Macpa Claws Of State

Samuel L. Hodges CPA Sam has more than 20 years of experience providing state and local tax advice to companies both domestically and abroad. Before starting his own firm, he served as the Senior Manager and Practice Leader for a mid-sized as well as a Big 4 national accounting firm as well as working for a leading oil, gas and chemical producer and a leading tier-one auto supplier. Sam is a former Board member of the Michigan Association of Certified Public Accountants. Based upon his knowledge and experience, he has been asked to join the MACPA President’s Advisory Council and Michigan’s Turnaround Task Force. Sam is a frequent speaker on state and local tax topics and has also testified before Michigan’s House Subcommittee on tax simplification. Sam earned a Bachelor of Science in Business Administration with a major in accounting from the University of Tulsa, in Tulsa Oklahoma. Sam is a CPA licensed in Michigan and Oklahoma and is a member of the Michigan Association of Certified Public Accountants, Oklahoma Society of Certified Public Accountants, American Institute of Certified Public Accountants, and is a CPA Ambassador.

Sam Hodges & Associates Sam Hodges [email_address] www.HodgesLLC.com/BLOG www.Twitter.com/SamHodgesCPA www.Linkedin.com/in/SamHodgesCPA (248) 327-6430 www.HodgesLLC.com Ed Kisscorni [email_address] www.EdKisscorni.com/Blog1 (248) 327-6430 www.HodgesLLC.com Lance Siemen [email_address] (248) 327-6430 www.HodgesLLC.com BD Copping [email_address] (248) 327-6430 www.HodgesLLC.com The information contained herein is general in nature and based on authorities that are subject to change. Applicability to specific situations is to be determined through consultation with your tax adviser.

Things YOU need to know Michigan Sales / Use Tax Update Other State Sales / Use Tax Issues Constitutional Issues Nexus Michigan Business Tax Update Suggested Technical Amendments Document – Document - Document

Taxation of Services Michigan Broad tax on Services attempted Passed in September 2007, effective Dec 1, 2007 Repealed the same day it went into effect Replaced with the MBT Surcharge

Taxation of Services, Continued Michigan House Bill 5810 Introduced 2/16/2010 (no support currently) All services taxable except those specifically excluded Services provided by certain organizations (charitable, religious, social) Business to Business (accounting, architectural) Are all business to business services excluded? Maybe

Taxation of Services, Continued Massachusetts Enacted in 1990 to be effective 03/06/91 Repealed retroactive to 03/06/91 Florida Passed in 1986 to take effect in July 1987 Included Professional, Insurance and Personal Services Repealed January 1, 1988 Sales Tax on TPP increased from 5% - 6%

Taxation of Services, Continued FTA Survey Most Services Taxed – DE, HI, NM, SD, WA Michigan – 26 of which 12 are utilities Rentals of TPP Lodging (hotel, cottage 30 days or less) Electricity Natural Gas Telephone

Taxation of Services, Continued Why is there such a push to tax services? Taxing Services can generate substantial $$$$ Taxing Services can generate substantial $$$$ Taxing Services can generate substantial $$$$ Taxing Services can generate substantial $$$$

Mixed Transactions (Bundling) Draft Rule Two or more identifiable products sold for one non-itemized price What is primarily being sold? Taxable TPP or Taxable Service Exempt TPP or Exempt Service Factors to Consider What the buyer sought (primary factor) What is the primary business of the seller? Whether the taxable item is available for sale without the exempt item Extent to which the exempt item has contributed to the value of the taxable item If service, the service provider is taxable on TPP consumed (nothing new)

Quote IRS: We’ve got what it takes To take what you’ve got.

Use Tax Audit Statute of Limitations Four Years (Maybe) Up to ten years if the taxpayer is not registered Michigan Vendors No longer an audit defense States position Consumer is liable unless sales tax paid (§ 205.94)

Sales Tax Audits Cash Basis Audits Party Stores etc. Purchase Analysis Sample period Food deduction Good records are imperative Must be able to segregate all exempt receipts Food, lottery, bottle deposits, money orders, magazines, garbage tags, check cashing fees, services

Manufacturing / Construction Contractors RAB 1993-5 Use Tax Base of TPP AFFIXED to Real by Manufacturer/Contractor RAB 1999-2 Sales and Use Tax in the Construction Industry If ‘converted’ – tax is on person converting Only exemptions for Nonprofit Hospitals, Housing and Church Sanctuaries

