Clarification on benefits received in Michigan

If you ever found yourself wondering how to interpret the “benefit received” test for sourcing service revenue, Michigan has heard your frustration.  The Michigan Department of Treasury recently released Revenue Administrative Bulletin 2015-20, which provides some much needed context to the application of the benefit received test for purposes of sourcing service receipts as part of the sales factor of the apportionment formula.  The Bulletin sets guidelines for situations when all the benefit of a service might be received in Michigan, and for situations when the recipient of the service receives only a portion of the benefit of the service in Michigan.  The Bulletin also provides specific examples, and expands on certain situations which may not be covered by the general guidelines. 

 

Michigan Supreme Court denied use tax exemption without proof of sales tax payment

Michigan Supreme Court denied use tax exemption without proof of sales tax payment

On June 23, 2014, the Michigan Supreme Court held that in order to be entitled to the use tax exemption, one must show that sales tax was both due and paid on the sale of tangible personal property. The burden of proving entitlement to the exemption is on the taxpayer. The taxpayer had to show it paid sales tax on the purchase of property before it could claim an exemption and since it did not submit evidence that sales tax was paid, the taxpayer was not entitled to the exemption. Andrie Inc., v. Department of Treasury, Michigan Supreme Court, No. 145557 (6/23/2014)

Based on the Court’s decision, taxpayers are not entitled to a presumption that sales tax has been paid when their Michigan invoices do not list sales tax as a separate item. Therefore, companies purchasing tangible personal property from Michigan vendors should identify whether sales tax is delineated on receipts in order to determine whether a use tax liability may be imposed. If Michigan sales tax is not separately stated, companies should consider contacting retailers to request new invoices or other evidence to support that sales tax was paid.

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Multistate Tax Compact Apportionment Election Upheld by Michigan Supreme Court

On July 14, 2014, the Michigan Supreme Court ruled in International Business Machines v. Michigan Department of Treasury that the taxpayer was allowed to use the three-factor formula apportionment election provided under the Multistate Tax Compact (MTC) in determining its 2008 Michigan Business Tax (MBT). Read more at http://link.plantemoran.com/m/1/90311804/b19914-56621273-fdb4-4585-add6-b50cae69355a/1/854/77ac9ea4-0720-4ecf-b640-e4a947c8923f.

Pass-Through Entity February Withholding Requirements

This is just a reminder that there are some February due dates for certain pass-through entity withholding related filings

Michigan Flow-Through Withholding Annual Reconciliation –
Flow-through entities (FTEs) that are required to withhold on members that are non-resident individuals or corporations are also required to file an annual reconciliation using Form 4918, Annual Flow-Through Withholding Reconciliation Return. This return is in addition to the quarterly filing of Form 4917, Flow-Through Withholding Quarterly Return. The annual reconciliation is due to the Department on February 28th, or the last day of the second month following the end of the tax year for fiscal year FTEs.

Wisconsin Pass-Through Entity Withholding Exemption –
Pass-through entities, other than S corporations, may file an annual exemption withholding affidavit (Form PW-2) within two months following the close of the entity’s taxable year, February 28th for a calendar year entity. The deadline for filing this exemption for S corporations was January 31st for entities with a calendar year end (within one month following the close of the S corporation’s taxable year).

Michigan Corporate Income Tax

On May 25, 2011, the Michigan Corporate Income Tax (CIT) was signed into law, imposing a 6% corporate income tax on C corporations and taxpayers taxed as corporations for federal income tax purposes.  The CIT allows only one credit, the small business alternative credit, offering an alternative tax rate of 1.8% of adjusted business income.

The CIT replaces the Michigan Business Tax (MBT) for most taxpayers and is effective January 1, 2012.  Taxpayers with less than $350,000 in allocated or apportioned gross receipts and/or less than or equal to $100 in annual liability are not required to file or pay the CIT.  The gross receipts threshold does not apply to financial institutions or insurance companies.

A CIT taxpayer’s tax year is the calendar year, or the fiscal year ending during the calendar year.  Fiscal year taxpayers must file a final MBT return for the year ending on December 31, 2011.  A taxpayer that is subject to the MBT and the CIT for fractional parts of the same fiscal year must use the same method to compute the MBT as used to compute the CIT for the other portion of the tax year.

Fiscal year taxpayers will be granted an automatic extension for their 2012 fiscal year annual CIT return.  Fiscal year returns ending in 2012 will be due the same date as 2012 calendar year returns, April 30, 2013.  An extension request form is not needed unless the taxpayer is required to transmit payment of any tax that would be due with the annual return.

Calendar year taxpayers must file a Michigan Application for Extension of Time to File by the due date of the CIT annual return, together with payment of estimated tax.  CIT annual returns for calendar year taxpayers is April 30th.

Annual returns will be finalized and posted to the Michigan website by the time the legislature adjourns for the year in December 2012.  It is anticipated that paper forms and instructions will be available for distribution in January 2013.

Individuals and flow-through entities, including partnerships, S corporations, and trusts are not subject to the CIT.

Flow-through entities may be subject to withholding.  A flow-through entity with business activity in Michigan that has more than $200,000 of business income after allocation or apportionment is required to withhold a tax on the distributive share of business income of each corporation or flow-through member of the flow-through entity in an amount computed pursuant to MCL 200.623.

Insurance companies are subject to tax equal to 1.25% of gross direct premiums written on property or risk located or residing in Michigan.

Financial institutions are subject to tax equal to 0.29% of their apportioned net capital.

Additional information may be obtained on the Michigan Department of Treasury website at:  http://www.michigan.gov/taxes/0,4676,7-238-59553—,00.html