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