Michigan Changes Policy on Cloud Software

On January 6, 2016, the Michigan Department of Treasury issued a change in its policy concerning sales and use taxation on remotely accessed prewritten computer software.  The change comes after years of litigation in the Michigan courts. 

The Michigan Court of Appeals made their ruling after hearing Auto-Owners Insurance Company v Department of Treasury.  The issue at the center of the case was whether certain products were subject to the imposition of sales and use tax on prewritten software delivered in any manner.  The Court ruled in favor of Auto-Owners.  Consequently, the Department of Treasury announced that sales to access software over the internet without the delivery of either “the code that enables the program” to operate or a “desk top client” would be nontaxable.  If only a portion of a software program is electronically delivered to a customer, the “incidental to service” test will be applied to determine if the transaction constitutes a nontaxable service rather than the sale of tangible personal property.  If a software program is electronically downloaded in its entirety, it is taxable.

The announcement also included that the Department will allow taxpayers who paid tax on cloud-based software to claim a refund retroactively for all open periods.  In Michigan, the statute of limitation for filing a refund is four (4) years after the filing of the original tax return.

Tips for the Taxpayer

Vendors who collected and remitted tax from customers for remotely accessed prewritten computer software need to review the requirements in Michigan concerning customer reimbursement to determine what must be done to satisfy the state’s refund procedures.  These actions include notifying customers as well as filing refund requests accurately and timely, etc. 

Taxpayers who purchased products that fall into the category of the Auto-Owners opinion should request a tax refund directly from the vendor not the Michigan Department of Treasury.

Read the entire published Michigan Department of Treasury guidance here.

For More Information

If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.

How Can We Help?

Refund claims can seem daunting.  Let Allyn’s tax team help.  We are experienced in filing refund claims in all states and will work to get you the entire refund amount due to you.

Allyn’s tax team is staffed with seasoned tax professionals experienced in all aspects of Federal, multi-state and local tax compliance and consulting for large US and global corporations.  We use that experience to your advantage.

Allyn files state and local sales and use tax returns in every US taxing jurisdiction.  We can manage your tax compliance, create a solid tax process, reduce your costs, and provide audit defense for your company.

Contact us and we can provide a customized cost-effective solution to meet your company’s needs.  For further information on Allyn Tax services, please contact: tax@allynintl.com.

 

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