Are You Paying Sales Tax on all Business Purchases?

The State of Michigan is having financial difficulties.  Surprised?  I didn’t think so.  Governor Snyder is proposing some difficult options to balance the State budget.  He wants to tax pensions that are currently tax free (up to certain limits), reduce the film incentives, eliminating the Earned Income Tax Credit and the Michigan Business Tax in favor of a flat 6% business tax.

The State is also looking for ways to bring in more tax dollars to offset the deficient.  They are doing this with the normal audits of personal and business returns but did you know they are also looking to verify that businesses are paying Sales Taxes on all of their purchases?

When a business buys products from the internet for example, they most likely don’t pay Michigan Sales Tax on the purchase.  If you are the end user of the goods purchased you must pay the Sales Tax on the goods.  In this case it is called a Use Tax. 

Working as a Part Time CFO for a client recently, I helped with a Use Tax audit by the State of Michigan.  They reviewed every accounts payable invoice for one full year looking for the payment of Sales Tax on all of their purchases.  Not for items they were reselling, but for things like office supplies, printing supplies, and out of state purchases.

They paid particular attention to internet purchases as well.  What company these days doesn’t shop the internet to save money on toner cartridges and office supplies?  Be aware, if you don’t pay sales tax on these purchases you must pay a Use Tax with your monthly remittance of Sales, Use and Payroll taxes.

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