In the recently adjudicated case Auto-Owners Ins. Co. v. Dep’t of Treasury, No. 321505 (Mich. Ct. App. Oct. 27, 2015), the Michigan Court of Appeals determined that purchasing remote access to software (or obtaining log in rights in conjunction with information services) did not equate to delivery of tangible personal property. Because of this determination, the purchase of remote access was then not considered a taxable purchase under the Michigan Use Tax act.
As a result of this case and perhaps other pushback, the Department of Treasury has announced, through a Bulletin issued January 6, 2016, the end of the cloud tax for certain software access issues. They also have stated that taxpayers may seek retroactive refunds going back four years. Jeffrey Moss, a tax attorney with Dawda Mann Mulcahy & Sadler, PLC says that this decision provides welcome clarity and a “bright line” test to an issue that was subject to much disagreement as technology used in delivering services has changed faster than the law was able to adapt.
Getting the refunds will take some efforts and coordination between the purchasers and the vendors.
First, the Department has stated that if a software program is electronically downloaded in its entirety, it is still taxable. However, taxpayer may be able to seek a refund if only a portion of a software program is electronically delivered to a customer. Determining the nature of the software purchase, then, will be the most significant test as to whether a refund is due.
Taxpayers should be cognizant of the four year filing deadline imposed for this refund. The beginning of the four years is dated beginning with the filing of the original tax return. Taxpayers have to submit a refund request to the Department of Treasury, which includes supporting documentation. If customers paid a tax directly to the vendors, they must contact the vendor for the refund and not the Department of Treasury.
Vendors who collected these taxes need to become current with the new guidelines. They may be required to notify customers in order to comply with reimbursement procedures. Vendors are required by Michigan statute to return the overcollected taxes within 60 days of written notice from the purchaser.
Vendors will need to retain their tax collection records going back the full four years.