One of our team members sat in on the Michigan Department of Treasury’s MI sales & use tax audit webinar to provide this short summary for your reference. Here are some tips to make your audit process easier and less painful!
Understand Your Basic Responsibilities
If you’ve already been selected for an audit and are familiar with your tax-collection responsibilities, skip ahead. For everyone else, it is important to know that sales & use tax collection is your obligation. When you don’t collect sales & use tax the liability falls on you. Even though customers commonly pay sales taxes, the selling business is the one responsible for adequately collecting and remitting sales taxes. (If you need help with sales tax compliance, reach out to one of our tax experts here.)
Fortunately, MI is an easier state to deal with sales and use tax. They only have the 6% rate for the entire state with no local rates, and their online platform MTO (Michigan Tax Online) is helpful and can make the process much easier! (Read about the benefits of MTO and refresh on general MI sales and use tax tips here.)
Why Did I Get Picked For An Audit?
When you want to determine property’s taxability for Michigan Sales and Use Tax there are three factors to determine whether an item is tangible personal property or a fixture attached to the real estate:
- Whether there is actual or constructive annexation of the item to real estate – An object will not be determined to be a fixture unless it is attached or affixed in some manner to the realty. Michigan courts acknowledge that there are “innumerable ways” that items may be attached or affixed to real estate. Actual attachment or affixation can be as slight as being bolted or anchored to the ground. Constructive attachment or affixation occurs when an item whose weight, size or character are such that the intent of placing the item was to have that item become part of the real estate even if that object is not physically attached to the real estate.
- Whether the item is an adaptation to the real estate – An object meets this criterion if the item modifies or adapts the application or use of the building. Examples include: a drive up window either at a fast food restaurant or bank, dock seals or doors, or seating which is attached to the floor inside of a venue such as an arena or theater.