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Michigan Business Tax
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M17. Does the "materials and supplies" provision in the definition of ?purchases from other firms" at MCL 208.1113(6)(c) apply to service providers?
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Answer:
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Yes. A taxpayer's modified gross receipts (MGR) tax base under the Michigan Business Tax Act (MBTA) is the taxpayer's ?gross receipts" less ?purchases from other firms" before apportionment. MCL 208.1203. ?Gross receipts" is defined in the MBTA, in pertinent part, as the ?entire amount received by the taxpayer from any activity whether in intrastate, interstate, or foreign commerce carried on for direct or indirect gain, benefit, or advantage to the taxpayer or to others [with certain prescribed exceptions]." MCL 208.1111. ?Purchases from other firms" includes all of the following items pertinent to this question:
(a) Inventory acquired during the tax year, including freight, shipping, delivery, or engineering charges included in the original contract price for that inventory.
(b) Assets, including the costs of fabrication and installation, acquired during the tax year of a type that are, or under the internal revenue code will become, eligible for depreciation, amortization, or accelerated capital cost recovery for federal income tax purposes.
(c) To the extent not included in inventory or depreciable property, materials and supplies, including repair parts and fuel. MCL 208.1113(6)(a) ? (c).
Therefore, a taxpayer whose business activity is the provision of services may calculate its MGR by deducting from its gross receipts the amount attributed to ?materials and supplies" under MCL 208.1113(6)(c), to the extent used or consumed in and directly connected to the production or management of inventory or the operation or maintenance of the depreciable assets described above.
To the extent that a taxpayer who is a service provider maintains an inventory of goods for sale or has depreciable assets, any tangible personal property acquired by the taxpayer during the tax year that is used or consumed in, and directly connected to, the management of taxpayer's inventory or the operation or maintenance of depreciable assets is a ?purchase from other firms" for purposes of calculating MGR. For example, a physician's or dentist's purchase of sterilizing solution during the tax year that is used to sterilize examination equipment, such as an X-ray machine, may be considered materials and supplies under MCL 208.1113(6)(c).
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