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Michigan Use Tax after 38 years??

Langt

Member
In order to fly while working on my EAB project, I belong to a small flying club organized as a non-profit corp in Ohio, for which I recently started serving as treasurer. Our 1972 citabria 7ECA was purchased by the club 38 years ago in 1980 and as far as we know, has always been based in Michigan at KDUH, just outside Toledo Ohio. It has also been registered in Michigan for all or most of that 38 years. I just got a letter from the Michigan Department of Taxation saying they discovered the airplane is stored in Michigan and asking me to prove that we paid Michigan use tax. We have absolutely no records and the club founders that purchased the airplane are long ago buried....

I have not yet replied to the inquiry, and I am no CPA, but what I think I have learned so far is that Michigan law includes a statute of limitations of 4 years, but the Michigan taxation department (somehow) claims the limitation does not apply unless you file form 518 to register that the transaction took place (an act that is not legally required) and of course you wouldn't file this extra form if you didn't know you needed to pay the tax. So, as I understand it, if you fraudulently underpay, AND know to register the transaction, the limit is 4 years. If you don't know you owe the tax, or pay it and don't keep proof (and don't file the form 518 that nothing tells you to file), the time bomb ticks forever. Plus interest and penalties.

I am also guessing that if an owner of an airplane in Ohio purchased his airplane in Ohio as a "casual sale" (thus not paying any ohio tax) and then later moves his airplane to Michigan, he would owe the Michigan tax. If he doesn't know any better, it could be a big surprize later on.

To make matters worse, we had a prop strike this Fall. I am wondering if this is the end of the club.
 
FWIW - get really good help with this one - someone who really knows the rules relative to the statute of limitations and works with clients on audits.

You're looking not only at the use tax but at interest and penalties as well (which for that period of time could mount up).

Dan
 
Get a copy of the FAA records for the plane. It should include all of the Bills of Sale.
 
The club is organized as a non-profit corporation in Ohio. Members are share holders. So I think besides the airplane, they would have to come after us in Ohio. I don't think anything is at risk besides the club assets. It would be worse if it was a personal airplane outside of a corporation or LLC. Bad enough as is. I sent for FAA records today. However, the FAA bill of sale is stated as "not acceptable evidence" by Michigan.
 
Ah-- a ray of hope -- thanks (but it fizzled). I checked and the forms they sent are legitimate Michigan Forms and the addresses are correct per Michigan Dept of Taxation web site. So it is not a scam. Or at least not from a third party.

Ted
 
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Sometimes there is little difference between a scam and a law.

Sadly true!

This sounds a lot like the scam that Florida had going where they nailed people moving into the state a ?sales? tax on their car, regardless of whether it had been previously registered elsewhere. IIRC, the courts finally shut that scam down.

Might try calling their bluff and just ignoring it. No one is required to keep tax records for 38 years.
 
My understanding is that if you are negligent or make a non-intentional mistake in preparing/paying your tax return. . .

the statute of limitations runs from the time you file/pay your taxes.

If no audit within the applicable statute period, then you're home free.

Not filing leaves the S.O.L open.

FWIW
 
We don't know if we paid the tax back then or not, or whether or not any filing was made. Still researching this, but haven't found the sacred paper. I've read the law (Michigan Senate bill 337 sec 27a(2), amended in 2014, but it is not very clear. It says

"A deficiency, interest, or penalty shall not be assessed after the expiration of 4 years after the date set for the filing of the required return or after the return was filed, whichever is later..."

I think they interpret it to their favor --i.e. if no return was filed they say the limitation never starts. I would say it was intended to allow auditing time for late filers that might put in an amended return for a refund. But in practice, it appears that as Marc said, if no filing was made, then there is no statute of limitations. If that is the case, then they can audit and assess the tax if they choose to do so as a matter of policy within a prescribed time from discovery. Problem is, if I get the lawyers and CPAs involved at $200+ per hour each, then we might as well just turn over the airplane anyway.

