Michigan State And Local Tax

Grand Rapids TV 13 (WZZM) Runs A Special Report on the Michigan Business Tax

EHTC — Tue, 23 Feb 2010 20:36:16 GMT

I was fortunate to be part of a special report on the Michigan Business Tax. Peter Ross of TV 13 in Grand Rapids did a great job by adding a little humor to something that’s not very funny. With tax season almost half over, we could use some humor. You can link to the report titled Retooling Michigan: Fixing Michigan's Tax Monster with a CTRL + Click on the following: http://bit.ly/dA29E2

Residential Real Property Should Not Have Been Reassessed for Michigan property Tax Purposes

EHTC — Fri, 19 Feb 2010 15:41:41 GMT

The Michigan Court of Appeals in Taylor v. City of Traverse City, Michigan Court of Appeals, No. 287565, February 16, 2010 (Taylor) ruled the transfer of ownership of residential property that occurred when the owner died and ownership transferred solely to the taxpayer as the surviving joint tenant qualified for the statutory exemption from the provision that allowed the real property to be reassessed at a higher value.

The Court of Appeals referenced a previous case, Klooster v. Charlevoix, No. 286013, December 15, 2009, where it noted that the statutory exemption contained two requirements in order for the exemption to apply. Both requirements were met in the Taylor case.

The taxpayer's father was an original owner of the property prior to quitclaiming his interest to himself and the taxpayer as joint tenants. Additionally, both the taxpayer and his father were joint tenants at the time the joint tenancy was originally created and both remained joint tenants until the joint tenancy was dissolved upon the father's death. The Michigan Court of Appeals also clearly held in Klooster that the joint tenant statutory exemption did not require a joint tenant to be an original owner for the exemption to apply.

Michigan Supreme Court Rejects Treasury Appeal In Alliance Single Business Tax Case

EHTC — Tue, 16 Feb 2010 17:55:20 GMT

The Michigan Supreme Court rejected the Michigan Department of Treasury (Treasury) appeal from the Court of Appeals decision in Alliance Obstetrics & Gynecology, PLC v. Department of Treasury, Michigan Court of Appeals, Docket No. 280125, August 4, 2009 (Alliance). The Michigan Court of Appeals had ruled that a Limited Liability Company (LLC) is not disqualified from taking the Single Business Tax (SBT) Small Business Credit (SBC) because its officers exceeded the $115,000 disqualifying amount.

A corporation other than an S Corporation is disqualified from taking the SBC if total compensation paid to an officer or shareholder exceeds $115,000. A LLC is not a corporation. Therefore a LLC does not have shareholders or officers. A LLC has members and managers. This is the case even if the LLC elected to be taxed as a corporation for federal income tax purposes.

The Court of Appeals ruled a LLC is not treated as a corporation for purposes of calculating the SBT SBC and so the $115,000 income limitations under Single Business Tax Act (SBTA) Section 36(2) [MCL 208.36(2)] is not applicable and did not disqualify the LLC from claiming the credit. Under SBTA Section 36(2)(b)(i) [MCL 208.36(2)(b)(i)], a corporation whose officer or officers earned more than $115,000 during the taxable year is not entitled to a SBC.

In Alliance, instead of electing to be classified as a disregarded entity, the taxpayer elected to be classified as an association, and under federal tax law, an association is a corporation. The Court of Appeals previously ruled that how an entity elects to be classified under the federal “check-the-box” system does not determine how it will be classified for SBT purposes. [Kmart Michigan Prop Services, LLC v Department of Treasury, Michigan Court of Appeals, Docket No. 282058, May 12, 2009]

The taxpayer is an LLC, and under Michigan law LLCs are not corporations. Business entities such as the taxpayer that are neither a corporation nor a partnership should not be required to elect a classification inconsistent with its organization under state law.

