Wireless Service Provided With Equipment Located in Indiana
In Michiana Metronet, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 306219, November 8, 2012, a taxpayer's sales other than sales of tangible personal property were properly excluded from the Michigan sales factor numerator under the Single Business Tax (SBT). A regional wireless services provider with operations in three states, the taxpayer maintained its administrative and business operations in Indiana. Under audit, the taxpayer contested the proper apportionment of its sales other than sales of tangible personal property. The SBT statute provided that such sales were in Michigan if the business activity was performed both inside and outside Michigan and, based on the costs of performance, the greater proportion of the business activity was performed in Michigan.
"Business activity" was defined to include the performance of services. The Department of Treasury issued guidance (Internal Policy Directive 2006-8) discussing "costs of performance." In the directive, the department stated that (1) the cost of performance analysis was not to be applied to the total business activities of the taxpayer, but to each sale separately and (2) the determination of direct costs depended on the nature of the services provided.
The trial court reasoned that, as the taxpayer's engineering, billing, and customer service departments were in Indiana, all Michigan services were provided through the network and other equipment located in Indiana. The taxpayer's service was performed through the completion of wireless calls and the provision of network to subscribers. Accordingly, the taxpayer properly excluded from the sales factor numerator receipts for long-distance calls, international long distance, enhanced features, and incollect roamer charges.