Senate Finance Unanimously Moves Software Tax Clarification

Legislation unanimously passed the Senate Finance Committee this Tuesday that clarifies the Michigan Sales Tax and Use Tax Acts relative to the definition of prewritten computer software installed on someone else’s server. Known as “cloud computing” or “software as a service” issue – the legislation serves to reverse a Department of Treasury interpretation of an ambiguous statute relative to the taxability of the sale or consumption of computer software that is not tangible personal property.

Senate Bills 82 and 83, introduced by Senators Pete MacGregor (R-Rockford) and John Proos (R-St. Joseph), mirror legislation that has been introduced for each of the last several legislative sessions and is identical to a package of bills (House Bill 4018 and 4019) the House Tax Policy Committee has already addressed and moved to the floor.

The Department of Treasury is opposed to the legislative fix, citing the revenue impact which the Department pegs at roughly $70 million for the 2015-2016 fiscal year as well as considerable foregone revenue in future years. Instead, the Department would rather allow the multiple cases currently being litigated to play out to determine the right course of action for the Administration and the Legislature. The Department’s position and rationale resulted in considerable questioning from members of the Senate panel.

This represents a large point of disagreement between the Department/Administration and the business community. Developing tax policy through litigation, especially retroactive changes in policy as was the Administration’s solution in the Department loss in the IBM case, is a strategy deplored by the business community. The Department has lost on this issue in multiple court cases already with the case involving Thompson Reuters currently before the Michigan Supreme Court.

posted by PAA Online , Friday, March 13, 2015 10:18 AM
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