SALES AND USE TAX UPDATE Dave Matelski Tax Policy Division
RECENT SALES/USE TAX CASES Auto Owners Ins. Co. v. Dep t of Treasury, 313 Mich App 56 (2015) Auto Owners entered into contracts for certain computing products. The issue was whether the products constituted the taxable use of prewritten computer software. The Court held in favor of Auto Owners and found that there were essentially two categories of products at issue. The first category consisted of software that the Court determined had not been delivered or used in Michigan. The second category consisted of prewritten computer software that had been delivered and used in Michigan, however, after applying the Catalina test to the products, the Court determined that the prewritten computer software was incidental to the service provided, and therefore, not taxable. Notice posted on the Department s website
RECENT SALES/USE TAX CASES Ally Financial et al v Dep t of Treasury Mich App (2016) Plaintiffs are financing companies that financed purchases of motor vehicles for various dealers. Plaintiffs were denied bad debt deduction refunds by the Department and appealed. The Court held in favor of the Department on all three arguments presented by plaintiff. Written Election: Plaintiffs written contracts, containing election language, only applied to accounts currently existing or created in the future. All of the elections were entered after the bad debts at issue were incurred. RD-108 form as proof of payment of tax: The Court deferred to the Department s requirement that this form be submitted for the deduction based on the language in the statute that defers to the Department regarding proof of tax paid. Repossessed property: Repossessed property is completely excluded from the deduction.
RECENT SALES/USE TAX CASES Detroit Edison v. Dep t of Treasury, 498 Mich 28 (2015) Issue: Whether property (wires, transformers, etc) used by DTE after electricity left its electric generation plant was eligible for the industrial processing exemption Held: Property used after electricity left the generation plant was simultaneously used for exempt (i.e., changing the form, composition, or quality of electricity) and nonexempt (i.e., distribution) purposes, therefore, the exemption must be apportioned based on the percentage of exempt use to total use as determined by a reasonable formula or method approved by the Department Total Foundations, LLC v Dep t of Treasury, No. 322983 (Mich. Ct. App. March 22, 2016) Total Foundations installed foundations for ITC who distributes electricity. Issue: whether the foundations qualified for the IP exemption Held: The foundations qualify for the exemption because the IP exemption specifically includes foundations for machinery and equipment, which is more specific than the general exclusion of foundations, and therefore, controls. Remanded for apportionment consistent with DTE
RECENT SALES/USE TAX CASES Central Michigan Cementing Services, LLC, v Dep t of Treasury, Docket No. 323405: Central Michigan installed cement well casings for oil and gas wells. Held: Eligible for IP exemption; it is not affixed to real estate because the property owner did not intend for it to be permanent and its purpose is not to improve the land or make it more valuable. West Shore Services, Inc, v Dep t of Treasury, Docket No. 321085: West Shore installed 50 foot poles used for emergency warning sirens for its local government customers. Held: West Shore is a contractor that affixed its poles to real estate, therefore, it is liable for use tax.
RECENT SALES/USE TAX CASES Schoeneckers, Inc v Dep t of Treasury, unpublished, Docket No. 321033: Rewards program provider to employers. Employees used rewards points to purchase tpp. Held: Two separate transactions, use tax is due on the purchase price of the property sold to employees in exchange for points. Catalina inapplicable.
RECENT LEGISLATION 2014 PA 553 and 554, sales and use tax nexus legislation Affiliate Nexus presumption that seller has nexus if the seller or an affiliated person performs certain activities related to sales Click Thru Nexus presumption that seller has nexus if the seller enters into certain agreements with one or more Michigan residents Either presumption can be rebutted if the seller shows that the activities or agreements were not significantly associated with the seller s ability to establish or maintain a market in Michigan Revenue Administrative Bulletin 2015-22 provides more guidance
RECENT LEGISLATION 2016 PA 159 and 160: Direct mail amendment (MCL 205.71a) that brings MI back into Streamlined compliance. No change in tax imposition, but changes to sourcing depending on the type of direct mail involved. 2015 PA 251 and 252: These Acts exempt certain data center equipment that is deployed in a qualified data center. Very specific exemption, the Department has published a notice for guidance to taxpayers that think they may qualify. 2015 PA 205 and 205: Amends the IP exemption to include tpp that is used or consumed in an IP activity to produce alcoholic beverages that are sold at retail by that industrial processor through its own retail locations (e.g., wineries/breweries selling in there tap rooms).
PROPOSED LEGISLATION HB 5889 and 5890: Would amend the agricultural production exemption to specifically exempt contractors that install grain bins, grain drying equipment, subsurface irrigation, and agricultural land tile. Would also make the UTA exemption consistent with the GSTA (currently not consistent on the items exempted). SB 897/898, HB 5234, 5569, 5879, 5880: All of these bills would exempt feminine hygiene products and other similar tangible personal property. HB 5824 and 5825: Would expand exemption for county long-term medical facilities to include freestanding buildings if they are operated under the same license and offer the same health services.
RECENT ADMINISTRATIVE GUIDANCE RAB 2015-17: Sales Tax Treatment of Delivery and Installation Services Provided by Retailers RAB 2015-22: Sales and Use Tax Nexus Standards for Out-of-State Sellers RAB 2015-25: Sales and Use Taxes-Lessors RAB 2015-27: Sales and Use Taxes Bade Debt Deduction RAB 2016-2: Sales and Use Tax Treatment of Interstate Motor Carriers (i.e., the rolling stock exemption) RAB 2016-4: Determination of Tangible Personal Property or Real Property RAB 2016-14: Sales and Use Tax Exemption Claim Procedures and Formats RAB 2016-18: Sales and Use Taxation of the Construction Industry (Excluding Manufacturer/Contractors)
UPCOMING ADMINISTRATIVE GUIDANCE RAB: Use Tax Base of Tangible Personal Property Affixed to Real Estate by a Manufacturer/Contractor or Other Contractor RAB: Sales and Use Tax-Nonprofit Entities RAB: Use Tax Exemption for Transfers of Certain Property Between Relatives