HB-5255, As Passed House, September 24, 2007

SUBSTITUTE FOR

HOUSE BILL NO. 5255

A bill to amend 1933 PA 167, entitled

"General sales tax act,"

by amending sections 2, 4a, 4g, 4i, 4x, and 6a (MCL 205.52,

205.54a, 205.54g, 205.54i, 205.54x, and 205.56a), sections 2, 4a,

4g, and 4i as amended by 2004 PA 173, section 4x as amended by 2006

PA 17, and section 6a as amended by 1993 PA 325.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 2. (1) Except as provided in section 2a, there is levied

upon and there shall be collected from all persons engaged in the

business of making sales at retail, by which ownership of tangible

personal property is transferred for consideration, an annual tax

for the privilege of engaging in that business equal to 6%, of the

gross proceeds of the business, plus the penalty and interest if

applicable as provided by law, less deductions allowed by this act.

(2) The tax under subsection (1) also applies to the

following:

(a) The transmission and distribution of electricity, whether

the electricity is purchased from the delivering utility or from

another provider, if the sale is made to the consumer or user of

the electricity for consumption or use rather than for resale.

(b) The sale of a prepaid telephone calling card or a prepaid

authorization number or code for telephone use, rather than for

resale, including the reauthorization of a prepaid telephone

calling card or a prepaid authorization number or code.

transfer of property, if title is retained as security for the

purchase but is intended to be transferred later.

(3) Any person engaged in the business of making sales at

retail who is at the same time engaged in some other kind of

business, occupation, or profession not taxable under this act

shall keep books to show separately the transactions used in

determining the tax levied by under this act. If the person fails

to keep separate books, there shall be levied upon him or her the

tax provided for in subsection (1) equal to 6% of the entire gross

proceeds of both or all of his or her businesses. The taxes levied

by this section are a personal obligation of the taxpayer.

(4) A Before October 1, 2007, a meal provided free of charge

or at a reduced rate to an employee during work hours by a food

service establishment licensed ~~by the Michigan department of~~

~~agriculture~~ under the food law of 2000, 2000 PA 92, MCL 289.1101 to

289.8111, for the convenience of the employer is not considered

transferred for consideration.

Sec. 4a. (1) Subject to subsection (2), the following are

exempt from the tax under this act:

(a) A sale of tangible personal property not for resale to a

nonprofit school, nonprofit hospital, or nonprofit home for the

care and maintenance of children or aged persons operated by an

entity of government, a regularly organized church, religious , or

fraternal organization, a veterans' organization, or a corporation

incorporated under the laws of this state, if the income or benefit

from the operation does not inure, in whole or in part, to an

individual or private shareholder, directly or indirectly, and if

the activities of the entity or agency are carried on exclusively

for the benefit of the public at large and are not limited to the

advantage, interests, and benefits of its members or any restricted

group. A sale of tangible personal property to a parent cooperative

preschool is exempt from taxation under this act. As used in this

subdivision, "parent cooperative preschool" means a nonprofit,

nondiscriminatory educational institution, maintained as a

community service and administered by parents of children currently

enrolled in the preschool, that provides an educational and

developmental program for children younger than compulsory school

age, that provides an educational program for parents, including

active participation with children in preschool activities, that is

directed by qualified preschool personnel, and that is licensed by

~~the department of consumer and industry services~~ pursuant to 1973

PA 116, MCL 722.111 to 722.128.

(b) A sale of tangible personal property not for resale to a

regularly organized church or house of religious worship, except

the following:

(i) Sales in activities that are mainly commercial enterprises.

(ii) Sales of vehicles licensed for use on public highways

other than a passenger van or bus with a manufacturer's rated

seating capacity of 10 or more that is used primarily for the

transportation of persons for religious purposes.

school or other educational institution not operated for profit.

