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Michigan has enacted legislation that provides additional time periods for extending the four-year statute of limitations during which the Department of Treasury can assess Michigan corporate income tax, personal income tax, sales and use tax, and miscellaneous tax deficiencies, interest, or penalties.  The legislation states that the statute of limitations will be extended in instances where the following time periods exceed the statute of limitations: the period pending the completion of an appeal of a final assessment; a period of 90 days after the issuance of a decision and order from an informal conference; a period of 90 days after the issuance of a court order resolving an appeal of a decision of the department in a case in which a final assessment was not issued prior to appeal; and for the period of an audit that started after September 30, 2014, and was conducted within a specified time frame established by law. The legislation strikes references in the law to suspending the statute of limitations. It states that the statute of limitations is extended for the periods currently stipulated in the law as well as the additional time periods. The statute of limitations also applies to taxpayers claiming refunds. In addition, it now requires completion of audit fieldwork within 1 year and the final assessment to be issued within 9 months of issuance of the written preliminary audit determination.  These time frames are subject to agreement of extension of the statute of limitations by both parties.

 

The legislation requires the department to provide a responsible person of a business with notice of any amount collected from any other responsible person determined to be liable. The department may not assess a responsible person more than four years after the date of the assessment issued to a business. Before assessing a responsible person as liable for a tax assessed to a business, the department must assess a purchaser or succeeding purchaser of the business who is personally liable. The department may assess a responsible person notwithstanding the liability of a purchaser or succeeding purchaser if the purchaser or succeeding purchaser fails to pay the assessment for sales and use tax, tobacco products tax, motor fuel tax, motor carrier fuel tax, income tax withholding, and any other tax that a person is required to collect on behalf of a third person. The legislation defines "responsible person" as an officer, member, manager of a manager-managed limited liability company, or partner for the business who controlled, supervised, or was responsible for the filing of returns or payment of any of the taxes during the time period of default and who, during the time period of default, willfully failed to file a return or pay the tax due. (Act 3 (S.B. 337), Laws 2014, effective February 6, 2014)

(02/24/2014)

Representative Lamar Smith (Republican, Texas) has introduced a bill to bar multiple taxes on digital goods and services.  Smith had proposed an earlier bill which failed to pass.  This bill is a revised version of the earlier bill. The proposed bill – called the Digital Goods and Services Tax Fairness Act of 2013 – would only allow a state to tax sales of digital goods and services to customers with a tax address within that state. Additionally, states would be barred from imposing multiple taxes on digital goods. The bill defines digital goods as sounds, images, data and facts maintained in digital form. Internet access service is not included as a digital good in the bill. (H.R. 3724)

(01/28/2014)

The federal Marketplace Fairness Act of 2013 was introduced in the House of Representatives and the Senate on February 14, 2013.  If passed, the bill would authorize states that meet certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes.  Under the legislation, a state would be authorized to require a remote seller to collect sales and use taxes only if the remote seller has gross annual receipts in total remote sales in the United States of more than $1 million in the preceding calendar year.

 

Member states of the Streamlined Sales and Use Tax (SST) Agreement would be authorized to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to that member state pursuant to the provisions of the SST Agreement. The SST Agreement would have to include certain minimum simplification requirements. An SST member state could begin to exercise authority under the Act beginning 90 days after the state publishes notice of its intent to exercise such authority, but no earlier than the first day of the calendar quarter that is at least 90 days after the date of the enactment of the Act.

 

States that are not members of the SST Agreement would be authorized, notwithstanding any other provision of law, to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to the state if the state implements certain minimum simplification requirements. The authority would begin no earlier than the first day of the calendar quarter that is at least six months after the state enacts legislation to exercise the authority granted by the Act.

 

To enforce collection requirements on remote sellers that do not meet the small seller exception, states that are not members of the SST Agreement would have to implement the minimum simplification requirements listed below. For SST member states to have collection authority, the requirements would have to be included in the SST Agreement.

 

-       A single entity within the state responsible for all state and local sales and use tax administration, return processing, and audits for remote sales sourced to the state

-       A single audit of a remote seller for all state and local taxing jurisdictions within that state

-       A single sales and use tax return to be used by remote sellers to be filed with the single entity responsible for tax administration.

-       Each state would have to provide a uniform sales and use tax base among the state and the local taxing jurisdictions within the state.

-       Each state would have to source all interstate sales in compliance with the sourcing definition outlined below.

-       Each state would have to provide information indicating the taxability of products and services along with any product and service exemptions from sales and use tax in the state and a rates and boundary database. States would have to provide free software for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect state and local rate changes. States would also have to provide certification procedures for persons to be approved as certified software providers (CSPs). Such CSPs would have to be capable of calculating and filing sales and use taxes in all the states qualified under the Act.

-       Each state would have to relieve remote sellers from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of an error or omission made by a CSP.

