in Paper, Electronic or Digital Format

Indirect Audit Procedure and Sufficient Records Defined in Law

Public Act 108 of 2014 (Sales Tax) and Public Act 109 of 2014 (Use Tax), both effective April 10, 2014, make important changes to the form and manner in which the Department of Treasury will perform sales tax audits and use tax audits.  The Revenue Act gives the Department of Treasury the right to audit taxpayer's books and records.  [MCL 205.21(1)]  Both the General Sales Tax Act and the Use Tax Act now mandate that a taxpayer must maintain or preserve sufficient records.  PA 108-14 and PA 109-14  The word "proper" was deleted by the legislation and substituted with the word "sufficient" which is defined in the law as "... records that meet the department's need to determine the tax due ..."

If a taxpayer fails to file a sales tax return or a use tax return or fails to maintain or preserve sufficient records, or if the Michigan Department of Treasury believes that the records or returns are inaccurate, the Department of Treasury may base an assessment on an indirect audit procedure.  PA 108-14 and PA 109-14 define an "indirect audit procedure" as "an audit method that involves the determination of tax liabilities through an analysis of a taxpayer's business activities using information from a range of sources beyond the taxpayer's declaration and formal books and records."

However, the new law places limitations on the use of an indirect audit procedure when the taxpayer has filed all the required tax returns and maintains and preserves sufficient records to enable a determination of tax liabilities unless it has a documented reason to believe that the records and returns are inaccurate or incomplete.

The new law, which was over a year in the making passed both the House and the Senate by unanimous votes, places severe limitations on the Department of Treasury.  First the Department of Treasury must now perform a study and evaluation of the taxpayer's books and records.  Such evaluation must first include a detailed identification of the form and content of the taxpayer's records.  The second step would include some form of testing to determine if the taxpayer records are reliable and sufficient to determine the tax liability.  Unless the Department of Treasury can document that the records and returns are inaccurate or incomplete; then, an "indirect audit procedure' is barred.

New law includes the following:

 An indirect audit of a taxpayer under this subsection shall be conducted in accordance with 1941 PA 122, MCL 205.1 to 205.31, and the standards published by the department under section 21 of 1941 PA 122, MCL 205.21, and shall include all of the following elements:

            (a) A review of the taxpayer’s books and records.  The department may use an indirect method to test the accuracy of the taxpayer’s books and records.

       (b) Both the credibility of the evidence and the reasonableness of the conclusion shall be evaluated before any determination of tax liability is made.

       (c) The department may use any method to reconstruct income, deductions, or expenses that is reasonable under the circumstances. The department may use third-party records in the reconstruction.

            (d) The department shall investigate all reasonable evidence presented by the taxpayer refuting the computation.

As noted above, the amendments mandate that the Department of Treasury will promulgate an administrative rule to establish standards under which the Department of Treasury will perform an "indirect audit procedure".

PA 108-14 and PA 109-14 will be discussed at length at the Sales and Use Seminars scheduled in June in Livonia and Traverse City.

Register on line at the MACPA website:

Michigan Sales and Use Tax (30677 - MSUTLV)

Friday, June 20, 2014

VisTaTech Center Schoolcraft College - Livonia, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30677

Michigan Sales and Use Tax (30681 - MSUTTC)

Tuesday, June 24, 2014

Holiday Inn Traverse City - West Bay - Traverse City, MI - Northern

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30681

Posted by: Ed Kisscorni AT 03:48 pm   |  Permalink   |  0 Comments  |  Email
Monday, May 05 2014

Personal  Property  Tax, Corporate Income Tax  and Taxpayers  Rights  Amendments  Featured

Michigan Supreme Court Decisions, Revenue Administrative Bulletins, Internal Policy Directives, Letter Rulings and Judicial Decisions Will Be Covered

The first few months of 2014 have been extremely busy on the Michigan State and Local Tax front.  The legislature has been uncharacteristically busy enacting in law an eleven bill package to reform and eliminate the personal property tax for many Michigan businesses.  They also passed a four bill package of amendments to the Corporate Income Tax.  Several bills designed to protect taxpayer's rights have also made their way into legislation.

The Department of Treasury has also been busy issuing several Revenue Administrative Bulletins, Internal Policy Directives and Letter Rulings.  Michigan Business Tax audits are in full swing unearthing many issues of first impression.  A big disappointment is the legislature's failure to enact the MBT technical amendment package of bills promoted by the MACPA.  