There are a large number of cases being held in abeyance pending the final determination in the Alliance case. There are also large potential refunds that the state may be required to pay as a result of this case. Furthermore, taxpayers organized as a LLC and electing to be classified as a corporation for federal income tax purposes may have amended return refund opportunities if they were disqualified from the SBC because officer or shareholder compensation exceeded $115,000.

Michigan Tax Tribunal Not Keeping Up With Cases

EHTC — Mon, 15 Feb 2010 22:46:36 GMT

The following article was sent to me from Attorney Paul McCord. I serve with Paul on a Michigan State Chamber of Commerce Task Force to study the problems with the Michigan Tax Tribunal. A large part of my work is in the audit representation and appeals area. Much of my time is spent with appeals at the Michigan Tax Tribunal. That process has slowed down.

The Michigan Tax Tribunal is neither efficient nor effective in processing tax appeals, according to an Auditor General report released today, with some cases still pending scheduling for more than two years after their initial filing. As of October 3, 2008, there were 7,428 appeals pending for a hearing, the Auditor General reported, with 60 percent of those six months old.

Even after the cases are heard, a decision isn't necessarily made swiftly. As of October 3, 2008, there were 188 appeals that had been heard by the Tribunal that were awaiting only a judgment and a decision. Of those, 42 percent had been heard more than six months earlier and 31 percent had been heard more than a year earlier. All the while, the Tribunal has not developed a plan to address its growing backlog of pending appeals, according to the audit. In Fiscal Year 2006, the Tribunal received 8,898 appeals and resolved 8,291. In FY 2007, the number of appeals swelled to 12,421 with 7,449 resolved. In FY 2008 there were 16,067 appeals filed and 10,173 resolved.

"The Tribunal cannot address the increasing number of backlogged and pending appeals as long as it continues to take in substantially more cases each year than it is able to resolve," the audit reads.

The Tax Tribunal is a seven-member quasi-judicial agency consisting of two attorneys, one assessor, one real estate appraiser and a public accountant. The Tribunal hears property tax appeals relating to assessments and other such matters. Tax Tribunal Chair Patti HALM said the bad economy is causing a flood of cases during a time when the Tribunal is having trouble filling vacancies.

Typically, the Tribunal handles between 6,000 and 7,000 cases a year, but with people seeing higher property tax bills at a time when their home values are going down, case numbers are hitting "overwhelming" levels. "We're just inundated with cases and paper," Halm said. "We had to get 15 more filing cabinets in the office and we don't know if that is even going to be enough." Meanwhile, vacancies on the Tribunal remain open for up to a year to two years because qualified applicants can make much more in the private sector than they can working at the Tax Tribunal. "It's like a tsunami of bad events," she said.

The Auditor General suggested the Tribunal and its 18 employees set goals to getting cases finished in a more timely matter, but Tribunal officials responded that without additional money, staff and resources, it's unlikely any of the Auditor General's goals could be met. Representative Paul Opsommer (R-DeWitt) said today's news was not good and was a signal that while state government is stretched thin, its leaders are not prioritizing how taxpayer money is spent.

"If the government passes laws requiring people to pay taxes it only makes sense that we then put the resources forward that allow people to get their tax questions answered, their appeals processed in a timely manner, and to provide an adequate interest rate on any refunds the state owes them," he said, adding that some property owners in his district have being waiting up to three years for their case to be heard. Adding insult to injury, there is also confusion over whether these people must continue to pay more fees to keep the claim going year after year due to no fault of their own, he added.

Property Value Should Not Have Been Uncapped for Michigan Residential Property Tax

EHTC — Mon, 15 Feb 2010 14:28:58 GMT

The Michigan Court of Appeals in Klevorn v. City of Boyne City, Michigan Court of Appeals, Docket Nos. 286870 and 286872, February 2, 2010 overturned a Michigan Tax Tribunal decision allowing the uncapping of the property. A taxpayer was entitled to the no-transfer-of-ownership Michigan property tax exemption when his mother and joint tenant died, because her death was not a conveyance.

