As members tackle their first year under the Michigan Business Tax (MBT), MACPA continues to take the lead in providing advice on implementing the new tax law. To further this effort, the members of the MACPA Business Tax Restructuring Task Force will select specific areas of the MBT that may be considered ambiguous or misleading without further interpretation. Over the next several issues, Leaders’ Edge will feature official Department of Treasury guidance to help clarify important facets of the MBT.

Kicking off the series is the Department of Treasury’s interpretation of “materials and supplies, including repair parts and fuel” as indicated in Michigan Compiled Law (MCL) section 208.1113(6)(c).

Many people have interpreted the terms "materials" and "supplies" to encompass all consumable tangible personal property; in other words, tangible items that are expensed rather than capitalized. However, Treasury’s position differs as indicated by its response (M4 linked below) interpreting “materials and supplies.” The state has taken the position in their FAQs that the deduction is limited to items that are "used or consumed in and directly connected to the production or management of inventory or the operation or maintenance of assets." It is not clear what the basis is for the position that only items consumed in connection with inventory and assets are deductible.

As indicated in Treasury response M17, the Department has stated that the deduction for materials and supplies also applies to a service provider, but only if the service provider maintains an inventory of goods for sale or has depreciable assets.

The following question and response topics regarding the definition of “materials and supplies,” linked below, are available via the Department’s FAQ archive updated last on April 22:

• Definition of “materials and supplies” (M4)
• “Purchases from other firms” (M14)
• Applicability to Service Providers (M17)
• Fuel as “purchases from other firms” (M45)
• Interplay of Assets (M37)

Any additional questions on this topic may be submitted via the MACPA Q&A Forum where members of the Business Tax Restructuring Task Force will address them and forward the queries to the Department of Treasury for further consideration. If you have any questions you would specifically like the Department of Treasury to address, submit them via the MACPA Q&A Forum as well.

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