The judicial systems has also been busy with the Supreme Court issuing three landmark decisions along with substantial tax activity in the Court of Appeals as well as the Tax Tribunal and the Court of Claims.  2013 brought a restructuring of the Court of Claims moving it to the Court of Appeals.  If this isn't enough, the Department of Treasury floated a proposal to eliminate both the Court of Claims for tax cases and the Tax tribunal replacing them with a new Michigan Tax Court.   

All of the above will be discussed in depth, what it means to taxpayers, what it means to tax practitioners; at the May Michigan State and Local Tax Update seminars in Traverse City and Troy.

Register on line at the MACPA website:

Michigan State and Local Tax Update (30637 - MSLTTC)

Monday, May 12, 2014

Holiday Inn Traverse City - West Bay - Traverse City, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30637

Michigan State and Local Tax Update (30641 - MSLTTR)

Monday, May 19, 2014

MSU Management Education Center - Troy, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30641

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  0 Comments  |  Email
Friday, May 02 2014

Department of Treasury Required to Promulgate Audit Standards in the Form of Administrative Rules

From Governor's Office Press Release:  March 20, 2014

LANSING, Mich. – Gov. Rick Snyder signed a bill today ensuring taxpayers who are under tax audit receive all relevant papers, findings, correspondence and documentation that led to an audit determination.

“Undergoing a tax audit is a difficult process, and this bill will make sure taxpayers who are being audited have access to all pertinent information so they can be as prepared as possible,” Snyder said.

House Bill 4291, sponsored by state Rep. Jeff Farrington, also requires the Department of Treasury to establish audit standards that must be implemented within one year of the law taking effect.  Standards include confidentiality, technical training, independence, due professional care, planning supervision, and understanding of the entity audited.  Standards also include internal control and an assessment of risk, audit evidence and documentation, sampling and sampling projections, and elements of the audit report of findings.

The bill is now Public Act 35 of 2014.

Posted by: Ed Kisscorni AT 01:39 pm   |  Permalink   |  0 Comments  |  Email
Thursday, May 01 2014

Asset Disposition Was Casual Transaction

In South Lyon Apartment, LLC v. Department of Treasury, Michigan Court of Appeals, No. 313943, March 13, 2014, a Michigan taxpayer’s asset disposition was properly determined to be a casual transaction under the Single Business Tax (SBT).  The Court of Appeals ruled that it was properly excluded from the tax base.  

The taxpayer’s sole asset was a 50% interest in a limited partnership that operated an apartment complex.  The SBT law defined "casual transaction" to be a transaction made in other than the ordinary course of repeated and successive transactions of a like character, except that a transaction made or engaged in by a person that is incidental to that person’s regular business activity is a business activity.  "Incidental" means something minor and of little importance.

In this case, the Court of Appeals determined the sale of the taxpayer’s sole asset as a major event, a significant act in the financial sense that ended the taxpayer’s business interest in the partnership.  A one-time transaction, the asset disposition was not incidental.  Thus, the taxpayer’s sale of its only asset qualified as a casual transaction and was not subject to the SBT.

Sale Under Asset Purchase Agreement Was Casual Transaction

In Sovereign Sales, LLC, v. Department of Treasury, Michigan Court of Appeals, No. 313982, March 18, 2014, a Michigan taxpayer’s sale under an asset purchase agreement was determined to be a casual transaction under the Single Business Tax (SBT).  Therefore it was properly excluded from the tax base.

Under the APA, the taxpayer agreed to sell to a competitor all of its business assets including the accounts, purchase orders, licenses, permits, copyrights, trademarks, good will, equipment, and inventory, and entered into a covenant not to compete. The SBT law defined "casual transaction" to be a transaction made in other than the ordinary course of repeated and successive transactions of a like character, except that a transaction made or engaged in by a person that is incidental to that person’s regular business activity is a business activity. "Incidental" means something minor and of little importance.

The Court of Appeals rejected the department’s argument that the sale of the taxpayer’s entire inventory to the competitor was of like character with its ongoing business of selling its inventory to retailers.  In this case, the asset purchase was not of like character with the taxpayer’s previous repeated and successive transactions.  The sale of substantially all of its assets was not incidental.  Thus, the taxpayer’s sale of essentially the entire business qualified as a casual transaction and was not subject to the Single Business Tax.

Posted by: Ed Kisscorni AT 01:37 pm   |  Permalink   |  0 Comments  |  Email

 

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