At the time the joint tenancy was initially created through a warranty deed, at least one of the persons, the taxpayer's mother, was an original owner of the property. Therefore, one of the statutory requirements for claiming the exemption was satisfied. Further, based on the rule of law that the death of a joint tenant did not constitute a transfer for purposes of the exemption, the death of the mother and the subsequent transfer of ownership to the taxpayer did not constitute a conveyance. Because there was no conveyance, the second half of the statutory exemption was not triggered and the taxpayer's property value should not have been uncapped as a result of the termination of his mother's interest in the property.

Michigan Tax Tribunal To Hear Property Tax Classification Appeals

EHTC — Fri, 12 Feb 2010 18:23:35 GMT

The Michigan Department of Treasury (Treasury) has recently filed approximately 10,000 new appeals in the Michigan Tax Tribunal’s Small Claims Division contesting the classification of the property subject to those appeals. The Michigan Tax Tribunal will begin sending copies of Treasury’s completed Petition forms with any attachments and Answer forms to both the assessing officer for the appropriate local unit of government and the taxpayers for each property under appeal. Both the local unit and the taxpayer are considered to be parties (i.e., Respondents) in such cases.

Both the assessing officer and the taxpayer are required to complete and return the Answer forms by the date indicated on the Answer form. Failure to complete and timely return the Answer forms may result in a default hearing or a hearing in which only one Respondent will be permitted to participate.

Michigan Governor Proposes a Sales Tax on Services

EHTC — Thu, 11 Feb 2010 16:46:58 GMT

The Governor’s budget message, which was presented in front of a joint House and Senate appropriations committee panel this morning, included her recommendation that the sales tax be expanded to tax services. She is also recommending the sales tax rate be lowered to 5.5% and the Michigan Business Tax (MBT) surcharge be phased out.

This will be the third attempt by the administration to tax services. The last attempt, the use tax on services, lasted only one day before its ultimate repeal. Ironically, it was replaced with the MBT surcharge.

The Governor wants to cut the MBT surcharge in half in 2011 and completely eliminate it in 2012. She's also phasing down the gross receipts tax rate from .8% to .6% (.1 percent in 2012 and another .1 percent in 2013).

Stay tuned, there will be more on these developments in the months ahead.

Michigan Department of Treasury Issues Revenue Administrative Bulletin 2010-1: The Control Test for a Unitary Business Group

EHTC — Thu, 11 Feb 2010 15:07:00 GMT

The Michigan Department of Treasury (Treasury) has provided guidance for Michigan business taxpayers on the application of the control test for unitary business groups (UBG). In order to be an UBG, taxpayers must meet both the control test as well as one of two relationship tests; the relationship tests are not discussed. A separate Revenue Administrative Bulletin (RA on the relationship test is expected out later this month.

The control test is satisfied when one taxpayer owns or controls, directly or indirectly, more than 50% of the ownership interests with voting (or comparable) rights of the other taxpayer(s). A taxpayer owns or controls more than 50% of the ownership interests with voting rights (or ownership interests that confer comparable rights to voting rights) of another taxpayer if that taxpayer owns or controls, directly or indirectly, (1) more than 50% of the total combined voting power of all ownership interests with voting (or comparable) rights or (2) more than 50% of the total value of all ownership interests with voting (or comparable) rights. Examples are provided.

Various types of controlled groups are discussed, including parent-subsidiary, brother-sister, and groups without common control. How to determine control in nonstock nonprofit organizations is covered. Treasury also sets forth the presumptions it will make with respect to voting agreements. The rules for indirect ownership are detailed, including ownership through attribution in families, attribution to/from partnerships, corporations, trusts, and estates, and options.

An entity may elect to be treated as a member of only one UBG. The election will remain in effect until the unitary relationship between the taxpayer and the rest of the members of the elected controlled group is discontinued, or until the taxpayer is in more than one group under the control test, then the taxpayer is in the UBG where the relationship test is met.

