The Michigan Department of Treasury policy on use tax audits is to ignore the statute of limitations provisions of the Revenue Act when no use tax is paid, according to Ed Kisscorni, a CPA at Echelbarger, Himebaugh, Tamm & Co., P.C. in Grand Rapids, Michigan. In a recent post on his blog, he discusses Michigan's policy and its impact on taxpayers.
Excerpts from Ed's blog post:
"The Michigan Department of Treasury (Treasury) policy on use tax audits is to ignore the statute of limitations provisions of the Revenue Act when no use tax is paid. If the taxpayer has never been registered for either the sales tax or the complimentary use tax they will be audited for up to a 10 year look back period. The auditor must have sufficient evidence that the use tax is due and owing to the state for periods beyond 4 years."
Michigan's Internal Policy Definition for a Non-Filer for Use Tax
According to Ed:
The "treasury asserts the 10 year audit period for use tax non-filers. A non-filer for use tax means: (a.) The taxpayer is registered for withholding only; (b.) The taxpayer is registered for single business tax only; (c.) The taxpayer is registered for withholding and single business tax only, or (d.) The taxpayer is not registered. Treasury does not recognize the filing of the combined Sales-Use-Withholding return as filing of a use tax return unless a use tax is paid. The audit period will be limited to 4 years if the taxpayer is registered for sales tax. Although the Revenue Act states the statute of limitations for non-filers extends to the inception of the tax, Treasury is limiting the look back period to 10 years."
Common Understanding by Taxpayers
Again, according to Ed:
"Many taxpayers believe the mere filing of the combined SALES-USE-WITHHOLDING return satisfies the statutory requirement to establish that a "return was filed". Reading the statute [MCL 205.27a(2)] seems to support their contention that the law does not require "registration" as a prerequisite to start the running of the statute of limitation period. See Section 27a, Paragraph 2 of the Revenue Act printed below.Treasury has stated that the Legal and Hearings Division of the Department of Treasury support the audit activity of the Tax Compliance Bureau. That means at Informal Conference, the 10 year audit has been upheld. I know of no litigation outside of the Department of Treasury on this issue."
(Actual) Michigan Statute
A deficiency, interest, or penalty shall not be assessed after the expiration of 4 years after the date set for the filing of the required return or after the date the return was filed, whichever is later. The taxpayer shall not claim a refund of any amount paid to the department after the expiration of 4 years after the date set for the filing of the original return. A person who has failed to file a return is liable for all taxes due for the entire period for which the person would be subject to the taxes. If a person subject to tax fraudulently conceals any liability for the tax or a part of the tax, or fails to notify the department of any alteration in or modification of federal tax liability, the department, within 2 years after discovery of the fraud or the failure to notify, shall assess the tax with penalties and interest as provided by this act, computed from the date on which the tax liability originally accrued. The tax, penalties, and interest are due and payable after notice and hearing as provided by this act.
How can the legal and hearings division support the audit activity, when the position is in direct opposition to the statute or Revenue Act? This appears as though the audit division is making law. If Michigan wants a 10 year look back or if they want to require registration for the statute to start, then they need to change the statute first.
If you have any questions or have experienced this treatment by Michigan, please comment or contact me at [email protected].
Click on the following link to access Ed's blog post: