Michigan Department of Treasury

Michigan Department of Treasury Confirms that PPP Loan Forgiveness will Conform to Federal Treatment

On April 19, 2021, the Michigan Department of Treasury issued a notice (the “Notice”) announcing Michigan’s conformity to the federal income tax treatment of loans (“PPP Loans”) issued under the Paycheck Protection Program. The Notice also sets forth additional guidance for individual and corporate taxpayers regarding various income tax issues raised by the federal loan program.

As originally established under the CARES Act, any forgiven PPP was excluded from gross income for federal income tax purposes. However, no similar provision was enacted authorizing a deduction of the business expenses paid for by those forgiven loans. This issue was addressed in the Consolidated Appropriations Act (the “CAA”), enacted on December 27, 2020, which provided taxpayers with the ability to deduct the underlying business expenses paid for by the forgiven loan. The Notice makes clear that Michigan will conform to the manner in which the federal government is treating both PPP loan forgiveness and the deductibility of business expenses.

The Notice also provides guidance for both individual and corporate taxpayers relating to the calculation of sales factor apportionment, gross receipts, and the calculation of Total Household Resources when taking into consideration the impact of PPP loan forgiveness.

Finally, the Notice states that additional documentation substantiating a PPP loan is not required for Michigan tax return filing purposes. Taxpayers are not required to include any specific loan documentation, including proof of forgiveness or proof of expenses, with Michigan individual or corporate income tax returns. However, borrowers of PPP loans must retain sufficient documentation of their participation in the PPP loan program as part of their obligation to keep accurate and complete records necessary for an accurate determination of their tax liability.

If you have any questions about how the forgiveness of your PPP loan impacts your Michigan tax liability and the filing of your tax returns, please contact Fraser Trebilcock shareholder Paul McCord.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or pmccord@fraserlawfirm.com.

2021 Minimum Wage Rates — Important State and Federal Changes

Minimum wage laws are a mishmash of state and federal statutes and rules. Minimum wage rates and rules beginning in 2021 are an interesting reflection of this split of jurisdiction, and federal rulemaking under the outgoing administration. This blog highlights some of the more impactful changes.

State Of Michigan

The Michigan Minimum Wage Rate, currently $9.65 per hour, is consistently higher than the federal rate. This is permitted by federal law which allows each state to set a higher minimum wage than federal law requires, but not a lower rate. Michigan’s currently-applicable minimum wage law, the Improved Workforce Opportunity Wage Act of 2018 (“Michigan Minimum Wage Law”), provides for conditional annual increases in the state minimum wage. The scheduled rate for 2021 is $9.87 per hour, however, that rate increase does not go into effect when the state’s annual unemployment rate for the preceding calendar year is above 8.5 percent.

The Michigan Department of Labor (“MDOL”) recently announced that the scheduled 2021 minimum wage increase is unlikely to go into effect because the unemployment rate is likely to be over the 8.5% “threshold when [the Bureau of Labor Statistics] releases the final 2020 unemployment numbers for Michigan.”

Assuming the MDOL prediction is correct, then effective Jan. 1, 2021:

Michigan’s minimum wage will remain at $9.65 an hour.
The 85 percent rate for minors age 16 and 17 remains $8.20 an hour.
Tipped employees rate of pay remains $3.67 an hour.
The training wage of $4.25 an hour for newly hired employees ages 16 to 19 for their first 90 days of employment remains unchanged.
Overtime requirements remain the same under the Improved Workforce Opportunity Wage Act.

Under the Michigan Minimum Wage Law, Michigan’s minimum wage rate will increase to $9.87 in the first calendar year following a calendar year for which the annual unemployment rate is less than 8.5 percent. Under that statute, future increases in the minimum wage are conditionally scheduled for future years.

Federal Rules

Important changes under federal law include significant modification to “tipped employee” rules and increased minimum rates for certain workers.

Tipped Employee Rule Changes – Again

On December 22, 2020, the United States Department of Labor (“USDOL”) announced its “final rule” revising prior “tipped employee” regulations implemented under earlier language of the federal Fair Labor Standards Act (“FLSA”). Employers subject to these rules need to be very familiar with these changes as this is a fertile area of stringent federal enforcement. The new rules go into effect 60 days after this announcement, or on or about February 21, 2021.

The “general rule” is that tipped employees must be allowed to retain all their tips, unless the employer has adopted a qualified “tip pool.” Rules for such tip pools are complicated and changed significantly in March of 2018; the new rules replace those prior standards.