The entire RAB is available on the Treasury website. The Michigan Association of Certified Public Accountants (MACPA) will present a series of four seminars in the spring and fall of 2010 where both the control test RAB and the relationship test RAB will be discussed in detail with extensive examples.

Disregarded Entities May Be Required to File Single Business Tax Returns

EHTC — Wed, 10 Feb 2010 14:15:34 GMT

The Michigan Department of Treasury has issued guidance in the wake of the Supreme Court rejection of its appeal of the Court of Appeals decision in Kmart Michigan Property Services. The Court of Appeals ruled that there is no language in the Single Business Tax Act that requires a taxpayer to file the same way as it did for federal income tax purposes. The Department of Treasury had issued Revenue Administration Bulletin 1999-9 (RAB 99-9) which stated its position that they would follow the federal check-the-box rules. The Court of Appeals in stating that RABs do not have the force and effect of law allowed a single member Limited Liability Company (LLC) to file a separate single business tax return.

Previously disregarded entities may be required to file returns under the former Michigan Single Business Tax (SBT) if they had gross receipts in excess of $350,000. As a result of the decision in the Kmart Michigan Property Services case, a single-member limited liability company that was disregarded for federal income tax purposes was nevertheless allowed to file a separate return from its owner. The Kmart decision applies to all open tax years, according to the Michigan Department of Treasury. Therefore, SBT returns may need to be filed back to 1997, the effective date of RAB 99-9.

Accordingly, persons that are disregarded entities for federal income tax purposes that filed as a division of the owner for SBT purposes must file a separate SBT return for all open tax periods. Previously disregarded entities are considered non-filers for statute of limitations purposes. Similarly, persons that filed earlier SBT returns that included one or more previously disregarded entities must file amended SBT returns for all open periods. These returns are due September 30, 2010.

The Kmart decision may also have an effect on the nexus and apportionment provisions of the SBT. The decision could result in refund applications for overpayments. Entities that filed a return with a disregarded entity must file an amended return within fours years from the later of the due date of the return or the filed date of the return if granted an extension.

Interest will be due on deficiencies. However, the failure to file penalty will be waived until September 30. A previously disregarded entity is required to register with the Department of Treasury if it has no federal employer identification number (FEIN) or Michigan Treasury assigned number (TR). The filing threshold is $350,000, although there are special provisions for group members under common control.

Taxpayers are reminded to include an organization type; generally, the one under which the parent filed the return should be chosen. Attach a pro forma federal income tax return and mail returns to PO Box 30059, Lansing, MI 48909.

Michigan Business Tax and Pass-Through Entities

EHTC — Mon, 01 Feb 2010 18:51:57 GMT

There are a handful of Michigan Business Tax (MBT) items to consider regarding pass-through entities and Form 4700. Also, if pass-through entities are part of a unitary combined return.

The first issue is when a pass-through entity is receiving pass-through income from another member of a unitary business group. The eliminations between unitary members should eliminate the doubling up of the income. The designated member will pass along the SE income to a partner / LLC member who will pay the self-employment tax on the SE earnings.

If two pass-through entities are not part of a unitary group, each will be required to file their own MBT return whether with another unitary group or by themselves. In this instance, the company receiving the pass through income will exclude from gross receipts amounts received or otherwise attributed to eliminate double taxation, per MCL 208.1111(bb).

For the business income tax, add the loss or subtract the income from a flow-through entity to the extent included in federal taxable income, from the business income tax base that is attributable to another entity whose business activities are taxable under the MBT or would be subject to the tax if the business activities were in Michigan, per MCL 208.1201(2)(e). The subtraction is found on line 25b Form 4567 for 2008, for 2009 Form 4567, the subtraction is found on Line 39.

