Sale of property is subject to both sales and use tax

sales and use tax

sales and use tax

Michigan high court finds that consumer must prove retailer paid sales tax on purchase in order to qualify for use tax exemption

Use taxes are the consumer counterpart to sales taxes. For example, Michigan imposes a 6% use tax on the “use, storage, and consumption of all tangible personal property.” This use tax may be offset by any sales tax paid to the retailer at the time of purchase. But what if a customer cannot prove the sales tax was paid? The Michigan Supreme Court recently addressed that question.

Michigan sales and use tax

Andrie, Inc. is a Michigan-based company being sued by the state for non-payment of use tax on fuel. The company is fighting the lawsuit claiming sales tax was paid when the fuel was purchased but the state says Andrie must provide proof.

Andrie Inc. is a Michigan-based company that transports asphalt products across the Great Lakes. Andrie purchases fuel for its vessels in Michigan. The 6% tax is due on all of these purchases, whether as a sales tax paid to the fuel retailer or as a use tax paid by Andrie directly to the state. When the Michigan Department of the Treasury audited Andrie for a seven-year period dating back to 1999, however, it claimed the company failed to pay nearly $400,000 in back use and sales taxes.

The problem for Andrie was that many of its invoices for fuel purchases did not contain a line-item expressly stating whether sales tax was assessed as part of the purchase price. For its part, the Department of the Treasury could not say whether or not the retailers had paid any sales taxes to the state. But as far as the department was concerned, the burden was on Andrie, not the state, to prove the tax was paid.

Andrie understandably disagreed with this position. It paid the use tax under protest and sued the department in the Michigan Court of Claims for a refund. That court, and later the Michigan Court of Appeals, agreed with Andrie that since gasoline purchases are subject to sales tax, the burden should be on the retailer, not the customer, to prove the tax was paid.

The Michigan Supreme Court disagreed. In an opinion issued on June 23 of this year, the court voted 6 – 1 to reverse the two lower courts. Chief Justice Robert P. Young, Jr., writing for the majority, said the sale of property is subject to both sales and use tax. Each is a “separate taxable event,” and Andrie is only entitled to a use tax exemption if it can prove the sales tax was paid. Whether the sales tax should have been collected is irrelevant; the chief justice said Michigan law clearly states any sales tax must be “due and paid” before a use tax exemption is granted.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

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As of November 2012, the following states tax shipping:

states tax shipping

states tax shipping

The following states tax shipping:

North Carolina
North Dakota
New Jersey
New Mexico
New York
Rhode Island
South Carolina
South Dakota
West Virginia

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Michigan lawmakers looking to increase sales taxes to fund road repairs

increase sales taxes

increase sales taxes

Michigan to increase sales taxes to fund transportation

Michigan looks at increasing sales tax to fund road repairs.

Michigan’s roads are in need of major repairs and the state government is considering ways to pay for these renovations. One idea that is gaining popularity with state lawmakers is to increase sales taxes. The current proposal is to increase Michigan’s tax rate from 6 percent to 7 percent. Increasing sales taxes would help the state raise the needed revenue without cutting spending in other areas like education.

This proposal has bipartisan support as both Republican and Democratic lawmakers are working with the state’s governor on this plan. Lawmakers were hoping to get this plan ready by the end of the August session so the tax increase could go to a state vote by November. This doesn’t appear likely so Michigan’s sales tax rate should stay the same for the rest of 2013.

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