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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 
Monday, July 28 2014

New Documentation Standard to be Applied on a Retroactive Basis

Michigan taxpayers must now prove that sales tax was paid on taxable transactions by the Michigan vendors from whom the purchaser acquires tangible personal property.  No longer can the purchaser assume the tax was paid by the Michigan vendor.  The Supreme Court decision clarifies the law as written; therefore, it can be and will be applied on a retroactive basis.  Michigan business entities, as well as individuals may have significant known and unknown liability for use tax on purchases subject to the sales tax but where payment of the sales tax cannot be proven.

Statute of Limitations

The Andrie Supreme Court decision can be applied on a retroactive basis, but only to open periods, returns and on transactions within the four year statute of limitations period.  The Revenue Act prohibits the Department of Treasury from assessing any additional tax after the expiration of four years from the due date of any return or payment under the applicable tax act.  Under certain conditions, the running of the period of limitations can be suspended.  Please note, the running of the statute of limitations does not start until the filing of the return.  If no return was filed, there is no limitation on the period for which the state can assess additional use tax.

Michigan taxpayers must immediately do the following to avoid unwanted and costly assessments:

First, make sure the taxpayer is registered for the Michigan use tax.  The registration, Form 518 Registration for Michigan Taxes, protects the taxpayer in two ways:  First, it allows the running of the statute of limitations to start with the filing of a return, and Second, it potentially protects the taxpayer for penalties for failure to register for Michigan taxes.

Second, the taxpayer should review all purchases to determine if there is sufficient documentation to prove that sales tax was paid by the seller on all taxable purchases.  Any and all holes in the documentation should be addressed.

Third, if the review of purchases identifies taxable purchases on which sales tax was not paid due to error, mistake, miscommunication or negligence; then the taxpayer must immediately communicate with the seller that the tax was not paid and document an understanding with the seller as to the form and manner that the tax will be paid.

Fourth, if the taxpayer cannot document or prove that sales tax was due and paid by the seller; a Taxpayer Initiated Disclosure should be made to the Department of Treasury disclosing the liability for the use tax.  The Department of Treasury will waive penalties if the taxpayer voluntarily disclosed the tax liability and pays the tax due with interest.   

The MICPA Sales and Use Tax seminars scheduled for October 2014 will include expanded coverage of the Andrie Supreme Court decision addressing the impact on Michigan business.

Register on line at the MACPA website:

Michigan Sales and Use Tax (30696 - MSUTEM)

Wednesday, October 22, 2014

Best Western PLUS Sterling Inn - Sterling Heights, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30696

Michigan Sales and Use Tax (30681 - MSUTTC)

Monday, October 27, 2014

Prince Conference Center Calvin College - Grand Rapids, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30698

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  0 Comments  |  Email
Monday, July 21 2014

Communication Required Between the Seller and Purchaser as to Whether the Transaction is Subject to the Sales Tax and the Responsibility to Pay the Sales Tax

The Andrie Michigan Supreme Court Decision suggest the purchaser communicate to the seller if a transaction is subject to sales tax.  It further suggest the purchaser and seller develop a clear understanding on the form and method that the tax will ultimately be paid.  The communication and understanding must be documented.

The purchaser normally initiates the purchase of tangible personal property to be used in a taxable manner.  Such activity is started with the tendering of a purchase order, order form, or other similar communication.  Prior to Andrie it was assumed that such purchase was subject to sales tax unless the purchaser provided the seller a valid claim of exemption.  It was the responsibility of the seller to pay the tax.  After Andrie, the presumption is gone.  The purchaser cannot assume the sales tax was due and paid by the seller by mere silence or the absence of the exemption certificate.  The purchaser must communicate directly with the seller and document  an understanding that the sales tax is due and that the sales tax is in fact paid by the seller.

Purchaser Documentation of Seller Liability for Payment of Sales Tax

A purchaser documents its entitlement to purchase tangible personal property exempt from tax by providing the seller with a valid exemption certificate.  The seller must retain the exemption certificate to prove the exemption claimed.  The person entitled to the exemption, the seller, must prove the exemption.  After Andrie, the purchaser must prove that the sales tax was due and paid.  The purchaser must obtain from the seller documentary evidence that the seller recognizes that the sales tax is due, recognition that the seller has the obligation to pay the sales tax and that the seller will in fact pay the sales tax.  Such documentation can be in the form of a standardized Purchaser Documentation of Seller Liability for Payment of Sales Tax.  Such a form would be obtained from the seller and retained in the records of the purchaser.  The form can be in the form of a blanket statement of responsibility or it could cover only specific transactions, jobs or contracts. 