(d) The sale of a vessel designated for commercial use of

registered tonnage of 500 tons or more, if produced upon special

order of the purchaser, and bunker and galley fuel, provisions,

supplies, maintenance, and repairs for the exclusive use of the

vessel engaged in interstate commerce.

(e) A sale of tangible personal property to persons engaged in

a business enterprise and using or consuming the tangible personal

property in the tilling, planting, caring for, or harvesting of the

things of the soil; in the breeding, raising, or caring for

livestock, poultry, or horticultural products, including transfers

of livestock, poultry, or horticultural products for further

growth; or in the direct gathering of fish, by net, line, or

otherwise only by an owner-operator of the business enterprise, not

including a charter fishing business enterprise. This exemption

includes agricultural land tile, which means fired clay or

perforated plastic tubing used as part of a subsurface drainage

system for land, and subsurface irrigation pipe, if the land tile

or irrigation pipe is used in the production of agricultural

products as a business enterprise. This exemption includes a

portable grain bin, which means a structure that is used or is to

be used to shelter grain and that is designed to be disassembled

without significant damage to its component parts. This exemption

also includes grain drying equipment and natural or propane gas

used to fuel that equipment for agricultural purposes. This

exemption does not include transfers of food, fuel, clothing, or

any similar tangible personal property for personal living or human

consumption. This exemption does not include tangible personal

property permanently affixed and becoming a structural part of real

estate.

(f) The sale of a copyrighted motion picture film or a

newspaper ~~or periodical~~ admitted under federal postal laws and

regulations effective September 1, 1985 as second-class mail matter

or as a controlled circulation publication or qualified to accept

legal notices for publication in this state, as defined by law, or

any other newspaper ~~or periodical~~ of general circulation,

established not less than 2 years, and published not less than once

a week, or, before October 1, 2007, a periodical admitted under

federal postal laws and regulations effective September 1, 1985 as

second-class mail. Tangible personal property used or consumed in

producing a copyrighted motion picture film, a newspaper published

more than 14 times per year, or a periodical published more than 14

times per year, and not becoming a component part of that film,

newspaper, or periodical is subject to the tax. Tangible personal

property used or consumed in producing a newspaper published 14

times or less per year or a periodical published 14 times or less

per year and that portion or percentage of tangible personal

property used or consumed in producing an advertising supplement

that becomes a component part of a newspaper or periodical is

exempt from the tax under this subdivision. A claim for a refund

for taxes paid before January 1, 1999, under this subdivision shall

be made before June 30, 1999. For purposes of this subdivision,

tangible personal property that becomes a component part of a

newspaper or periodical and consequently not subject to tax

includes an advertising supplement inserted into and circulated

with a newspaper or periodical that is otherwise exempt from tax

under this subdivision, if the advertising supplement is delivered

directly to the newspaper or periodical by a person other than the

advertiser, or the advertising supplement is printed by the

newspaper or periodical.

(g) A sale of tangible personal property to persons licensed

to operate commercial radio or television stations if the property

is used in the origination or integration of the various sources of

program material for commercial radio or television transmission.

This subdivision does not include a vehicle licensed and titled for

use on public highways or property used in the transmission to or

receiving from an artificial satellite.

(h) The sale of a prosthetic device, durable medical

equipment, or mobility enhancing equipment.

(i) The sale of a vehicle not for resale to a Michigan

nonprofit corporation organized exclusively to provide a community

with ambulance or fire department services.

(j) A sale of tangible personal property to inmates in a penal

or correctional institution purchased with scrip or its equivalent

issued and redeemed by the institution.

(k) A sale of textbooks sold by a public or nonpublic school

to or for the use of students enrolled in any part of a

kindergarten through twelfth grade program.

(l) A Before October 1, 2007, a sale of tangible personal

property installed as a component part of a water pollution control

facility for which a tax exemption certificate is issued pursuant

to part 37 of the natural resources and environmental protection

act, 1994 PA 451, MCL 324.3701 to 324.3708, or an air pollution

control facility for which a tax exemption certificate is issued

pursuant to part 59 of the natural resources and environmental

protection act, 1994 PA 451, MCL 324.5901 to 324.5908.