Form 4700 for 2008 returns does not take the adjustment into account. Form 4700 for 2009 is much more detailed. Line 69 would provide for this exclusion for proper reconciliation from the Federal to the Michigan Business Tax return. We suggest you create your own reconciliation schedule taking into account the pass through income, scan and attach as a pdf to the e-filed return.

Assuming neither partnership is part of the same unitary group, the entity generating the SE income would be entitle to the deduction. The MBT act states, “Deduct any earnings that are net earnings from self-employment, to the extent included in the federal taxable income of the taxpayer, partner or limited liability company member. Net earnings from self-employment are as defined under Section 1402 of the Internal Revenue Code except to the extent that those net earnings represent a reasonable return on capital” [MCL 208.1201(2)(h)].

Remember the SE earnings are added to the computation base for the Compensation Credit.

In February Assessment and Classification Notices Will Be Mailed to Property Owners

EHTC — Mon, 01 Feb 2010 16:49:00 GMT

This month assessors will be mailing assessment notices to property owners. It’s very important to also note the same form also informs the property owner of the property classification. The classification is very important if the property owner could qualify for the Michigan Business Tax Personal Property Tax Credit.

Please notify the assessor if the classification is wrong. It may be wrong because of clerical error or if the assessor initiates a change. If it is wrong, first contact the assessor. The next step is the Board of Review, then the State Tax Commission.

The State Tax Commission (STC) has filed 10,000 or so appeals in the Tax Tribunal. These are appeals in which the STC has determined that the local assessor got it wrong. The STC should be notifying the taxpayer, however, because the suit is technically against the local taxing unit a situation could arise in which a taxpayer is not notified. Hence a truly perverse situation where the STC and the local unit agree without notifying the taxpayer of any of the traditional appeal avenues.

The property owner can check the status of the case by searching the Tax Tribunal's Docket Look-up by the local unit or the taxpayer of record.

Michigan Court of Appeals Rules the Michigan Tax Tribunal Has Exclusive Jurisdiction Over Special Assessments

EHTC — Fri, 29 Jan 2010 16:35:00 GMT

In Michigan's Adventure, Inc., et al. v. Dalton Township, et al., Michigan Court of Appeals, Docket Numbers 283770 and 283869, January 14, 2010 the Court of Appeals ruled Michigan Tax Tribunal, and not the circuit court, had exclusive jurisdiction to decide whether the special assessments at issue were properly imposed. The property owners claimed that the special assessments to improve a sewer system far exceeded any benefit conferred by that sewer system on the properties against which the assessments were made; that their constitutional rights were violated in a number of ways; and that the township failed to follow proper procedures under the Township Public Improvement Act.

Although the Tax Tribunal has exclusive jurisdiction over assessment and tax matters, the Headlee Amendment and its enabling legislation specifically grants the court jurisdiction over Headlee Amendment challenges against the imposition of a “tax.” However, neither the Headlee Amendment nor the statute extend jurisdiction to special assessment disputes and, generally, special assessments are not taxes for the purposes of constitutional tax limitations. Despite the property owners' claims that the case involved the imposition of a “disguised tax,” it is appropriate for the Tax Tribunal to initially consider the taxpayer's claim of an alleged violation of the Headlee Amendment in the context of their challenge to the special assessments. Any decision of the Tax Tribunal will be subject to judicial review on appeal.

Common Areas of Condominium Developments are Not Separately Taxed Independent of the Condominium Units

EHTC — Thu, 28 Jan 2010 16:29:00 GMT

In Paris Meadows, LLC v. City of Kentwood, Michigan Court of Appeals. Docket Number 286978, January 12, 2010, the Court of Appeals ruled that a city could not tax the common element of a condominium development independent of the condominium units. The disputed property is designated as a “convertible area” on the subdivision plan and is defined in the Master Deed as part of the “general common elements” of the condominium project.