A properly executed  Purchaser Documentation of Seller Liability for Payment of Sales Tax should be corroborated with other documents including a purchase order, order form, or other similar communication as well as sales invoices, a bill of sale or other similar documents.

The documentary evidence must be sufficient for the purchaser to prove that the sales tax was due and was paid.  The recordkeeping  rules of Sales tax Act Section 18 require the taxpayer maintain or preserve sufficient records to enable a determination of tax due.  In this case, to enable a determination that the sales tax was due and paid by the seller.

The MICPA Sales and Use Tax seminars scheduled for October 2014 will include expanded coverage of the Andrie Supreme Court decision addressing the impact on Michigan business.

Register on line at the MACPA website:

Michigan Sales and Use Tax (30696 - MSUTEM)

Wednesday, October 22, 2014

Best Western PLUS Sterling Inn - Sterling Heights, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30696

Michigan Sales and Use Tax (30681 - MSUTTC)

Monday, October 27, 2014

Prince Conference Center Calvin College - Grand Rapids, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30698

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  0 Comments  |  Email
Monday, July 14 2014

Taxpayer Has a Statutory Responsibility to Maintain or Preserve Sufficient Records to Determine the Tax Due

In Andrie, Inc. v Department of Treasury, Docket No. 145557, June 23, 2014; the Michigan Supreme Court said the taxpayer must prove exemptions to which it is entitled; including the exemption from the use tax on transactions subject to the sales tax.  The opinion barred the taxpayer from a presumption that the sales tax was paid if purchased from a Michigan vendor.  What recordkeeping and documentation is required for the taxpayer to prove that sales tax was due and paid?

Section 4 of the Use Tax Act [MCL 205.94(1)(a)] states: “(1) The following are exempt … (a) Property sold in this state on which transaction a tax is paid under the general sales tax act, 1933 PA 167, MCL 205.51 to 205.78, if the tax was due and paid on the retail sale to a consumer.”  It is clear, the law requires the purchaser/consumer to prove the sales tax was due and that it was paid.  The Supreme Court said:  “Taxpayers are not entitled to a presumption that sales tax was included in the prices paid to retailers when their receipts to do not list sales tax as a separate line item.”

The Supreme Court makes it very clear that the taxpayer must prove the tax was due and that it was paid, but the taxpayer cannot presume the tax was paid by a Michigan seller.  Sales tax listed on the invoice, bill of sale or other similar document would prove that sales tax is an element of the sales price.  It does not prove or provide any form of documentation that the sales tax was actually paid to the state as the statute requires.  It does not prove that the sales tax is due and paid on the retail sale.  However, the Supreme Court opened up a crack in the door with a limited presumption when it said:  “A taxpayer is entitled to the use tax exemption in MCL 205.94(1)(a) when it proves that it paid sales tax to the retail seller, even if the retail seller, who bears the legal responsibility for payment of the sales tax, did not remit the tax to the department.”  The key words here are:  “it paid sales tax to the retail seller”. 

There are a variety of ways a purchaser can prove that the sales tax was paid to the seller.  The first, and most common, is the listing of the sales tax as a separate item on the invoice, bill of sale or other similar document provided by the seller to the purchaser.  However, many economic transactions are not transacted in this matter.  A seller may simply state on the invoice, bill of sale or other similar document that the price includes sales tax.

An invoice, bill of sale or other similar document may be a billing document which is supported by other documentary evidence including a purchase order, agreement, contract, a bid sheet or quote.  If such other documentary evidence clearly shows sales tax as a separate item, which is included in the  invoice, bill of sale or other similar document, although not itemized; then the documentation may suggest that the purchaser paid the sales tax to the seller. 

The Andrie Supreme Court decision puts a considerable burden on the purchaser to prove that sales tax was due and paid on its purchases of tangible personal property.  Failure to aggressively comply with this burden can result in double payment of the tax and potential assessments.  Because Andrie is a judicial decision, it merely interprets the law as written an in effect.  The decision is retroactive and applicable to all tax returns and purchases of tangible personal property within the four year statute of limitations period, if applicable.   

The MICPA Sales and Use Tax seminars scheduled for October 2014 will include expanded coverage of the Andrie Supreme Court decision addressing the impact on Michigan business.