-       Each state would have to relieve CSPs from liability to the state or locality for the incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of misleading or inaccurate information provided by a remote seller.

-       Each state would have to relieve remote sellers and CSPs from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of incorrect information or software provided by the state.

-       Each state would have to provide remote sellers and CSPs with 90 days’ notice of a rate change by the state or any locality in the state and update the taxability and exemption information and rate and boundary databases, and would have to relieve any remote seller or CSP from liability for collecting sales and use taxes at the immediately preceding effective rate during the 90-day notice period if the required notice is not provided.

 

For non-SST member states, the location to which a remote sale is sourced would be the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery. When no delivery location is specified, the remote sale is sourced to the customer's address that is either known to the seller or, if not known, obtained by the seller during the transaction, including the address of the customer's payment instrument if no other address is available. If an address is unknown and a billing address cannot be obtained, the remote sale is sourced to the address of the seller from which the remote sale was made. SST member states would be required to comply with the sourcing provisions of the SST Agreement.

 

On March 22, 2013, the U.S. Senate voted 75-to-24 in favor of the concept of the Marketplace Fairness Act. The actual Marketplace Fairness Act was introduced in both chambers in February, but last week Senator Enzi, the sponsor of the Senate bill, offered an amendment to the 2014 Budget Resolution that would include insertion of the language of Marketplace Fairness in the budget. It was a largely symbolic tactic since the Budget Resolution itself will not become law, but by approving the amendment, the Senate has shown that there is broad, bipartisan support for the notion of requiring remote sellers to collect sales tax.

 

On May 6, 2013, the U.S. Senate passed the Marketplace Fairness Act with a 69-27 vote.

 

UPDATE: On September 18, 2013, Rep. Bob Goodlatte, the chairman of the House Judiciary Committee released a set of seven principles that he believes any internet sales tax bill should meet.  The seven principles outlined by Goodlatte are tax relief, tech neutrality, no regulation without representation, simplicity, tax competition, states’ rights, and privacy rights.  For more details on the principles, click here to see the House Judiciary Committee’s press release.

 

We are continuing to track the activities of these bills.  We are also involved in planning efforts involving states and businesses regarding the potential implementation consequences of passage.  Watch for updates in the Sales Tax Compass as well as through our Twitter account and LinkedIn updates. 

 

The text of the bill passed by the Senate can be viewed here.

 

For an update on this news item, visit Senate Introduces Marketplace Fairness Act of 2015.

 

(H.R. 684 and S. 336, as introduced in Congress on February 14, 2013; S.743, as passed by the U.S. Senate on May 6, 2013)

(09/20/2013)

A retailer that entered into private label credit card (PLCC) agreements with finance companies is entitled to a bad-debt deduction for Michigan sales taxes collected and remitted on purchases made by PLCC holders who subsequently failed to pay their credit card bills because the retailer met the requirements set forth in the applicable Michigan tax statute.  The retailer sought a refund of taxes paid between 1999 and 2007 despite having received compensation for the purchases and the tax pursuant to its contracts with the finance companies.  In a previous court case, the Michigan Court of Appeals held that parties acting in concert could be viewed as a unit for purposes of the bad-debt statute.  When the statute was amended in 2007, the Legislature did not expressly override this conclusion but stated that only the retailer was entitled to the bad-debt deduction for periods on or before September 30, 2009.  The retailer in this case did have the legal liability to remit sales tax on the retail sales for which the bad-debt deduction is recognized for federal income tax purposes.  While the finance companies wrote off the bad debt, this fact does not diminish the taxpayer’s qualification under the bad-debt statute.  The finance companies’ actions in writing off the debts satisfy the requirements of the pertinent Michigan tax statute.

On October 22, 2012, the Michigan Supreme Court denied a request to review the Court of Appeals decision in this case. Therefore, Home Depot was entitled to the refund of taxes paid on items written off as bad debts.  (Home Depot USA, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 301341, May 24, 2012; Home Depot USA, Inc. v. State of Michigan, et al., Michigan Court of Appeals, No. 301341, May 24, 2012; leave to appeal denied, Michigan Supreme Court, Dkt. No. 145412, October 22, 2012)

 

 

(11/26/2012)

Beginning January 1, 2014, Michigan retailers subject to accelerated electronic funds transfer (i.e. retailers with sales and use tax liabilities of $720,000 or more in the prior calendar year) must remit, by the 20th of the month, an amount equal to 75% of their liability in the preceding month plus the reconciliation payment equal to the difference between the tax liability determined for the previous month and the amount of tax previously paid for that month at that time. This is a change from the current requirement of 50% due on the 20th of the current month and 50% due on the last day of the current month with the reconciliation payment due on the 20th day of the following month. (Sales and Use Tax Information, Michigan Department of Treasury, July 6, 2012)

(08/17/2012)

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