(m) The sale or lease of the following to an industrial

laundry after December 31, 1997:

(i) Textiles and disposable products including, but not limited

to, soap, paper, chemicals, tissues, deodorizers and dispensers,

and all related items such as packaging, supplies, hangers, name

tags, and identification tags.

(ii) Equipment, whether owned or leased, used to repair and

dispense textiles including, but not limited to, roll towel

cabinets, slings, hardware, lockers, mop handles and frames, and

carts.

(iii) Machinery, equipment, parts, lubricants, and repair

services used to clean, process, and package textiles and related

items, whether owned or leased.

(iv) Utilities such as electric, gas, water, or oil.

(v) Production washroom equipment and mending and packaging

supplies and equipment.

(vi) Material handling equipment including, but not limited to,

conveyors, racks, and elevators and related control equipment.

(vii) Wastewater pretreatment equipment and supplies and

related maintenance and repair services.

(n) A sale of tangible personal property to a person holding a

direct payment permit under section 8 of the use tax act, 1937 PA

94, MCL 205.98.

(2) The tangible personal property under subsection (1) is

exempt only to the extent that that property is used for the exempt

purpose if one is stated in subsection (1). The exemption is

limited to the percentage of exempt use to total use determined by

a reasonable formula or method approved by the department.

Sec. 4g. (1) The following are exempt from the tax under this

act:

(a) Sales of drugs for human use that can only be legally

dispensed by prescription or food or food ingredients, except

prepared food intended for immediate human consumption and, after

October 1, 2007, food and food ingredients sold from a vending

machine.

(b) The deposit on a returnable container for a beverage or

the deposit on a carton or case that is used for returnable

containers.

federal food stamp program or meals eligible to be purchased under

the federal food stamp program.

(d) Fruit or vegetable seeds and fruit or vegetable plants if

purchased at a place of business authorized to accept food stamps

by the food and nutrition service of the United States department

of agriculture or a place of business that has made a complete and

proper application for authorization to accept food stamps but has

been denied authorization and provides proof of denial to the

department of treasury.

(e) Live animals purchased with the intent to be slaughtered

for human consumption.

(2) ~~Food~~ Before October 1, 2007, food or drink heated or

cooled mechanically, electrically, or by other artificial means to

an average temperature above 75 degrees Fahrenheit or below 65

degrees Fahrenheit before sale and sold from a vending machine,

except milk, nonalcoholic beverages in a sealed container, and

fresh fruit, is subject to the tax under this act. The tax due

under this act on the sale of food or drink from a vending machine

selling both taxable items and items exempt under this subsection

shall be calculated under this act based on 1 of the following as

determined by the taxpayer:

(a) Actual gross proceeds from sales at retail.

(b) Forty-five percent of proceeds from the sale of items

subject to tax under this act or exempt from the tax levied under

this act, other than from the sale of carbonated beverages.

(3) "Food and food ingredients" means substances, whether in

liquid, concentrated, solid, frozen, dried, or dehydrated form,

that are sold for ingestion or chewing by humans and are consumed

for their taste or nutritional value. Food and food ingredients do

not include alcoholic beverages and tobacco.

(4) "Prepared food" means the following:

(a) Food sold in a heated state or that is heated by the

seller.

(b) Two or more food ingredients mixed or combined by the

seller for sale as a single item.

including knives, forks, spoons, glasses, cups, napkins, straws, or

plates, but not including a container or packaging used to

transport the food.

(5) Prepared food does not include the following:

(a) Food that is only cut, repackaged, or pasteurized by the

seller.

