Michigan Treasury Provides Limited Explanation of the "Agency" Exclusion to Gross Receipts for the Michigan Business Tax Modified Gross Receipts Tax Base
In Frequently Asked Question (FAQ) M53, the Michigan Department of Treasury (Treasury) provided a glimpse of what they believe to be a qualifying exclusion under Section 111(1)(a) [MCL 208.1111(1)(a)] "[p]roceeds from sales by a principal that the taxpayer collects in an agency capacity solely on behalf of the principal and delivers to the principal."
In responding to a question as to whether money received from the sale of lottery tickets could be excluded from gross receipts, Treasury responded as follows:
Michigan's Lottery Act mandates that the Commissioner of the Bureau of State Lottery "license as agents to sell lottery tickets such persons whom he deems will best serve the public convenience and promote the sale of tickets or shares." MCL 432.17(b). Lottery licensees are similarly referred to in another section of the statute as both "lottery sales agents" and "licensed agents." MCL 432.23. In addition, the administrative rules implementing the Lottery Act state that a lottery sales license "is evidence of an agency that is revocable at will by either the bureau or the retailer." Mich. Admin. Code Rule 432.4. Pursuant to section 35 of the Lottery Act, lottery licensees are required to deposit all monies collected from the sale of lottery tickets in a financial institution designated by the Department of Treasury to the credit of the State of Michigan. MCL 432.35(1). Accordingly, because lottery dealers are statutorily defined as "agents" of the Bureau of State Lottery (and, therefore, the State of Michigan) for the purpose of selling lottery tickets, and the dealers are required to remit back to the State of Michigan all proceeds received from the sales of lottery tickets, such sales proceeds meet the requirements for the exclusion from gross receipts set forth in section 111(1)(a). When calculating gross receipts, MBT taxpayers that are licensed lottery sales agents should not include the proceeds from their sales of lottery tickets on behalf of the State of Michigan. [FAQ M53]
From a reading of the above, it appears Treasury will require written documentation and validation that monies received are received in an agency capacity.
Would a licensed insurance agent (licensed in the State of Michigan) who collects the gross premium from the insured, deducts his commission and remits the balance to the insurance company (pursuant to the agency agreement) be able to exclude the amount remitted to the insurance company from his/her gross receipts?
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The Department of Treasury has not issued any guidance as to whether a licensed insurance agent can exclude from gross receipts the premiums collected and then paid to the insurance company. However, I believe the premiums collected for and on behalf of the insurance company can be excluded un Section 111(1)(a) as amounts received in an agency capacity. I would feel more comfortable if the agency and the insurance company had a written agreement which authorized the agent to collect the premium for the insurance company.
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