Four new laws took effect September 1, 2004, which bring Michigan one step further toward conformance with the multi-state Streamlined Sales/Use Tax Project. The mission of the Streamlined Sales Tax Project (SSTP) is to “develop measures to design, test and implement a sales and use tax system that radically simplifies sales and use taxes.” The recent legislation signed by Gov. Jennifer Granholm includes:

• Public Act 172 of 2004 (House Bill 5502)
• Public Act 173 of 2004 (House Bill 5503)
• Public Act 174 of 2004 (House Bill 5504)
• Public Act 175 of 2004 (House Bill 5505)

The SSTP is an effort by state governments to bring sales and use tax laws into the twenty-first century. Most state sales and use tax laws were passed in the 1930s when the U.S. economy was primarily driven by manufacturing and agriculture. As communications, technology and marketing activity changed in the last third of the twentieth century, it became more and more difficult to apply existing tax law to all transactions intended to be subject to the original sales and use tax laws.

Additionally, entities subject to sales and/or use tax have expanded their operations into multiple states, subjecting them to tax enforcement of multiple states and local jurisdictions. These states are not always consistent in the application of tax, filing deadlines, registration procedures or tax exemption. This creates considerable burden for taxpayers in meeting the obligations of each state in which they operate.

Most especially, the use of mail order and the Internet in marketing sales and services have shifted the burden of tax collection from sellers to purchasers. State tax authorities have been faced with choosing whether to address their enforcement action at purchasers by adding considerable staff and other resources or to reduce the “cost of complying” with sales and use tax in multiple jurisdictions and entice more retailers to voluntarily collect sales/use tax.

At a national level, the SSTP was organized in March 2000. Forty-two states and the District of Columbia are involved. Forty-five states and the District of Columbia impose sales and use tax. The SSTP aims to provide states with a system that addresses the following key features:

• Uniform definitions within tax laws.
• Rate simplification.
• State-level tax administration of all state and local sales and use taxes.
• Uniform sourcing rules.
• Simplified exemption administration for use and entity-based exemptions.
• Uniform audit procedures.
• State funding of the system.

The overall intention of the Project is to increase uniformity among various states’ sales and use tax laws. To reach this point, the states adopting the SSTP must assure their tax laws conform to certain uniform definitions. The chief goal of the SSTP appears to entice those sellers who have no collection responsibilities for use tax to voluntarily register and collect tax in states that can’t, legally, require registration or collection (lack of nexus or jurisdiction).

In that respect, the SSTP is a voluntary program for some sellers of goods and services (primarily sales through mail order or Internet). However, certain legislative changes will be made in an attempt to bring increased uniformity to sales and use tax administration.

The four new Michigan laws reflect statutory changes and are not voluntary. They bring Michigan into compliance with two elements of the SSTP:

1) The authority to enter into the SSTP, and

2) Legislation to bring Michigan’s sales and use tax laws into compliance with the SSTP.

Public Act (PA) 174 allows Michigan to participate in the SSTP, as well as addressing other SSTP related administrative matters. PA 172 brings the sales tax law into compliance with the SSTP, including enacting certain SSTP definitions. PA 173 brings the use tax law into compliance with the SSTP, including enacting certain SSTP definitions. PA 175 is remedial legislation speaking to certain transactions not intended (see SST web site) as the focus of the SSTP at this time. These were tax imposition and credit references still applicable to Michigan law but outside the current scope of the SSTP. While still applicable to Michigan, they were not in compliance with the SSTP. Michigan’s approach to resolve this variance was to remove these references from Michigan’s sales and use tax laws and insert them into a separate law.

The most immediate change created by the new legislation is the change in two filing dates. This change not only applies to sales and use taxpayers, it also applies to taxpayers filing Michigan withholding returns. Under the old law, taxpayers filing on a monthly or quarterly basis had to file a return on the 15th of the next month after the return period. The new law changes the filing date from the 15th to the 20th. For a monthly filer, the September 2004 return is due October 20, 2004. For a quarterly filer, the July/August/September return is now due October 20, 2004. All subsequent returns will be due on the 20th of the month, not the 15th.

The second change is the discount date. Under the old law, to qualify for an “early payment discount,” payment had to be made by the 7th of the applicable month. Under the new law, payment must be made by the 12th of month to qualify for the discount.

There are no other changes to filing requirements with immediate effect, including filing the Annual Sales/Use/Withholding Return. An optional uniform SSTP return document will be developed and made available at a later date.

The next significant change is that Michigan has adopted “new sourcing rules.” Certain sales made between a seller and purchaser located in Michigan with delivery of the product as a “gift to be made outside Michigan were taxed in Michigan under the old law. There are changes to which taxing jurisdiction receives the applicable tax under the new law.

The new legislation also changes definitions of the following:

• Sale
• Purchase Price or Price
• Drugs
• Three types of Medical Equipment
• Food
• Prepared Food
• Electronically-delivered Software
• Direct Mail

The legislation also adopts uniform “Bad Debt” exemption and “Exemption Claim Administration” criteria. It also adopts a mathematical rounding regime and prohibits using the bracket System after December 31, 2005.

Will the states be successful in reducing tax compliance burdens for those subject to sales and/or use tax? Is the SSTP good for business? Only time will tell. However the following is certain. State taxing jurisdictions are united in pursuing the goals advocated by the SSTP. Tax laws are changing. The sales/use tax consequences for persons subject to sales/use tax law are changing. We need to be prepared for the changes affecting nearly every person in the State of Michigan.

Editor’s Note: Anyone interested in learning more about the State and Local Tax Task Force should contact Joe Tomczyk or John Lindley.

Top