(b) Raw eggs, fish, meat, poultry, and foods containing those

raw items requiring cooking by the consumer in recommendations

contained in section 3-401.11 of part 3-4 of chapter 3 of the 2001

food code published by the food and drug administration of the

public health service of the department of health and human

services, to prevent foodborne illness.

single item, without eating utensils.

(d) Bakery items, including bread, rolls, buns, biscuits,

bagels, croissants, pastries, doughnuts, danish, cakes, tortes,

pies, tarts, muffins, bars, cookies, and tortillas, sold without

eating utensils.

(6) "Prepared food intended for immediate human consumption"

means prepared food and, after October 1, 2007, food and food

ingredients sold from a vending machine.

Sec. 4i. (1) As used in this section, "bad debt" means any

portion of a debt that is related to a sale at retail taxable under

this act for which gross proceeds are not otherwise deductible or

excludable and that is eligible to be claimed, or could be eligible

to be claimed if the taxpayer kept accounts on an accrual basis, as

a deduction pursuant to section 166 of the internal revenue code,

26 USC 166. A bad debt shall not include any finance charge,

interest, or sales tax on the purchase price, uncollectible amounts

on property that remains in the possession of the taxpayer until

the full purchase price is paid, expenses incurred in attempting to

collect any account receivable or any portion of the debt

recovered, any accounts receivable that have been sold to and

remain in the possession of a third party for collection, and

repossessed property.

(2) In computing the amount of tax levied under this act for

any month, before October 1, 2007, a taxpayer may deduct the amount

of bad debts from his or her gross proceeds used for the

computation of the tax. The amount of gross proceeds deducted must

be charged off as uncollectible on the books and records of the

taxpayer at the time the debt becomes worthless and deducted on the

return for the period during which the bad debt is written off as

uncollectible in the claimant's books and records and must be

eligible to be deducted for federal income tax purposes. For

purposes of this section, before October 1, 2007, a claimant who is

not required to file a federal income tax return may deduct a bad

debt on a return filed for the period in which the bad debt becomes

worthless and is written off as uncollectible in the claimant's

books and records and would be eligible for a bad debt deduction

for federal income tax purposes if the claimant was required to

file a federal income tax return. If a consumer or other person

pays all or part of a bad debt with respect to which a taxpayer

claimed a deduction under this section, the taxpayer is liable for

the amount of taxes deducted in connection with that portion of the

debt for which payment is received and shall remit these taxes in

his or her next payment to the department. Any payments made on a

bad debt shall be applied proportionally first to the taxable price

of the property and the tax on the property and second to any

interest, service, or other charge.

(3) Any claim for a bad debt deduction under this section

shall be supported by that evidence required by the department. The

department shall review any change in the rate of taxation

applicable to any taxable sales by a taxpayer claiming a deduction

pursuant to this section and shall ensure that the deduction on any

bad debt does not result in the taxpayer claiming the deduction

recovering any more or less than the taxes imposed on the sale that

constitutes the bad debt.

(4) If a certified service provider assumed filing

responsibility under the streamlined sales and use tax

administration act, 2004 PA 174, MCL 205.801 to 205.833, the

certified service provider may, before October 1, 2007, claim, on

behalf of the taxpayer, any bad debt allowable to the taxpayer and

shall credit or refund that amount of bad debt allowed or refunded

to the taxpayer.

(5) If the books and records of a taxpayer under the

streamlined sales and use tax agreement under the streamlined sales

and use tax administration act, 2004 PA 174, MCL 205.801 to

205.833, that claims a bad debt allowance support an allocation of

the bad debts among member states of that agreement, the taxpayer

may allocate the bad debts.

Sec. 4x. (1) A sale to a domestic air carrier of 1 or more of

the following is exempt from the tax under this act:

(a) An aircraft that has a maximum certificated takeoff weight

of at least 6,000 pounds for use solely in the transport of air

cargo, passengers, or a combination of air cargo and passengers.

