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