In brief, the February 2021 rules:

Continue to allow mandatory tip pooling arrangements.
Continue to allow the employer to pay a lower “tipped employee” rate and take a “tip credit” toward the minimum wage rate the employer would be required to pay if the tip credit is not applicable.
If the employer takes the tip credit it may not include in a mandatory tip pool, employees who do not routinely receive tips (such as back of the house staff).
An employer that does not take the tip credit but instead pays a set hourly rate at or above the applicable minimum wage for non-tipped employees may include employees who do not routinely receive tips in a mandatory tip pool.
Whether or not a tip credit is taken, managers and supervisors (as determined by the FLSA “duties” test) are prohibited from participating in a tip pool.
Tip pool funds must be paid out at least as often as the employer pays out base hourly wages. And,
An employer may take a tip credit for employee time spent performing tasks that do not generate tips (such as stocking, rolling silverware) if the non-tip generating duties relate to the tipped occupation and are performed contemporaneously with, or immediately before or after, the duties for which the employee does receive tips.

Federal Contract Workers

Workers performing work on or in connection with covered federal contracts must, effective January 1, 2021, be paid a minimum wage of $10.95 per hour, pursuant to Executive Order 13658.

The Competition for Workers

Due to the COVID slowdown in the economy upward wage pressure is not anticipated during 2021 according to commentators. However, as recently as this month, the following employers have adopted minimum wage rates significantly above those required by law. Some examples of prominent mid-Michigan and state-wide employers include:

Bank of America: $20
JP Morgan Chase: $16.50–$18 (based on location)
Charter/Spectrum: $16.50
Huntington National Bank: $16
Hobby Lobby $17 (for full-time employees)
Costco: $15
Target: $15
Best Buy: $15

Certain counties, municipalities and economic zones also have adopted minimum wage rates higher than the applicable state rate, although none in Michigan.

If you have any questions, please contact Dave Houston or your Fraser Trebilcock attorney.

This alert serves as a general summary, and does not constitute legal guidance. All statements made in this article should be verified by counsel retained specifically for that purpose. Please contact us with any specific questions.

Fraser Trebilcock Shareholder Dave Houston has over 40 years of experience representing employers in planning, counseling, and litigating virtually all employment claims and disputes including labor relations (NLRB and MERC), wage and overtime, and employment discrimination, and negotiation of union contracts. He has authored numerous publications regarding employment issues. You can reach him at 517.377.0855 or dhouston@fraserlawfirm.com.

Michigan Department of Treasury Announces Sales and Use Tax Collection Required for Remote Sellers

Michigan stands to gain an extra $250 million dollars in tax revenue as a result of this summer’s decision by the U.S. Supreme Court in South Dakota v. Wayfair and the Michigan Department of Treasury wasted little time to start collecting it. On August 1, the Department announced that it will require out-of-state sellers, regardless of whether or not they have an in-state physical presence to register, collect, and pay Michigan sales and use taxes starting October 1.

The Department’s recent guidance supplements its prior administrative guidance on sales and use collection responsibilities for those sellers with an in-state physical presence or those who are “present” through representation by an affiliate and/or so-called “click-through” nexus. Until further legislative authorization is forthcoming, the Department will administer the state’s sales and use tax on an economic presence basis as discussed in Wayfair.

Specifically, the Department will require sales and use tax collection and remittance by out-of-state sellers that meet one of the two following requirements:

More than $100,000 in sales to Michigan customers, or
At least 200 separate sales transactions into Michigan.

These thresholds are typically measured based on the seller’s annual accounting period. Although there are a number of separate periodic sales and use tax filing methods (monthly, quarterly, and annual). Further, the annual accounting period for Michigan sales and use tax is typically performed on a twelve month calendar year. In other words, if a seller exceeds one or more of these thresholds in the current calendar year, the Department will consider the seller to have “substantial nexus” – a sufficient economic presence in the state for Michigan sales and use tax purposes in the current year. Given that the Department is requiring compliance beginning with the 4th calendar quarter of this year, sellers should review a full twelve months of sales data to test if these thresholds are met. The Department specifically advises sellers to review their 2017 calendar year’s sales activity to determine if they have (or will) exceeded either economic presence threshold for the 2018 calendar year. Please note, out-of-state sellers that exceed either of these economic thresholds are not liable for any tax, penalty, or interest for any transactions occurring on or before September 30, 2018.

Once an out-of-state seller determines that it meets the economic nexus thresholds outlined above, they are advised by the Department to report and remit tax in the following manner:

Out-of-state sellers making taxable sales to Michigan customers must collect and remit Michigan sales tax on the transaction.
If the out-of-state seller makes a taxable sale(s) to a Michigan customer, but title to the goods pass out of Michigan, the seller is to collect and remit Michigan use tax.
Out-of-state sellers who do not have nexus with Michigan but make retail sales to a Michigan customer and voluntarily choose to collect tax on the transaction are to report it as use tax.
Finally, out-of-state sellers meeting the thresholds above are now required to register for sales and use tax in Michigan.

Michigan’s new economic presence nexus applies to all businesses – not just traditional e-commerce sellers. Furthermore, two months is not a lot of time for out-of-state businesses to prepare for compliance under the Department’s new guidance, especially because similar changes are occurring in about 45 other states. Affected sellers should contact Fraser Trebilcock’s tax professionals for any assistance regarding their obligation to collect and remit Michigan sales and use tax.