The takeaway of this post is -- Don't make assumptions about state "use" tax, make required filings, keep records forever, and check before you move an airplane to another state.
 
You might want to contact AOPA (or EAA) to ask about this. I remember AOPA getting involved when Florida tried billing people use tax on new aircraft when they came to visit. If Michigan is trying this on several people, the national organizations tend to get involved.
 
Just a bit of an update. I sent for the FAA paper records. They came in about 4 days, which I thought was exceptional. I found we were the 6th individual owner of the airplane (excluding factory and 2 dealers) in the six years between manufacture and when we bought it in 1978 (btw: I was wrong about the 38 years that we owned it -- it was 40) Records include original airworthiness certificate copy, and always included FAA bill of sale for transfers, all registrations, repair/alteration forms, and often included sales information like loan agreements. I got about 60 pages for about $12, priced per page (non-certified version). Good deal.

As for my dilemma, I tried to contact as many knowledgeable people as I could and they were all surprised at the 40 years, but had little to recommend at this point. One tax lawyer suggested that considering the possibility it will be dismissed and cost of legal involvement, I should just gather up the information I have, send it in, and see what Michigan does with it. Then call him back if needed. So thats the plan. In the meantime, I also finally called the Michigan tax enforcement division, and the even the guy there sounded a little surprised, and promised to call back. But, that was a over a week ago.

I'll re-post to end the thread when Michigan replies, probably sometime next year.
 
Michigan Use tax after 40 years -- final resolution

Well, I always say "All's well that ends", thinking more than that is just being fussy. However, in this case, it ends well too.

I sent Michigan the forms they wanted, reasons why we "believe" the original sales/use tax was paid, and proved the airplane has been in and registered in Michigan for 40 years, with no changes. (about 35 pages)

I got an Email back today (maybe letter to follow??) saying they are going no further with it and no additional tax will be levied. HURRAY!!!!:D:D:D

Lesson: Pay your state use tax and keep your records. This outcome may be the only reasonable one, yet I can't help but think we were very fortunate.

Ted
 
By the way -- Thanks to everybody who offered advice! I was pretty worried when this first started.

To Gil Alexander -- the FAA records you recommended were really key. I couldn't use the FAA bills of sale directly for prices, but they showed we got it from a regular dealer in 1978 and the records provided other stuff like loan agreements. These helped establish the value of the airplane before my club bought it.

Ted
 
By the way -- Thanks to everybody who offered advice! I was pretty worried when this first started.

To Gil Alexander -- the FAA records you recommended were really key. I couldn't use the FAA bills of sale directly for prices, but they showed we got it from a regular dealer in 1978 and the records provided other stuff like loan agreements. These helped establish the value of the airplane before my club bought it.

Ted

Glad it helped...:)
 
An interesting note on this Michigan tax, is that they do not base it off a bill of sale price $. They evaluate the value of the aircraft and base the tax off of that. I purchased an aircraft in 2007 from a broker in Ohio for a fair market value of $38,500. The broker had originally listed the aircraft for $41,900. State of Michigan tried to tax me at $54k, which is what they felt the aircraft was worth. I send a firm letter and some photos, and after a few weeks they decided to just tax me based on my bill of sale.
 
I got an Email back today (maybe letter to follow??) saying they are going no further with it and no additional tax will be levied. HURRAY!!!!:D:D:D
I'd be sure to get that in writing on paper with letterhead and a name and signature at the bottom. And keep it in your records so the next time this comes up you're not trying to defend yourself with an email...
 
I'd be sure to get that in writing on paper with letterhead and a name and signature at the bottom. And keep it in your records so the next time this comes up you're not trying to defend yourself with an email...

I went through a similar process when I moved my 170 to Michigan a couple of years ago. Once they checked the FAA Aircraft Registry and found that I had owned the airplane since 1982, they sent me an email saying I didn?t owe them any sales or use tax on it. Michigan is a very GA friendly state so I just archived the email and went on with life. Since then I only hear from them when the annual registration fee ($1 per 100 lb gross weight) is due.
 
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