Wednesday August 21, 2013

Sales and Use Tax Audits

Dear Valued Client:

The State of Michigan has been aggressively implementing a plan to conduct Sales and Use Tax Audits of businesses in this state. Use Tax is defined by the State of Michigan as a companion tax to sales tax. "Use tax of 6% must be paid on the total price (including shipping and handling charges) of all taxable items brought into Michigan or purchases by mail from out-of-state retailers. Credit is given for tax paid to another state. Use tax is also applied to certain services such as telecommunications and hotel/motel accommodations."

We, at Bond and Company, feel that it is our obligation to our clients to inform you of this, as well as to advise you of the necessary steps to take in order to avert a tax liability if you were to undergo this type of audit.

The following are steps that you can take to assure that you are paying proper sales and use tax:

1. All companies in Michigan are responsible for charging 6% sales tax when you purchase products from them, unless you are exempt and have provided them with a Certificate of Exemption. There are some companies that may not charge sales tax and it is your responsibility to make sure that you pay the sales tax. Always check your invoices for purchases you have made so that you know that sales tax was paid. If not, then you will need to include the sales tax for those purchases on your MI-160.

2. Out-of-state purchases, as well as the shipping and handling, are subject to use tax if there was no sales tax charged. Some out-of-state vendors are registered in the state to charge sales tax and some are not. Therefore, it is your responsibility to make sure that if sales tax is not charged, you pay use tax, which will also need to be reported on your Form MI-160. If you have paid taxes to another state, credit will be given if it is over 6%.

3. If you make credit card purchases online or from out-of-state vendors, chances are that you were not charged sales tax. Once again, it is your responsibility to make sure that you report and pay use tax on your MI-160. If you have paid another state's sales tax, credit will be given if it is over the 6% on your MI-160.

In some instances, clients will make personal charges on a company credit card. It is in your best interest not to do this; however, if you do, you should pay your personal charges with a check made out directly to the credit card company (separate from the company's payment) in order to avert exposure to the company.

4. Most businesses have computers, computer software, computer licenses, and computer maintenance and support agreements. Some vendors that you purchase computer equipment, licenses and maintenance agreements from will not charge sales tax. Computers and licenses are taxable in any instance. Maintenance and support agreements are taxable in so far as they include upgrades to the software. If they do not include upgrades, the vendor needs to explicitly state so; otherwise the maintenance and support agreement is 100% taxable.

5. The following list contains vendors that typically do not charge sales/use tax. If you purchase products from any of these vendors, please make sure that sales tax has been charged and, if it has not, include the use tax on your Form MI-160:

• Amazon
• Buy.com
• Global
• McKesson Information Solutions
• NewEgg
• Oriental Trading
• PC Mall
• Paper Direct
• Shelving Direct, LLC
• Tiger Direct
• U-Line

Lastly, a corporate officer can be held personally liable for unpaid Michigan use tax if he/she has presumptive control for filing returns and the authority over tax payments. In other words, the officer's signature appears on tax returns and on the checks remitted for tax payments. However, in order for officer liability to attach, the officer must have a duty to file returns or pay taxes and breach one of these duties. Also, there should be a causal connection between the officer's breach and the company's failure to pay tax.

If you have any questions, or would like additional information, please feel free to contact our office.

Sincerely,

Bond & Company, PLC

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