(b) Parts and materials, excluding shop equipment or fuel,

affixed or to be affixed to an aircraft that has a maximum

certificated takeoff weight of at least 6,000 pounds for use solely

in the transport of air cargo, passengers, or a combination of air

cargo and passengers.

(2) ~~The~~ Before October 1, 2007, the tax levied under this act

does not apply to the sale of parts or materials, excluding shop

equipment or fuel, affixed or to be affixed to an aircraft that

meets all of the following conditions:

(a) The aircraft leaves this state within 15 days after the

sooner of the issuance of the final billing or authorized approval

for final return to service, completion of the maintenance record

entry, and completion of the test flight and ground test for

inspection as required under 14 CFR 91.407.

(b) The aircraft was not based in this state or registered in

this state before the parts or materials are affixed to the

aircraft and the aircraft is not based in this state or registered

in this state after the parts or materials are affixed to the

aircraft.

(3) The tax levied under this act does not apply to the sale

of an aircraft temporarily located in this state for the purpose of

prepurchase evaluation or the purpose of prepurchase evaluation and

postsale customization if all of the following conditions are

satisfied:

(a) The aircraft leaves this state within 15 days after

authorized approval for final return to service, completion of the

maintenance record entry, and completion of the test flight and

ground test for inspection as required under 14 CFR 91.407.

(b) The aircraft was not based in this state or registered in

this state before the prepurchase evaluation or prepurchase

evaluation and postsale customization are completed and the

aircraft is not based in this state or registered in this state

after the prepurchase evaluation or prepurchase evaluation and

postsale customization are completed.

(4) A sale of an aircraft to a person for subsequent lease to

a domestic air carrier operating under a certificate issued by the

federal aviation administration under 14 CFR 121, for use solely in

the regularly scheduled transport of passengers is exempt from the

tax under this act.

(5) As used in this section:

(a) "Based in this state" means hangared or stored in this

state for not less than 10 days in not less than 3 nonconsecutive

months during the immediately preceding 12-month period.

(b) "Domestic air carrier" is limited to entities engaged

primarily in the commercial transport for hire of air cargo,

passengers, or a combination of air cargo and passengers as a

business activity.

aircraft to provide a potential purchaser with information relevant

to the potential purchase.

(d) "Postsale customization" means any improvement,

maintenance, or repair that is performed on an aircraft following a

transfer of ownership of the aircraft.

(e) "Registered in this state" means an aircraft registered

with the state transportation department, bureau of aeronautics or

registered with the federal aviation administration to an address

located in this state.

Sec. 6a. (1) At the time of purchase or shipment from a

refiner, pipeline terminal operator, or marine terminal operator, a

purchaser or receiver of gasoline shall prepay a portion of the tax

imposed by this act at the rate provided in this section to the

refiner, pipeline terminal operator, or marine terminal operator

for the purchase or receipt of gasoline. If the purchase or receipt

of gasoline is made outside this state for shipment into and

subsequent sale within this state, the purchaser or receiver, other

than a refiner, pipeline terminal operator, or marine terminal

operator, shall make the prepayment required by this section

directly to the department. Prepayments shall be made at a cents

per gallon rate determined by the department and shall be based on

6% of the statewide average retail price of a gallon of self-serve

unleaded regular gasoline as determined and certified by the

department rounded up to the nearest 1/10 of 1 cent. A person who

makes prepayments direct to the department shall make those

prepayments according to the schedule in subsection (5).

(2) The rate of prepayment applied pursuant to subsection (1)

shall be determined every 6 months by the department unless the

department certifies that the change in the statewide average

retail price of a gallon of self-serve unleaded regular gasoline

has been less than 10% during the 6-month period. However, the rate

shall be determined not less than annually.

