6 Years in the Making: Sales, Use Tax Rules Update Pass JCAR
August 15, 2023
Article courtesy MIRS News for SBAM’s Lansing Watchdog e-newsletter
Mostly technical updates to Michigan’s general sales and use tax received Joint Committee on Administrative Rules (JCAR) approval Thursday, after the exhausted updates have taken Treasury officials six years to complete.
Amanda West, legislative director for the state Department of Treasury, requested on June 21 that JCAR waive its remaining session days and allow an update to the rules to take effect.
During the hearing Thursday she said the more than 80 general sales and use tax rules were largely enacted in 1979 and have not been amended since.
“As you might expect, there have been significant changes to Michigan sales and use tax laws since then, due to both legislation and litigation, which have rendered many of the rules obsolete in whole or in part,” West said.
The project to update them began six years ago in 2017, West said, when the Michigan Chamber of Commerce contacted Treasury and requested it undertake a project to clean up and rescind obsolete and inconsistent rules, “which serve no purpose other than to create confusion.”
JCAR Chair Jim Haadsma (D-Battle Creek) said if the statutes haven’t been updated since 1979, “there’s a lot of catching up to do.”
After interruptions due to “substantial federal tax reform and the pandemic,” West said the Department worked with the Michigan Chamber, Michigan Association of Certified Public Accountants, the Michigan Manufacturers Association, the Michigan Retailers Association, the State Bar of Michigan and the Michigan Automobile Dealers Association.
The result? Nearly 30 rules were amended, two new rules were created and an additional 45 were rescinded.
Rep. Andrew Beeler (R-Port Huron) asked if members of the business community are supportive of the updated rule set, or were just “brought to the table throughout the drafting process?”
West said the business community is “generally supportive” of getting rid of outdated rules.
She said there are no known objections to the rules at this point.
The Michigan Office of Administrative Hearings and Rules’ Administrative Rules Division (ARD) completed an impact statement and cost/benefit analysis, finding the proposed rules don’t duplicate or conflict with any rules, laws or legal requirements.
Dave Matelski, an attorney and administrator in the state’s Tax Policy division, wrote in his analysis that there is no estimated change in the frequency of sales and purchase transactions caused by the updates, and “taxpayers and affected industries and trades are expected to benefit from the clarifications.”
He said the rules provide greater clarity, reducing the potential for confusion and potential tax penalties.
The changes won’t have a fiscal impact on the state, he said, outside educating Treasury staff.
Matelski said he doesn’t believe any of the additions would cause a business or individual to pay a tax on something they’re not currently.
But Sen. Lana Theis (R-Brighton) expressed concern that several changes could cause additional confusion, including one subsection codifying the department’s practice of allowing a different registration process for groups or nonprofits having two or fewer fundraising events.
Matelski said organizations holding just one or two fundraising events every year can report sales on a special form, without being required to register for sales tax and file periodic and annual returns.
“They don’t need to go through the process of getting registered,” he said. “They can just use one of these two forms, and remit the sales tax that way, rather than having to bother being registered and filing monthly returns.”
Theis said the language “for fundraising purposes” in that subsection could cause confusion, since “literally every sale is for the purpose of raising funds.”
“I’m concerned that it could at some point, if it’s not defined, be misunderstood,” Theis said. “I have concerns that because this is so expansive, that there are a lot of organizations that this will touch, who haven’t yet had the opportunity to see the final product, and that raises significant concerns because it’s so broad.
“It literally describes the taxation of guinea pigs,” Theis said.
West said that “fundraising” is not expressly defined in the new rules.
“However, “raising funds” and “fund-raising” is used throughout the General Sales Tax Act,” she said, “and the context makes it clear that it refers to sales by schools, churches, hospitals, parent cooperative preschools or nonprofit tax-exempt organizations.
She also noted that the provision is “taxpayer friendly” by saving these groups time and labor costs.
Sen. Mallory McMorrow (D-Royal Oak) asked what the consequences for someone doing fundraising would be if the statute was misinterpreted, and Matelski said it would really “just be that they would just need to get registered, and then… put in a filing frequency, either monthly, quarterly or annually, depending on their sales volumes, and they would just have to remit on those returns.”
McMorrow was one of the yea votes to approve the rules, a motion which passed, 6-3.
Beeler and Theis were among the no votes.
When asked if the now-approved changes are a “big deal,” Haadsma responded, “I’m not sure how big of a deal it is. It’s just the culmination of a process that took a long time.
“I’m not sure it took as long as Michelangelo painting the ceiling of the Sistine Chapel, but it sounded like it took a long time before any of us were here,” he said.
West told MIRS many of the rescinded rules were simply old and industry-specific.
There were rules that covered mimeographers, memorial makers, clipping bureaus, crematories and others, she told MIRS.
“However, the General Sales Tax Act and the Use Tax Act adequately cover taxation of sales or purchases made by persons in the industries named in the rescinded rules, so there was no need for those rules to remain,” she said.
She said another highlight is the updated rule regarding photographers and photo processors.
The original rule was written before digital photography and editing software existed, and the updated rule now addresses current equipment and processes to provide better guidance to taxpayers in that industry, she said.
Now that the updates have been approved by JCAR, the Administrative Procedures Act states the rules can be filed with the Secretary of State and be granted immediate effect.