The Court ruled the Tax Tribunal erred in concluding that the developer's reservation of rights to develop the disputed property rendered the property not a common element, and thus separately taxable. According to the language in the Master Deed and the Michigan Condominium Act, the disputed property was a common element, in which the co-owners held an undivided, inseparable interest, and the fact that the developer retained the right to withdraw or develop the property for six years did not vitiate this fact.

Property taxes may only be assessed against the individual condominium units and the prorated value of the common elements must be added to the condominium unit's tax bill. The court rejected the city's argument that the taxes on the disputed property could be assessed against the developer as the agent of the co-owners because under Michigan law [MCL 211.3], where the owner is known the owner is taxed and here the owners of the disputed property are known, the co-owners of the individual condominium units.

Michigan Business Tax Forms and Instructions Will Not Be Mailed: Most MBT Returns Are Required to be E-Filed

EHTC — Wed, 27 Jan 2010 16:21:00 GMT

The Michigan Department of Treasury (Department) has announced that for the 2009 tax year, the Department will not be mailing Michigan Business Tax forms or instruction books (standard taxpayers, financial institutions, or insurance companies) to MBT taxpayers. MBT forms and instructions for the 2008 tax year were mailed as it was the inaugural year for the tax. All 2009 MBT returns and instructions are available from the Department's website. They are found on the MBT forms page.

All eligible MBT returns prepared using software must be e-filed. E-file information is available at www.MIfastfile.org. The Department will not begin accepting MBT e-file returns until January 25, 2010, and therefore, will begin issuing acknowledgments for MBT e-file returns on January 26, 2010.

Michigan Business Tax Battery Credit and Brownfield Credit Amended

EHTC — Tue, 26 Jan 2010 15:53:00 GMT

Public Act 240 of 2009 (PA 240-09)

PA 240-09, effective January 8, 2010, amends Section 434 [MCL 208.1434] of the Michigan Business tax Act (MBTA) to allow the Michigan Economic Growth Authority (MEGA) to enter into a maximum of five (previously four) Michigan Business Tax credit agreements for the construction of an integrative cell (battery) manufacturing facility and extends the deadline from October 1, 2009 to March 31, 2010 for MEGA to enter into such agreements. PA 240-09 allows MEGA, until March 1, 2010, to enter into Michigan Business Tax credit agreements for the manufacture of advanced lithium ion battery packs in Michigan for tax years beginning on or after January 1, 2010 end ending before January 1, 2017.

The law specifies that the taxpayer must make capital investments in Michigan of at least $250 million, create at least 1,000 new jobs and manufacture at least 225,000 advanced lithium ion battery packs in Michigan. The maximum credit cannot exceed $26 million per tax year for no more than three tax years. If a taxpayer makes capital investments of at least $200 million and create at least 300 new jobs, the total credit is not more than $42 million over four consecutive tax years.

If a taxpayer claims the first credit above, then the second credit above cannot also be claimed. Capital investments, new jobs, and other expenses cannot be double-counted for this credit and for other credits against the MBT. Applicable to tax years beginning after 2014 and ending before 2017, a taxpayer may claim a credit for 75% of the costs incurred to implement a sourcing program to use battery cells from a business that has agreed to construct an integrative cell manufacturing facility. A single taxpayer cannot claim a credit of more than $12.5 million per year for more than two years. A taxpayer must manufacture at least 10,000 motor vehicles in each year a credit is claimed at a Michigan facility. Also, some of the costs eligible for the credit must be incurred at the facility where the motor vehicles are manufactured. The law require agreements for various battery-related tax credits to include a repayment provision.

Public Act 241 of 2009 (PA 241-09)

PA 241-09, effective 01/08/2010, amends the Michigan Business Tax brownfield credit to provide that a qualified taxpayer that has a preapproval letter issued after December 31, 2007 and before January 1, 2014 (previously, January 1, 2013) may claim a brownfield credit.