(3) A person subject to tax under this act who makes

prepayment to another person as required by this section may claim

an estimated prepayment credit on its regular monthly return filed

pursuant to section 6. The credit shall be for prepayments made

during the month for which the return is required and shall be

based upon the difference between prepayments made in the

immediately preceding month and collections of prepaid tax received

from sales or transfers. A sale or transfer for which collection of

prepaid tax is due the taxpayer is subject to a bad debt deduction

under section 4i, whether or not the sale or transfer is a sale at

retail. The credit shall not be reduced because of actual

shrinkage. A taxpayer who does not, in the ordinary course of

business sell gasoline in each month of the year, may, with the

approval of the department, base the initial prepayment deduction

in each tax year on prepayments made in a month other than the

immediately preceding month. ~~Estimated prepayment credits claimed~~

~~with the return due in January 1984 shall be based on the~~

~~taxpayer's retail sales of gasoline in December 1983.~~ The

difference in actual prepayments shall be reconciled on the annual

return in accordance with procedures prescribed by the department.

(4) At the option of the taxpayer the estimated prepayment

credit may be claimed on the return required to be filed under ~~Act~~

~~No. 150 of the Public Acts of 1927, being sections 207.101 to~~

~~207.202 of the Michigan Compiled Laws~~ the motor fuel tax act, 2000

PA 403, MCL 207.1001 to 207.1170, instead of a claim for the credit

on the return required to be filed under section 6. Prepayments

claimed on the motor fuel tax return shall be based on the

difference in the prepayments made in the immediately preceding

month and collections of prepaid tax received from sales or

transfer and shall be for prepayments made in the month in which

the return is due. A taxpayer electing an option under this

subsection shall be entitled to a deduction under section 4i as

permitted by subsection (3). Amounts credited pursuant to this

section shall not be deducted from amounts required to be credited

to the Michigan transportation fund pursuant to section ~~18b of Act~~

~~No. 150 of the Public Acts of 1927, being section 207.118b of the~~

~~Michigan Compiled Laws~~ 143 of the motor fuel tax act, 2000 PA 403,

MCL 207.1143. The department may establish procedures for the

election of claims under subsection (3) and this subsection to

avoid duplication of claims.

(5) Notwithstanding the other provisions for the payment and

remitting of tax due under this act, a refiner, pipeline terminal

operator, or marine terminal operator shall account for and remit

to the department the prepayments received pursuant to this section

in accordance with the following schedule:

(a) On or before the twenty-fifth of each month, prepayments

received after the end of the preceding month and before the

sixteenth of the month in which the prepayments are made.

(b) On or before the tenth of each month, payments received

after the fifteenth and before the end of the preceding month.

(6) A refiner, pipeline terminal operator, or marine terminal

operator who fails to remit prepayments made by a purchaser or

receiver of gasoline is subject to the penalties provided by ~~Act~~

~~No. 122 of the Public Acts of 1941, being sections 205.1 to 205.31~~

~~of the Michigan Compiled Laws~~ 1941 PA 122, MCL 205.1 to 205.31.

(7) The refiner, pipeline terminal operator, or marine

terminal operator shall not receive a deduction under section 4 for

receiving and remitting prepayments from a purchaser or receiver

pursuant to this section.

(8) The purchaser or receiver of gasoline who makes

prepayments is not subject to further liability for the amount of

the prepayment if the refiner, pipeline terminal operator, or

marine terminal operator fails to remit the prepayment.

(9) As used in this section:

(a) "Marine terminal operator" means a person who stores

gasoline at a boat terminal transfer defined as a dock, a tank, or

equipment contiguous to a dock or a tank, including equipment used

in the unloading of gasoline from a ship and in transferring the

gasoline to a tank pending wholesale bulk reshipment.

(b) "Pipeline terminal operator" means a person who stores

gasoline in tanks and equipment used in receiving and storing

gasoline from interstate and intrastate pipelines pending wholesale

bulk reshipment.

gasoline, or an exchange transaction, between refiners, pipeline

terminal operators, or marine terminal operators.

(d) "Refiner" means a person who manufactures or produces

gasoline by any process involving substantially more than the

blending of gasoline.