Tax Law Blog

The short answer is that it depends, but it is usually advisable and sometimes required. Let’s dig deeper.

Initially, let’s discuss what a PPM is. A PPM is a document that discloses information regarding the company that is seeking to raise investment capital. In some ways, it is like a business plan, but with detailed additions for investment risk factors, securities law provisions, and the proposed terms of investment. PPMs go by a variety of names – including confidential information memorandums (CIMs) and offering memorandums.

Sales and Use taxes are basically a 6 percent tax on the sale, use and consumption or storage of tangible personal property in the state of Michigan. Michigan has ramped up its enforcement of these two taxes. In short, Michigan is getting less revenue from its traditional tax basis so the state is really looking to enforce compliance with the sales and use tax more than what they used to. What does that mean for you? It means that you might get audited. Learn more about what you should do if you get audited in the video below.

The Michigan Department of Treasury has published its Other Deductions Manual (the “Manual”). The Manual provides a listing and analysis of the common sales and use tax exemptions. 

If you are a business subject to Michigan sales or use tax, then the Manual is a helpful resource to have on file.

The Manual can be downloaded by clicking this link.  

Are you an out-of-state business making Internet sales into Michigan? If so, take notice.

The Michigan Main Street Fairness Act (the “Act”) is now effective. Designed to level the playing field between “brick and mortar” retailers and out-of-state Internet sellers, the Act creates two new tests whereby out-of-state sellers are presumed to have Michigan nexus. 

A quick reminder – if an out-of-state seller has Michigan nexus, then it is required to collect and remit 6 percent Michigan sales tax on all sales to Michigan residents.

Test #1 is the affiliate nexus test. Under the affiliate nexus test, an out-of-state retailer will be presumed to have Michigan nexus (i.e., required to collect and remit 6 percent Michigan sales tax on all Michigan sales) if the seller or an affiliate of the seller: 

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?

A commonly-recognized feature of many business entities is the "shield" that protects officers, members, managers, and partners from personal liability for the business's actions. However, that "shield" does not protect the officers of a company from all liability. Importantly, if a business fails to pay its taxes, then the key officers of the business can be held personally liable for the unpaid taxes of the business.

Kickstarter is a crowdfunding platform for creative projects. Project creators set a funding goal and deadline for their project, and if people like the project, they can pledge money to help make it happen. From movies to books, electronic gadgets to fashion, a wide range of projects raise funds (and in many cases don't raise funds) on Kickstarter. One guy even raised over $50,000 to make potato salad.

While Kickstarter has been a great fundraising platform for a wide range of people who may have had no alternative source of financing, an issue that many people overlook is the tax implications from a successful Kickstarter campaign.

Who Must File?

Virtually all tax exempt entities must file an annual return with the IRS. In fact, the presumption is that a tax exempt organization must file unless they fit into one of the IRS's limited exceptions. Several exemptions apply to certain religious organizations, political organizations, and others.

What Must be Filed?

There is no single form common to all tax exempt organizations, but all will file one of the "990-Series Return" forms, including Forms 990, 990-N, 990-EZ, or 990-PF. Supplemental information may be required through any one or more of Schedule A through R too. In general, tax exempt organizations incurring gross receipts less than $50,000 will file Form 990-N, also known as the "e-Postcard." Organizations that do not qualify to use Form 990-N, but who incur gross receipts less than $200,000 and have less than $500,000 in total assets may file either Form 990 or 990-EZ, while those with receipts or assets equal to or greater than the previously mentioned benchmarks must file Form 990. Finally, private foundations must file Form 990-PF regardless of financial status.

Many nonprofit corporations are exempt from federal income tax pursuant to Section 501(c)(3) of the Internal Revenue Code. Until relatively recently, many of those tax-exempt nonprofits were not required to file annual Form 990 series returns. That all changed with the Pension Protection Act of 2006. Now, all tax-exempt nonprofits are required to file an annual Form 990 series return. If a tax-exempt organization fails to do so for three consecutive years, then its federal income tax exemption is automatically revoked - - no questions asked.

How Do You Know If Your Tax-Exempt Organization Has Lost Its
501(c)(3) Status?

The IRS maintains a list of organizations that have had their 501(c)(3) status revoked. 

On May 23^rd, the Michigan Court of Appeals upheld a tax tribunal decision that held a restaurant owner personally liable for unpaid taxes, even though that owner had minimal involvement in the preparation of those taxes. Griffin, Jr. v. Dep't of Treasury. The restaurant had failed to pay its sales and withholding tax liabilities for four months, resulting in bills for the unpaid taxes, penalties, and interest on the overdue amount. Based on MCL 205.27a, the Department of Treasury sought to hold the restaurant owner personally liable for the tax bill.