Register on line at the MACPA website:

Michigan Sales and Use Tax (30696 - MSUTEM)

Wednesday, October 22, 2014

Best Western PLUS Sterling Inn - Sterling Heights, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30696

Michigan Sales and Use Tax (30681 - MSUTTC)

Monday, October 27, 2014

Prince Conference Center Calvin College - Grand Rapids, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30698

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  0 Comments  |  Email
Monday, July 07 2014

Taxable Sale of Property Subject to Both the Sales Tax and The Use Tax Unless the Purchaser Can Prove Sales Tax was Due and Paid

In Andrie, Inc. v Department of Treasury, Docket No. 145557, June 23, 2014; the Michigan Supreme Court turned upside down the decades long presumption that a purchaser could presume sales tax was included in the purchase price of taxable tangible personal property if purchased from a Michigan vendor.  The ruling opens up the possibility of both a sales tax and a use tax being imposed on the same transaction.

Andrie Inc. appealed a Department of Treasury use tax audit.  The Treasury auditor had reviewed Andrie’s purchases of fuel and other tangible items, some of which Andrie had purchased in Michigan from Michigan sellers, for use in its business of shipping asphalt and other products across the Great Lakes.  The auditor requested that Andrie provide proof that sales tax was paid, either by Andrie or the retail seller, on items that were determined to be subject to use tax.  Treasury ultimately imposed the use tax on fuel and supply purchases Andrie made in Michigan, from Michigan-based retail sellers, if the invoice did not list sales tax as a separate line item and establish that sales tax had been paid.

Andrie filed suit in the Court of Claims, arguing that it was entitled to rely on an alleged requirement of the GSTA that the sales tax be included in the price of the goods purchased regardless of whether the sales tax was separately stated.

The Court of Claims held that Andrie was entitled to a partial refund of use tax for those purchases that were subject to sales tax, reasoning that because Andrie was entitled to a presumption that sales tax was included in the price of goods purchased, Andrie was not required to provide proof that the retail sellers had remitted sales tax to the Department of Treasury.

Treasury appealed to the Court of Appeals.

The held that because the retailer was responsible for paying sales tax, it was erroneous to place a duty on the purchaser to show that the sales tax had been paid.

Treasury appealed to the Supreme Court.

The Supreme Court held that in order to be entitled to the exemption from the use tax found in MCL 205.94(1)(a), a taxpayer must show that the sales tax was both due and paid on the sale of that tangible personal property.  The burden of demonstrating entitlement to the use tax exemption rested on the taxpayer seeking it.  Because Andrie did not submit any evidence that sales tax had been paid, Andrie was not entitled to the use tax exemption.  The Court of Appeals judgment was reversed to the extent it held that the use tax could never be levied on property if the purchase of that property was subject to sales tax.

The Supreme Court said: 

“Absent an exception, tangible personal property sold and used in Michigan is subject to both use and sales tax.  The text of each taxing statute indicates that they may be levied on the same property, as long as the respective predicate taxable events have taken place. The legal responsibility for the use tax falls solely on the consumer, while the legal responsibility for the sales tax falls on the retail seller.”

“Under MCL 205.94(1)(a), property sold in Michigan on which tax was paid under the GSTA is exempt from use tax if the tax was due and paid on the retail sale to a consumer.  This provision unambiguously requires payment of the sales tax before the exemption applies.”

“Taxpayers are not entitled to a presumption that sales tax was included in the prices paid to retailers when their receipts to do not list sales tax as a separate line item. A taxpayer is entitled to the use tax exemption in MCL 205.94(1)(a) when it proves that it paid sales tax to the retail seller, even if the retail seller, who bears the legal responsibility for payment of the sales tax, did not remit the tax to the department.”

“Because Andrie submitted no evidence that it paid sales tax to the retail seller, or that the seller remitted sales tax to the department on that sale, it did not meet its burden, and it was not entitled to the exemption.”

The MICPA Sales and Use Tax seminars scheduled for October 2014 will include expanded coverage of the Andrie Supreme Court decision addressing the impact on Michigan business.

Register on line at the MACPA website:

Michigan Sales and Use Tax (30696 - MSUTEM)

Wednesday, October 22, 2014

Best Western PLUS Sterling Inn - Sterling Heights, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30696

Michigan Sales and Use Tax (30681 - MSUTTC)

Monday, October 27, 2014

Prince Conference Center Calvin College - Grand Rapids, MI

http://www.michcpa.org/Aptify/Meetings/Meeting.aspx?ID=30698

Posted by: Ed Kisscorni AT 01:00 pm   |  Permalink   |  0 Comments  |  Email

 

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