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use tax due to State of MI

Technical topics regarding tax preparation.
#1
juro  
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330
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my new client is a contractor, does electrical work.
why would use tax be owed?

https://imgur.com/a/4R73hTE

https://www.michigan.gov/taxes/0,4676,7-238-43519_43529---,00.html


Contractors - A sales tax license is not required for contractors or subcontractors, since they are the final consumers of the materials they affix to real property. Anyone who is directly engaged in the activity of constructing, altering, repairing, or improving real estate for others is liable for the sales tax on the inventory value of the materials affixed to the property. If the real estate being constructed, altered, repaired, or improved is a nonprofit hospital or nonprofit housing entity, no tax is due on any materials which became affixed to and made a structural part of the hospital or housing entity. This information may be obtained in Revenue Administrative Bulletin 1988-35 and 1999-02
 

#2
Nilodop  
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Pennsylvania
Did he pay sales tax when he bought the materials or did he claim a resale exemption?

Does he do work for the named types of nonprofit entities?
Retailers making exempt sales shall obtain the following exemption certificate:


What's even raising the question? Did he get any notices or file any returns before receiving what you attached?

Have you read the entire reg. in the link you gave us? For instance:
(3) Sales and rentals of tools, machinery, and equipment to contractors are taxable.

and
(4) Where a contractor is exclusively engaged in the contracting business and makes no direct sales to other contractors or consumers, he does not need a sales tax license. Such nonlicensed contractors are required to maintain a use tax registration and pay the use tax to the state on purchases made from out-of-state sellers.

and
(5) Where a contractor is not engaged exclusively in the contracting business but makes sales of tangible property at retail to other contractors and consumers, he shall secure a sales tax license and file returns to report sales on such transactions. Use tax due on out-of-state purchases and on merchandise acquired for resale and later consumed in contract operations shall be reported on the combined sales and use tax return.

and
(6) Where a manufacturer affixes his product to real estate for others, he qualifies as a contractor and shall remit use tax on the inventory value of the property at the time the property is converted to the contract which value shall include all costs of manufacturing, fabricating, and processing.

and
(7) A contractor purchasing tangible personal property for affixation to realty where delivery is taken in Michigan is subject to sales or use tax on the purchase price whether the improvement or construction of realty takes place within or without Michigan, except as noted in subrule (2).
 

#3
juro  
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Nilodop wrote:Did he pay sales tax when he bought the materials or did he claim a resale exemption?


yes he pays sales tax on vendor invoices. All of his vendors are in the State of MI.
 

#4
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2612
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21-Apr-2014 8:25am
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Michigan
It very well could be that he owes no use tax. This is how the state of Michgian communicates with taxpayers. they just send you an estimate of use tax and wait for you to respond. If he owes no use tax you file (or refile) the sales and Use Tax and Withholding Return Form 5081 with zeros under use tax. They will send you another notice that your client owes nothing.
 

#5
juro  
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Terry Oraha wrote:It very well could be that he owes no use tax. This is how the state of Michgian communicates with taxpayers. they just send you an estimate of use tax and wait for you to respond. If he owes no use tax you file (or refile) the sales and Use Tax and Withholding Return Form 5081 with zeros under use tax. They will send you another notice that your client owes nothing.


sounds good :D thanks.
 

#6
juro  
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330
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guess i was wrong. an out of state vendor was used, zero tax paid. over $30k paid to the vendor.
how would the state know?
Last edited by juro on 14-Nov-2019 5:23pm, edited 1 time in total.
 

#7
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MA
Maybe the state picked up the info when it was auditing another client.

Sales & Use tax audits have become huge in Massachusetts, especially among manufacturing clients. The initial thought is that there is no need to worry because as a manufacturer, the client is not required to bill or collect sales tax.

But then you realize the auditor is only going after the use tax. Can not tell you how many clients are buying both exempt and non exempt supplies from vendors. Or ordering items on line, when they do their calculation and then spread over 6 years, the numbers add up.

The auditors know which vendors to zero in on as well and go right to the credit card purchases
 

#8
juro  
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330
Joined:
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Location:
USA
The State of ND just sent me a letter saying they received my amended return.
The TIN listed on the letter is the same as that on used on the amended return.
Also, they are saying they need a form W2C that reflects the correct tax withholding.

Now can the State of ND be getting mail that I know I mailed myself to the State of MI?
And why does ND refer to the tax as income withholding, but MI calls it use tax? :?:

My client is a contractor, and many jobs have been done out-of-state, including ND,
as recently as last year.

The payroll is outsourced to SurePayroll, and they filed annual returns that reported
zero tax withholding for ND.
 


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