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Revenue Administrative Bulletin 1991-1Approved: January 8, 1991
USE TAX EXEMPTION ON TRANSFER OF A VEHICLE, ORV, MOBILE HOME, AIRCRAFT, SNOWMOBILE, OR WATERCRAFT TO OR FROM A BUSINESS
RAB-91-1. This bulletin explains the circumstances under which the transfer of a vehicle, ORV, mobile home, aircraft, snowmobile, or watercraft to or from a business can be exempt from use tax.
Section 3 of the Use Tax Act, MCL 205.93; MSA 7.555(3), states, in pertinent part:
(3) The following transfers or purchases are not subject to use tax:
(c) When a vehicle, ORV, mobile home, aircraft, snowmobile, or watercraft that has once been subjected to the Michigan sales or use tax is transferred in connection with the organization, reorganization, dissolution, or partial liquidation of an incorporated or unincorporated business and the beneficial ownership is not changed.
This statutory language imposes three requirements that must be met in order to gain exemption from use tax on the transfer. They are:
If all three requirements are met, the transfer will be exempt from use tax.
The phrase "has once been subjected to the Michigan sales or use tax" means that Michigan sales or use tax must have been paid by the transferrer on the purchase of the property, or that the property must have been exempt from Michigan sales and use tax when the transferrer purchased it.
The phrase "transferred in connection with the organization, reorganization, dissolution, or partial liquidation of an incorporated or unincorporated business" means that the transfer must take place as part of one of the following activities:
Webster's New World Dictionary, Third College Edition, (1988), p 594, defines organize as "to bring into being; establish [to organize a corporation]."
U.S. Treasury Regulation 1.248-1(b)(1) defines the term "organizational expenditures" as being "those expenditures which are directly incident to the creation of the corporation [business]."
Webster's New World Dictionary, Third College Edition, (1988), p 1137, defines reorganization as "a thorough reconstruction of a business corporation, comprising a considerable change in capital structure, as effected after, or in anticipation of, a failure and receivership."
Black's Law Dictionary, Fifth Edition, (1979), p 1167, defines reorganization as "A major change in the capital structure of a corporation [business] that leads to changes in the rights, interests, and implied ownership of the various security owners."
Webster's New World Dictionary, Third College Edition, (1988), p 397, defines dissolution as "the termination, as of a business, association, or union."
Black's Law Dictionary, Fifth Edition, (1979), p 425, states that dissolution of a corporation "is the termination of its existence as a body politic," and that dissolution of a partnership "is the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.
4. Partial Liquidation
Black's Law Dictionary, Fifth Edition, (1979), p 839, defines partial liquidation by stating "A partial liquidation occurs when some of the corporation's assets are distributed to its shareholders (usually on a prorata basis) and the corporation continues doing business in a contracted form. Distributions of cash or property beyond the amount of earned surplus of a corporation is a partial liquidation."
Note: These definitions are provided only for the purpose of illustration. Although many of the definitions deal specifically with corporations, the concepts apply equally to all types of business entities, incorporated or not. Where the business is, in fact, a corporation, the transfer will be exempt from tax if the transaction occurs in connection with the type of change in the corporate structure which would necessitate a filing, other than an annual report, with the Corporation and Securities Bureau. See Letter Ruling 79-11.
The Department of Treasury will follow the accounting concept that the transfer must take place in exchange for stock or other ownership interest in the business enterprise. A simple sale of an asset to or from an owner for a consideration other than ownership interests in the business enterprise would not constitute an exempt transaction as defined in the above-noted transfers (A through D).
The meaning of the phrase "beneficial ownership is not changed" can also be found in Black's Law Dictionary, Fifth Edition, (1979), p 142, where "beneficial ownership" is defined as "One who does not have title to property but has rights in the property which are the normal incident of owning the property."
If it is not clear that the conditions have been met to qualify the transaction as an exempt transfer, tax should be paid at the time of transfer. For vehicles, ORVs, snowmobiles, and watercraft, the tax should be paid at a Michigan Secretary of State office. For mobile homes the tax should be paid to the Michigan Department of Commerce, Mobile Home Commission, or its agent. For aircraft the tax should be paid directly to the Michigan Department of Treasury.
If it is later determined that the transfer was, in fact, exempt, a refund may be requested by writing:
Michigan Department of Treasury
Treasury will answer questions concerning the taxability of these transfers. Please telephone (517)373-3190.
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