Penalty Waived as Taxpayer Had Reasonable Cause
In The Lane Company, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 294456, January 25, 2011, the Michigan Court of Appeals affirmed the waiver of a penalty for a taxpayer's failure to make payments for the former single business tax (SBT).
A Virginia corporation, the taxpayer hired independent representatives to solicit requests for sales and had the requests approved outside of Michigan. In the late 1980s, the taxpayer contacted the Department of Treasury to ask about nexus. The department stated that P.L. 86-272 provided protection and, based on the taxpayer's Michigan business activities, the taxpayer did not have nexus for the SBT.
Later, based on court cases and policy changes, it was determined that P.L. 86-272 no longer provided protection from nexus under the SBT. The court presumed without deciding that the taxpayer was obligated to file SBT returns and remit payments for the 1998 and 1999 tax years; however, the taxpayer did not do so.
The taxpayer argued that it was unaware of the policy changes, in particular Revenue Administrative Bulletin 1998-1, and that it had relied on the earlier letter from the department stating that it did not have nexus. According to the taxpayer, these facts constituted reasonable cause so that the penalty should be waived. The court agreed.