LR 2002-03 Availability of Voluntary Disclosure Relief to Michigan Residents and Businesses

This Letter Ruling provides guidance to Michigan residents, both individuals and business entities incorporated or organized in this state, regarding the availability of relief under the Voluntary Disclosure Act, MCL 205.30c.

Michigan's voluntary disclosure legislation (221 PA 1998; MCL 205.30c) was enacted to address the difficulties that arose when appellate decisions such as Gillette Co v Dep't of Treasury, 198 Mich App 303 (1993), apply a new standard of law retroactively and create filing responsibilities where none had previously existed. See Syntex Laboratories v Dep't of Treasury, 223 Mich App 286 (1998). In these situations, the court decision could result in making a taxpayer a nonfiler with potentially unlimited liability for back years. The voluntary disclosure legislation provides narrow, targeted relief only to certain nonfilers that meet the eligibility requirements of MCL 205.30c(3) and who also meet one or both of the following two conditions: first, they have "filing responsibilit[ies] under nexus standards issued by the Department after December 31, 1997", MCL 205.30c (1) (a); or, second, in the absence of published nexus standards, they have "a reasonable basis to contest liability, as determined by the Commissioner, for a tax or fee administered under this act," MCL 205.30c(1)(b). As a significant exemption from tax, Michigan's voluntary disclosure legislation must be strictly construed, consistent with its purpose and legislative intent, in favor of the taxing agency. Saginaw General Hospital v Saginaw, 208 Mich App 595, 598 (1995); Canterbury Health Care Inc v Dep't of Treasury, 220 Mich App 23 (1996).

The Department's nexus bulletins (RABs) do not provide Michigan residents a basis for obtaining voluntary disclosure relief under MCL 205.30c (1) (a). Though nexus standards may be used by Michigan residents to apportion their tax base, apportionment has no relationship to the taxpayer's Michigan filing responsibility. Further, a substantial portion of nexus bulletins do not establish filing responsibilities that did not already exist prior to the issuance of the bulletin. For example, both RAB 1998-1 and RAB 1999-1 state that, "Where no conflict exist between this RAB and previously published positions taken by the Department, those positions, as they relate to nexus will remain in effect." The Department's position regarding the filing responsibilities of Michigan residents has never changed in its nexus bulletins. Though RAB 1998-1 set forth a new standard with respect to the Department's position regarding the Federal Interstate Tax Act, (otherwise known as P.L. 86-272), this act has never provided a nexus safeharbor to the state of a business entity's incorporation or organization.

The second condition contained in MCL 205.30c(1)(b) is as narrow and targeted as the relief provided to nonresidents in MCL 205.30c(1)(a). The Department views the standard "reasonable basis to contest liability" as comparable to an evaluation of whether the taxpayer's reasons for not filing have a chance of prevailing in litigation and are, in the Department's determination, a "reasonable" one. The exacting standard contained in MCL 205.30c(1)(b) is also discretionary. Thus while resident taxpayers may apply for voluntary disclosure asserting they have a "reasonable basis to contest liability" under the statute, the Department is unaware of any recent retroactive event, change in the law, or court decision of similar legal magnitude that would meet these standards.

Alternatively, resident taxpayers may obtain discretionary relief under Taxpayer-Initiated Disclosure if they qualify under RAB 1995-4. Taxpayers that require further information as to whether they might be eligible for this relief should contact the Bureau of Revenue's Discovery and Tax Enforcement Section at 517-636-4120 or in writing at P.O. Box 30140, Lansing, Michigan 48909-7640.

March 5, 2002
LR 2002-3
June Summers Haas
Commissioner of Revenue