Amazon Laws Economic Presence Slightest Connection Payment to in-state resident for referral by link or internet web site De mimimus rules Laws on books – North Carolina, Rhode Island and Colorado Other states considering include CA, CT, HI, IL, MD, MN, MS, NM, TN, VT, VA, WI

Amazon Laws, Continued Colorado Affiliate Nexus Effective 3/1/10 retailers are doing business in Colorado if an affiliate has a physical presence Controlled group based on IRC § 1563(a) and (b) If no nexus in Colorado, unregistered retailers must notify customers of Use Tax requirement. §39-21-112.3.5(3)(a) Seller must notify state of purchases made by Colorado purchases. §39-21-112.3.5(3)(d)(II) De minimus rule - $100,000 California – Proposed similar legislation

Quote I had plastic surgery last week. I cut up my credit cards.

Court Cases Granger Land Development Co v. Department of Treasury Dk No. 286355, Mi Ct of Appeals Granger owns and operates landfills Methane produced from trash Granger recovers gas and sells to related company to generate electricity State determined that Granger was not an industrial processor. (real v personal) Court of Appeals disagreed

Court Cases, Continued Hunderman & Sons Redi-Mix, Inc. v Michigan Department of Treasury Michigan Tax Tribunal, No. 342101 Does Equipment used by Hunderman qualify for the Industrial Processing exemption. Trailers used to transport cement powder, sand and gravel to the batch plant are taxable as transportation, not manufacturing - Taxable Pump trucks transport concrete from the mixer trucks to the job site with no new materials added - Taxable

Court Cases, Continued Auto Club Insurance Association v Department of Treasury Michigan Court of Appeals Dk No. 286600 Is a lease to a tax exempt entity subject to use tax? Yes per Ct of Appeals. ACIA is an insurance company Exempt from use tax because SBT is in lieu of tax ACIA paid use tax to Michigan and non-Michigan lessors based on language in the lease Treasury denies ACIA refund request Lessor is both a “consumer” and a “seller” Treasury position is that legal incidence of tax is on lessor and the payment of the tax is a contractual matter between ACIA and the lessors.

Michigan Business Tax Technical Corrections / Known Issues RAB forthcoming Multistate Tax Compact Alternative Apportionment Small Business Credit Forms v. Law Document your positions

Multistate Tax Compact MBT – Service Single Factor 100% Sales Benefits Received DO YOU KNOW WHAT THIS MEANS? MTC – Service Three Factor Equally Weighted > Cost of Performance Let’s look at an example

Multistate Tax Compact 33% 417 1,250 Tax @ 5% 8,333 25,000 Taxable 8% 25% Appt % 25% 25% Sales % 0% Pay % 0% Prop % 100,000 100,000 Income MTC MBT

Small Business Credit Limitations of Small Business Credit Gross Receipts exceed $20 million or Adjusted Business Income > $1.3M “ as determined on Form 4577” Compensation and Directors fees of shareholder of regular corp exceeds $180k Indiv, Shareholder, Partner or Member has distributive share exceeds $180k

Small Business Credit Sec 417 states: [this credit] is available to any taxpayer with gross receipts that do not exceed $20 million and with adjusted business income minus the loss adj that does not exceed $1.3 million [inflation adj] and if any 1 individual, partner member, shareholder of S receives > $180k as distributive share of adj business income

Small Business Credit 218 118 18 18 372 Total Sholder Wages 1 1 1 1 4 D - 5% 7 7 7 7 28 C - 10% 10 10 10 10 40 B - 10% 200 100 - - 300 A - 75% Shldr Ownership/Wages 100 (150) (100) (10) (160) (160) Taxable Inc 1,000 500 - 125 1,625 (125) 1,500 Gr Receipts Co 4 Co 3 Co 2 Co 1 Subtot Elim UBG Facts (000)

Small Business Credit 212 (160) 372 372 (4) (8) 4 4 D - 5% 12 (16) 28 28 C - 10% 24 (16) 40 40 B - 10% 180 (120) 300 300 A - 75% N Total M Income L Total K Ins J Salaries Shr holder Share of Form

Small Business Credit 159 Income Disqualifier 75% Largest Shareholder 212 Total 372 Compensation (160) Income Law (000)

Document Document Document Unitary Business Group Who’s in – who’s out Apportionment Methodology Information available Why used Compare to other state filings (?) Credits

Documentation Purpose Facts Conclusion / Position Analysis Authority Statute Case Law Regulations Revenue Administrative Bulletins*

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Macpa Claws Of State

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