The Alternative Minimum Tax (“AMT”) was enacted in 1969 to ensure that high-income individuals paid at least a minimal amount of tax.  The AMT operates parallel to the regular tax system and allows different deductions, credits, and exemptions.

On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 (ATRA) into law. Enacted to address the tax side of the “fiscal cliff,” the ATRA primarily addresses the expiration of certain portions of the Bush-era tax cuts.  Below is a summary of the major tax provisions in the ATRA.

Certain officers may be personally liable for the unpaid taxes of a Michigan business.  MCL 205.27a(5) imposes personal liability on those officers with tax paying responsibilities if a business fails to file a return or pay a tax due. As a general matter, an officer has "tax paying responsibilities" if he signs returns, files returns, or has the power to direct others to file returns or pay taxes.

Foster Swift successfully reverses a $500,000 use tax assessment in Arrow Energy Services, Inc. v. Department of Treasury (MTT No: 404349).

Facts of Case

In 2008, the Department of Treasury audited Arrow Energy for use tax compliance.  Arrow Energy is an oil and gas servicing company.  During the period of the audit, Arrow Energy was primarily engaged in turnkey operations whereby Arrow Energy utilized subcontractors to construct production-ready natural gas wells for third parties.

Tax withholding requirements in Michigan are set forth in MCL 206.703.  Every Michigan employer that is required to withhold federal income tax under the Internal Revenue Code is also required to register and withhold Michigan income taxes.  Effective January 1, 2012, companies that pay pension and retirement benefits are also required to withhold Michigan income taxes on those payments to retirees. The withholding rate is generally 4.35%.

The Corporate Income Tax (“CIT”) took effect on January 1, 2012 and replaced the Michigan Business Tax (“MBT”) for most taxpayers, except those electing to continue the MBT to claim certain credits.  The CIT consists of a franchise tax for financial institutions, a premium tax for insurance companies, and a flat 6% income tax for C Corporations and entities taxed as C Corporations for federal income tax purposes. As discussed in prior blog postings, the CIT does not apply to pass-through entities, such as LLCs or partnerships.

The Michigan Use Tax Act has several notable exemptions, one of which is the agricultural exemption.  The agricultural use tax exemption covers “[p]roperty sold to a person engaged in a business enterprise and using and consuming the property . . . in the breeding, raising, or caring for livestock, poultry, or horticultural products.”  MCL § 205.94(1)(f).  This establishes two requirements for the use tax exemption:

If your business is currently undergoing a use tax audit, then take notice.

The statute of limitations for use tax audits is set forth in the Revenue Act.  Specifically, MCL 205.27a states that:

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.

Suppose you visit your local electronics store and purchase a new TV.  You pay for the TV, but notice that the retailer did not charge sales tax.  Are you now liable for use tax?

The answer is “no” according to a recent Court of Appeals ruling. Andrie, Inc. v. Department of Treasury.  But, let’s look at the details.

The personal property tax (“PPT”) is one of Michigan’s oldest forms of taxation, dating back to the 1890s. However, during the last decade, the PPT has been a constant source of contention.  Advocates include local governments, which argue that the PPT is a vital source of revenue.  Opponents include many businesses, which contend that the PPT is a competitive disadvantage and impediment to attracting and retaining businesses in Michigan.

In 2011, Governor Rick Snyder signed into law Public Acts 38 and 39 of 2011 (the “Act”), which make sweeping changes to Michigan’s business and individual tax landscape.

Relevant to individuals, the Act makes many changes, including taxing income from pensions and other types of retirement plans.  This article summarizes the changes applicable to individuals.

In 2011, Public Act 38 was signed into law.  Prior to Public Act 38, public pension benefits were completely deductible, private pensions were deductible up to $45,120 (for a single filer), and all taxpayers were entitled to a personal exemption of $2,500.

Public Act 38 changed that as follows:

Most business owners are familiar with the concept of "piercing the corporate veil" – that legal theory whereby owners and officers may be personally liable for the obligations of a corporation.  However, personal liability may also be imposed in the sales and use tax arena.

In 2011, the Michigan Corporate Income Tax ("CIT") was signed into law.  The CIT repealed the Michigan Business Tax and replaced it with a flat 6% tax on businesses that are taxed as C corporations for federal income tax purposes.