PA 241-09 provides that for a project approved or amended on and after January 1, 2010, if the total of all eligible investments for a project exceed $10 million but less than $100 million, (previously $300 million), the taxpayer may claim a credit of:

(1) up to 12.5% of the costs of the qualified taxpayer's eligible investment on an eligible property that is located in a qualified local governmental unit; or

(2) up to 15% of the cost (up to 20% until December 31, 2010) of the qualified taxpayer's eligible investments on an eligible property if the project is designated as an urban development area project.

The law also amends the maximum number of projects the Michigan Economic Growth Authority may approve. PA 241-09 also replaces references to the Department of Environmental Quality with references to the Department of Natural Resources.

Michigan Court of Appeals Rules A Finance Company Was Not Entitled to a Sales Tax Bad Debt Deduction on Transactions Involving Repossessed Vehicles

EHTC — Tue, 26 Jan 2010 14:56:47 GMT

Yesterday I reported on the Form Motor Credit decision of the Michigan Court of Appeals. On an almost identical issue, the Court of Appeals in Daimler Chrysler Services of North America, LLC, a/k/a DaimlerChrysler Services North America, LLC v. Department of Treasury, Michigan Court of Appeals, Docket No. 288347, January 21, 2010 ruled that a sales finance company was not entitled to a bad debt deduction on transactions involving repossessed vehicles.

This case was previously decided by the Court of Appeals in DaimlerChrysler v. Department of Treasury, 271 Mich App 625 , 723 NW2d 569 (2006) with regard to a separate issue, that the taxpayer was entitled to a bad debt deduction on vehicles that it had financed and that later defaulted. The statute in question was later amended to place limitations on the person that may be characterized as a “taxpayer” for purposes of the bad debt deduction.

On remand for a determination of the amount of refund due, the Court of Claims erred in finding that transactions involving repossessed vehicles are includible in the calculation of a refund under the bad debt statute [MCL 205.54i]. The version of the bad debt statute in effect at the time the refund claims were filed clearly states that for purposes of the bad debt deduction, a bad debt does not include repossessed property.

Ford Motor Credit Denied a Sales Tax Bad Debt Deduction by the Michigan Court of Appeals

EHTC — Mon, 25 Jan 2010 15:38:00 GMT

In Ford Motor Credit Co. v. Department of Treasury, Michigan Court of Appeals, Docket Number 289781, January 12, 2010 a finance company that financed sales of motor vehicles by its affiliated dealers was not entitled to recover overpayments of sales tax under the general Sales Tax Act's bad debt statute. The court rejected that taxpayer's constitutional arguments for the reasons stated in GMAC, LLC, et al. v. Department of Treasury, Michigan Court of Appeals. Docket Numbers 289261-289263 and 289266, December 3, 2009.

The court also rejected the claim that the taxpayer remained entitled to the refund based on the definition of person contained in in the Sales Tax Act [MCL 205.51(1)(a)] as without merit. That statute expressly provides that it does not apply where a more limited meaning is disclosed by the context. In light of the legislature's amendment of MCL 205.54i to express its original intent that only the person who remits the tax on the specific sale at retail was entitled to the bad debt deduction, the taxpayer's position was without merit. Finally, the taxpayer's assertion that it is entitled to the bad debt deduction based on an assignment is contrary to the legislature's expressed statement that the deduction is available only to the person who remits the tax.

Michigan Property Tax Amended for Business Incentives

EHTC — Fri, 22 Jan 2010 16:10:00 GMT

Public Act 209 of 2009 (PA 209-09)

PA 209-09 amends the Plant Rehabilitation and Industrial Development Act (PA 198) to allow a property tax abatement for an electric generating plant fueled by biomass that is not owned by a local unit of government if:

(1) the plant involves the reuse of a federal Superfund site remediated by the U.S. Environmental Protection Agency; and

(2) an independent study has concluded that the plant would not have an adverse effect on wood supply in the area from which the plant's wood supply would be derived.

