State of Michigan Misleads Business Owners

Over the past 13 years, our firm has received frantic calls from clients about notices from the IRS and the State of Michigan. There is no doubt that a notice of taxes due will send the average business owner’s blood to the boiling point. Every time the client calls us, we calmy say “We will look into the issue and call you back.” Because we know the urgency of the issues, (as well as the fact the client’s blood is boiling), tax notice issues receive top priority in our office.

The IRS has a system in place that clearly first notifies the taxpayer of a potential problem. The IRS gives the taxpayer sometimes up to 30 days to respond depending on the issue. The IRS has worked with taxpayer advocates to refine a system that makes it easy now to understand the issues they see and they even offer why there may be the issues. And they offer multiple solutions.

We face a TOTALLY different system in the State of Michigan. In a nut shell: You own a gift shop. Come December 20th when the sales tax report and payment is due for November, you forget. January 20th you pay December, February 20th you pay January’s and then you keep going until you receive a false tax bill, BILL not notice from the State.

The State looks at similar November sales tax reports for the gift shop, that is, it may look at November 2008 to estimate a “November 2009 bill”. Since it is a bill, the gift shop feels it MUST pay an official state tax bill. And many do.

What if there had been a fire in November of 2009. The gift shop is closed for the month. The business owner will receive a bill for the sales tax in November 2009. If you call the State, they always just say file the correct tax report and we will fix it. But do you have any idea how many people just pay what the State sends.

Think of this scenario: A business owner is a supplier to one of the Big 3 auto companies. They employ 60 people. The economy goes into a tail spin; they have to lay-off 54 employees. Down to 6 people. Their state income tax withholding as you can imagine goes from $8,350 a month to $870 a month. The business does not have enough money to submit the withholding for January 2009. Months go by. The State sends them a bill that they owe over $10,000 for January for the 6 employees?

These are true stories. At the bottom of the “bill”, the State writes very unclearly what is the problem, after it appears you have a bill to pay. Interest and penalties pile up when the “bill” is not paid timely.

The resolution of many tax issues can be very draining on all parties involved. We always tell the business owner to be prepared to receive a past due bill up to 4 times before it will be resolved. We often have to send multiple letters and call State employees directly to resolve one little tax problem.

As an accounting and tax preparation firm, we have a means to go to a different group of people at the State to deal with tax issues. But the average business owner does not want to pay us to resolve the issues.

Can’t the State just send a notice saying “Missing Tax Report?” Can’t it request the correct tax amount due, as well as, resolve tax issues with the business owner respectfully. We do not know what it will take to change the system. (It may even save money in the State budget!)

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About Christy Federspiel, EA

Christy graduated from Villanova University with a BS degree in Accounting and a minor in Computer Science. Her academic degrees concluded with an MBA in Management from St. Louis University. In 1998 Christy opened Padgett with her husband Jack. Christy is an Enrolled Agent, a member of the National Association of Enrolled Agents and the Michigan Society of Enrolled Agents, and is licensed by the Department of Treasury to practice before the IRS. In doing so, she represents the interests of clients and their companies in dealing with all IRS issues and concerns.

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