ESA Topics: Audits

Under Section 7 of the State Essential Services Assessment Act, P.A. 92 of 2014, as amended (the Act), the Michigan Department of Treasury (Treasury)) has the authority to audit Essential Service Assessment (ESA) returns (certified statements and amended statements) submitted under the Act for the current calendar year and the three calendar years immediately preceding the commencement of an audit. Pursuant to this authority, Treasury has selected for audit, the ESA return for the tax year identified above. As authorized by the Act, Treasury may expand this audit to include any ESA return(s) that you filed in the current year or three previous years.

Audit Letters

Once an eligible claimant is selected for audit, Treasury will send a Notification of Audit letter to the contact information on file. Shortly thereafter, an auditor from Treasury or a third-party service provider, currently Reason Consulting Corporation, will contact the eligible claimant, instructing them to gather the required information and set up a site visit.

Under MCL 211.1057(6), the eligible claimant must provide access to the books and records for the purpose of the audit. Failure to comply with the statute will result in the rescission of the EMPP exemption for the year the parcel is audited. If an Order of Rescission is issued, the local unit in which the property is located will issue a revised personal property tax bill including penalty and interest.

Upon completion of the audit, and review of those results if performed by a third-party provider, an Audit Determination letter will be sent to the eligible claimant. The letter will include one of the following statements:

1. “An additional audit tax of $XX.XX and audit interest of $XX.XX are due.”
   1. An increase in liability as a result of an audit must be electronically paid in full, including audit interest, within 35 days from the date the letter was issued. If Treasury does not receive the electronic payment in that time period, the EMPP exemption for that parcel will be rescinded. The local unit in which the property is located will issue a personal property tax bill including interest and late fees. Payment of ESA liability and interest by paper check cannot be accepted.
2. “A refund of $XX.XX will be mailed to the company's legal address.”
   1. The audit resulted in a decrease in acquisition cost and liability paid. The refund check is issued separately from the Audit Determination Letter and sent to the company’s legal address.
3. “As a result of the audit, no change was made to the ESA return.”
   1. The audit found that there were no changes to be made to the account or any changes made would not influence the liability.
4. “The audit determined that the below-referenced parcel(s) does not qualify for ESA because it does not meet the definition of eligible manufacturing personal property as defined by MCL 211.9m(7)(c). As a result, the Department of Treasury will rescind the Eligible Manufacturing Personal Property exemption for the parcel(s) at issue. A refund of $XX.XX will be mailed to the company's legal address.”
   1. The audit found that the company does not meet the definition of EMPP. The Order of Rescission will be sent to the taxpayer and assessor of the local unit in which the parcel is located. The local unit will issue a personal property tax bill including penalty and interest.

Audit Payments

Audit liability and interest payments must be electronically paid in full, including audit interest, within 35 days from the date the Audit Determination letter was issued. As with all ESA payments, paper checks sent to Treasury for audit payments cannot be accepted and will be returned to the taxpayer. Electronic payments may be submitted through MTO, e-File, or Electronic Funds Transfer (EFT) credit.  

Appeals

An eligible claimant may appeal an ESA assessment, including late payment penalties and interest, as a result of an audit by filing a petition with the Michigan Tax Tribunal (MTT) within 35 days of the date of the assessment's issuance.

A claimant may also appeal a rescission resulting from an audit conducted by Treasury within 35 days of the issuance of the rescission.

A taxpayer who wishes to appeal must submit a petition, along with proof of service and a filing fee, to the MTT following the instructions available on the Tribunal’s website.  Taxpayers do not need to contact Treasury to communicate an intent to appeal. The proof of service required by MTT is notification to Treasury that an appeal has been filed. Claims may be eligible to be heard in either the MTT’s Entire Tribunal or Small Claims divisions, depending on the amount in contention.

More information about MTT practice and procedures is available from MTT at their website www.michigan.gov/taxtrib or email taxtrib@michigan.gov.

Rescission Due to Audit

MCL 211.1057(5)(e) requires that within 30 days of the date of the Order of Rescission, the claimant file a personal property statement under MCL 211.19 with the local tax collecting unit for all personal property parcels for which the EMPP exemption has been rescinded.

Under authority of the Order of Rescission, the assessor of the tax collecting unit in which the above personal property was claimed shall remove the EMPP exemption from the parcel(s) and return the personal property to the local roll under Public Act 206 of 1893 or under Public Act 198 of 1974.

The Order of Rescission is the necessary authority to take this action. No action of the local Board of Review is authorized by statute or necessary.

Within 60 days of the Order of Rescission, the treasurer of the local tax collecting unit shall issue amended tax bills of any taxes, including penalty and interest, that were not billed under the Public Act 206 of 1893 or under Public Act 198 of 1974 and that are owed as a result of this rescission of the EMPP exemption.

For additional ESA information, links to statutes, forms, and to sign up for the ESA List Serv, please visit www.michigan.gov/esa.

This information constitutes an interpretation of one or more statutes administered by the Bureau of Local Government and School Services and not legal advice. As the interpretation reached in these examples are limited to the facts provided, any variation in those facts might result in a different interpretation being reached. Therefore, a taxpayer may wish to consult counsel before proceeding in this matter.