A plant would be presumed not to have an adverse effect if the company has a study funded by the U.S. Department of Energy and managed by the Michigan Department of Energy, Labor, and Economic Growth concluding that the plant will consume not more than 7.5% of the annual wood growth within a 60-mile radius of the plant.

Public Act 162 of 2009 (PA 162-09)

PA 162-09, effective December 14, 2009, allows the designation of all or part of a local development finance authority district as a certified alternative energy park. The bill allows the Michigan Economic Development Corporation (MEDC) to designate up to 10 certified alternative energy parks. The MEDC cannot enter into a agreement for an alternative energy park after December 31, 2011. The bill allows a municipality in which a certified alternative energy park is located to make a tax pledge to support an authority's tax increment financing bonds. The Local Development Financing Authority Act allows a local development finance authority to “capture” revenue from property tax millage that is levied on increased property values, within the jurisdiction to the authority.

Public Act 161 of 2009 (PA 161-09)

PA 161-09, effective December 14, 2009, amends the Local Development Financing Act to allow the Michigan Economic Development Corporation to designate an additional two certified technology parks (Smart Zones) after June 1, 2009 and before April 1, 2010. Under the Act, these special technology parks or zones can “capture“ the growth in property taxes (tax increments) within the park.

Michigan Sales and Use Tax: Materials Used by Landfill Operator Qualify for the Industrial Processing Exemption

EHTC — Thu, 21 Jan 2010 15:47:00 GMT

In a case that I was involved with as a consultant at the audit level, the Michigan Court of Appeals has allowed a landfill owner and operator to claim the industrial processing exemption from the Michigan sales tax and use tax. [Granger Land Development Co. v. Department of Treasury, Michigan Court of Appeals, Docket No. 286355, December 29, 2009]

In Granger, property and equipment used by a landfill operator to erect cells in which it deposits waste for the production of methane gas for sale, qualify for exemption from Michigan use tax because the property is used in industrial processing. Though the Department of Treasury contended that the personal property used to erect and maintain the cells was affixed to the real property, the taxpayer did not attach the cells to the underlying real property and affirmatively insulated the real property from the waste. Further, the cells were not established to improve the land but to facilitate the processing of waste material. The cells were not intended to be a permanent accession to real estate because the fact that the processing of the raw materials occurs in the same location that the eventual disposal of leftover materials might occur does not mean that the materials in the cells become part of the real estate during the processing period. The heavy equipment used by the taxpayer is also exempt because it is used to transport the waste and to erect the cells and therefore is used in the industrial processing of the waste.

Michigan Business Tax Two Late 2009 Amendments Applicable to 2009

EHTC — Wed, 20 Jan 2010 15:31:00 GMT

Public Act 185 of 2009 (PA 185-09)

PA 185-09 is effective December 17, 2009 and applies to tax years ending after December 31, 2008. It provides that the Michigan Business Tax (MBT) may be computed as if the tax were effective on the first day of the taxpayer's annual accounting period and the amount computed must be multiplied by a fraction, the numerator of which is the number of months in the taxpayer's first tax year and the denominator of which is the number of months in the taxpayer's annual accounting period. Previous law simply stated the denominator of which is “12”.

Section 503 of the Michigan Business Tax Act (MBTA) provides two alternative methods to compute a short year (less that 12 months) MBT return. However, Section 503 is applicable only to the first MBT return filed by a taxpayer. All other short year returns must be filed and computed on an actual basis.

Public Act 184 of 2009 (PA 184-09)

PA 184-09 is effective December 17, 2009 and applies to tax years beginning after December 31, 2007. It amends the Michigan Business Tax (MBT) credit allowed to a qualified alternative energy entity for its qualified payroll amount. The calculation of the taxpayer's qualified payroll amount is based, in part, on the tax rate for the tax year for which the credit is being claimed. The Michigan Business Tax Act (MBTA) is amended to refer to the income tax rate imposed under the Michigan Income Tax Act [MCL 206.51 instead of former MCL 206.51e].