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Michigan Streamlined Legislation
Legislation was enacted in 2004 to bring Michigan's sales and use tax statutes into compliance with the Streamlined Sales and Use Tax Agreement ("Agreement"), and again in 2008 to maintain Michigan's compliance with the Agreement.
Following extensive discussions with business interests, in 2004 the Michigan legislature enacted a package of four acts intended to comply with the Agreement. This package included:
Streamlined Sales and Use Tax Administration Act (2004 PA 174). This act authorizes the State Treasurer to enter into the Agreement with other states and details the manner in which Michigan will participate. Among its provisions are those that:
Note: Participation by sellers in the Streamlined Agreement is voluntary. Other than complying with changes to Michigan law such as a new return date and new definitions of products, a currently registered seller may continue their current practices, and need not select a new technological model.
Use Tax Act amendments (2004 PA 172) and General Sales Tax Act amendments (2004 PA 173) These two bills made substantive changes to the sales and use tax provisions of State law. Because these taxes are similar in administration, imposition, and exemptions, they are discussed together.
In drafting the legislation to comply with the Agreement, efforts were made to minimize revenue impact by maintaining both the current tax base and current exemptions. In some cases current law was easily modified to comply with the Agreement by making changes in form.
EXAMPLE: Michigan imposes tax on "sales at retail." Before 2004, some transactions were not taxed because they were expressly excluded from what constituted a "sale at retail." Certain sales of water, "custom software", isolated transactions, and certain "commercial advertising elements" were expressly not included within the definition of a "sale at retail." These exclusions are not permitted under the definition of "sale at retail" required under the Streamlined Agreement. Compliance was achieved, without any substantive change in the tax base, by eliminating language excluding these items from "sale at retail" and replacing them with express exemptions from the imposition of the tax.
In other instances compliance with the Agreement resulted in unavoidable changes to the tax base. In cases where the revenue consequences were small, further adjustment was not made. In other cases the resulting changes are addressed in the Streamlined Sales and Use Tax Revenue Equalization Act by either imposing a tax or providing a credit to retain revenue neutrality.
EXAMPLE: Prior to Streamlined, bakery goods were exempt if purchased for "off premise" consumption, and taxable if purchased for "on premise" consumption. Under Streamlined, bakery goods are exempt unless they are sold with an "eating utensil." "Eating utensils" are defined to include knives, forks, spoons, glasses, cups, napkins, straws, or plates.
EXAMPLE: Prior to Streamlined, Michigan law provided that food arranged on a plate or platter, whether intended for individual or multiple servings and whether sold by the pound or by the serving was taxed as "prepared food intended for immediate consumption." "Deli trays" were generally subject to tax. Under Streamlined, food sold in an unheated state by weight or volume as a single item is taxable only if sold with eating utensils. Under Streamlined, "deli trays" will generally not be subject to tax.
EXAMPLE: Prior to Streamlined, equipment that was not used to replace or substitute for a part of the human body would only be exempt if it was used to assist a disabled person to lead a reasonably normal life. This requirement of disability does not exist under Streamlined. Rather, the exemption rests upon the nature of the equipment and its use.
EXAMPLE: Prior to Streamlined, contacts were only exempt from tax if eyeglasses could not be worn due to a specific disease. Streamlined provides the option of either taxing all contacts or exempting all contacts. In addressing contact lenses the legislature had the option of either greatly expanding the exemption to all contact lenses or slightly reducing the exemption by taxing all contact lenses. Rather than expand the exemption to all contacts, the legislature opted to impose tax on contact lenses worn by the limited group of persons who cannot wear glasses.
EXAMPLE: A buyer located in Michigan purchases a gift item from a Michigan retail location to be sent to a third person in Ohio. The buyer does not take physical possession of the gift item but instead directs the store to ship the item to the unrelated third party in Ohio. Under Streamlined the transaction will be sourced to Ohio and any tax collected will properly be payable to Ohio.
EXAMPLE: A lessor located in Indiana purchases a crane in Indiana to be leased to a Michigan construction contractor. The lessor pays Indiana sales tax on the purchase price. Prior to Streamlined, the crane would be subject to Michigan tax either on its purchase price or its stream of monthly rental receipts without credit for the tax paid to Indiana. After Streamlined, the crane will only be subject to Michigan tax to the extent Michigan's 6% tax applied to the purchase price exceeds the tax paid to Indiana.
