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Taxpayer Failing To Prove Sales Tax Was Paid At Time Of Purchase Results In Use Tax Due

Sterling Heights, MI (PRWEB) July 31, 2014

Andrie, Inc. V. Dept. of Treasury, Mich. S. Ct., Dkt No. 145557, 6/23/2014

The Michigan Supreme Court has made the determination that a purchaser of tangible goods in Michigan is liable for use tax when the taxpayer was unable to prove during an audit that sales tax was paid on the purchases. The Court reversed the Court of Appeals decision on whether a purchaser bears the burden of proving entitlement to the use tax exemption for purchases from Michigan sellers. The Court states “in order to be entitled to the exemption from the use tax found in MCL 205.94(1)(a), one must show that the sales tax was both due and paid on the sale of that tangible personal property. The burden of demonstrating entitlement to this tax exemption rests on the taxpayer seeking the exemption.” This decision will notably impact businesses that purchase from Michigan sellers.

If a Michigan seller had already collected and remitted the sales tax, the purchaser is generally not liable for the use tax, as it would result in “double taxation”. However, with this court decision, the purchaser will now have to “substantiate” the payment, either by the purchaser or the seller, of the sales tax. In Michigan, the obligation to pay sales tax rests with the seller, as it is a tax on the privilege of doing business. Under the statute, the seller may be reimbursed (not mandatory) for the amount of sales tax on the transaction. Substantiating that sales tax was in fact paid can either be with a receipt or invoice showing tax as part of the price paid, or an affidavit from the seller stating either the transaction includes sales tax or that the seller has submitted the tax to Treasury.

One concern resulting from this recent decision is the possibility of “double taxation” if both the seller and purchaser were to pay the tax on the same transaction. From the Court’s view, there is “no double taxation” since the purchaser should be able to prove payment of the tax and be eligible for the exemption. For the purchaser to “prove payment” would mean retaining the proper documentation to substantiate the tax was paid on the transaction, creating a burden to the purchaser, but necessary in case of a use tax audit.

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UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

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