Michigan Sales and Use Tax Audits
Every year, the Michigan Department of Treasury audits Michigan businesses for compliance with the Sales and Use tax laws. Oftentimes, those audits result in tax assessments that are disputed by the taxpayer. But, how does a taxpayer navigate the audit process and challenge a tax assessment?
Let’s take a look at the basics.
Several milestones mark the audit process.
- Notice of Preliminary Audit Determination. After the audit is completed, Treasury will send the taxpayer a Notice of Preliminary Audit Determination. This form states the preliminary determination of the tax deficiency. The taxpayer will sign this form, indicating whether it agrees or disagrees with the preliminary determination.
- Final Audit Determination Letter. Approximately 60 days after the Notice of Preliminary Audit Determination, Treasury will issue a Final Audit Determination Letter. The Final Audit Determination states the final determination of the tax deficiency.
- Bill of Taxes Due (Intent to Assess). Treasury will issue a Bill of Taxes Due (Intent to Assess) in connection with the Final Audit Determination Letter. The Bill of Taxes Due is the actual bill for the tax deficiency. If the taxpayer disagrees with the tax deficiency, then it can: (1) request an informal conference within 60 days, or (2) immediately file a formal appeal to the Michigan Tax Tribunal within 35 days or to the Court of Claims within 90 days. Most taxpayers disputing a tax deficiency request an informal conference. The informal conference is conducted by a neutral hearing referee and provides the taxpayer with an opportunity to present its position and have the tax dispute resolved without a formal hearing.
If the taxpayer does not pay the tax deficiency or initiate an informal or formal appeal, then Treasury will begin a collection action to recover the deficient taxes. For example, Treasury may place liens on real or personal property, levy a financial institution, offset tax refunds, or seek other actions.
- Decision and Order of Determination. If the taxpayer elects an informal conference, then the hearing referee will ultimately issue a written recommendation to Treasury. Treasury will review the hearing referee’s written recommendation and issue a Decision and Order of Determination. If the taxpayer disagrees with the Decision and Order of Determination, the taxpayer may file a formal appeal with the Michigan Tax Tribunal or Court of Claims. Note that a taxpayer must file an appeal within 35 days if to the Michigan Tax Tribunal or within 90 days if to the Court of Claims. Also, taxpayers appealing to the Court of Claims must first pay the disputed taxes to Treasury. In contrast, taxpayers appealing to the Michigan Tax Tribunal are not required to first pay the disputed taxes (but interest continues to accrue). The decisions of the Michigan Tax Tribunal and Court of Claims can be appealed to the Michigan Court of Appeals.
Please contact me if you have questions regarding Michigan Sales and Use taxes.