EXAMPLE: A credit sale was made in August of 2000. The August 2000 return had a due date of September 15, 2000. The debt was found to be worthless and written off in December 2001. Prior to Streamlined, the bad debt had to be claimed (on an amended return for December 2001) no later than September 15, 2004. After Streamlined, the bad debt has to be claimed (on an amended return for December 2001) no later than January 15, 2006 (the December 2001 return due date was January 15, 2002).
EXAMPLE: A licensed nursing home dispenses aspirin as directed by a physician and as recorded in the patient's medical records. Prior to Streamlined, the aspirin would not be subject to tax in conformance with the Birchwood Manor decision. After Streamlined, the aspirin will be subject to tax. because it is not a drug that can only be legally dispensed pursuant to a prescription.
EXAMPLE: Prior to Streamlined, a return for the first quarter of the year was due on April 15th. After Streamlined, the same return will be due April 20th.
Streamlined Sales and Use Tax Revenue Equalization Act (2004 PA 175) This act separately imposes taxes and provides credits to modify the impact of the changes made to the General Sales Tax Act and the Use Tax Act.
The Agreement has been amended several times since October of 2005 by the Governing Board. In order to maintain compliance with the Agreement, the Michigan legislature in 2008 enacted a package of four acts. This package included:
Streamlined Sales and Use Tax Administration Act (2008 PA 437). This amendment provides liability relief to Certified Service Providers ("CSPs") and Model 2 Sellers for reliance on the Department of Treasury's certification of the certified automated system they use, and provides CSPs with the same liability relief as is given to sellers is MCL 205.62.
General Sales Tax Act amendments and Use Tax Act amendments (2008 PA 438 and 2008 PA 439). These two bills made changes to the sales and use tax provisions of State law. Because these taxes are similar in administration, imposition, and exemptions (except as noted), notable changes made in the bills are discussed together.
Delivery Charges for exempt property - the seller is not liable for sales tax for delivery charges allocated to the delivery of exempt property
Discounts -sales/purchase price includes consideration received by the seller from third parties, if certain conditions are met. Employee discounts that are reimbursed by a third party on sales of motor vehicles are NOT included in sales/purchase price.
Durable Medical Equipment - "durable medical equipment repair or replacement parts" are components or attachments used in conjunction with durable medical equipment and are eligible for exemption.
"TRAC" leases - motor vehicle or trailer terminal adjustment clause ("TRAC") leases, where the consideration is increased/decreased based on the amount realized upon sale of the leased item, are included in the definition of "lease or rental."
Hearing aid prescriptions - prescriptions for hearing aids issued by hearing aid dealers or salespersons who are licensed under the Occupational Code may be used to support exemption claims for hearing aids.
Telecommunications (Use Tax Act) - many definitions have been added or updated, and outdated terms have been removed. New definitions include "ancillary services," "conference bridging service," "fixed wireless service," "900 service," "value-added nonvoice data service," "telecommunications nonrecurring charges," and "telecommunications service." Mobile telecommunications services are now designated as "mobile wireless services."
Drop-shippers - a seller who sells tangible personal property to a person not licensed for resale to a Michigan purchaser and delivers the property directly to the Michigan purchaser may use acceptable information evidencing qualification for a resale exemption to support their buyer's resale exemption claim.
Exemption Administration - a seller making a counter sale will not be relieved of sales/use tax liability where the exemption form clearly indicates that the claimed exemption is not available. Blanket exemption certificates will remain valid throughout a "recurring business relationship" instead of a 4-year maximum effective period.
Multiple Points of Use - the provisions which allowed a purchaser to provide a seller with a Multiple Points of Use ("MPU") exemption form and remit the applicable tax on a direct pay basis (and relieved the seller from tax liability) have been deleted. The MPU exemption claim is no longer available.
Streamlined Sales and Use Tax Revenue Equalization Act (2008 PA 436). The amendment to this act provides a credit/refund for vehicle purchases by persons who are not employees of auto manufacturers, where the manufacturer requires the dealer to give the purchaser a specified discount or price reduction.
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