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
Michigan Sales and Use Tax (30681 - MSUTTC)
Monday, October 27, 2014
Prince Conference Center Calvin College - Grand Rapids, MI