Michigan | Fraser Blog

Michigan Sales Tax Applies to Credit Card Surcharges

For many Michigan businesses, it can be almost impossible to run a business without accepting credit or debit cards. However, the fees from these transactions, the charge merchants pay to their customer’s credit card issuer and credit card network when they accept credit card payments like from Visa, Mastercard and other issuers, can eat into profits. The average credit card processing fee ranges between 1.5% to 3.5%. As a result, a number of Michigan businesses pass this cost back to the purchaser as “surcharge” for the convenience of using a credit card as a means of payment.

Recently, the Michigan Department of Treasury provided guidance on the application of a Michigan sales tax on credit card “surcharges” for businesses. The Michigan Department of Treasury considers the surcharge added to a customer’s bill a “service cost” or “other expense of the seller” under the General Sales Tax Act, making it part of the taxable “sales price” of a transaction.

For example, if a business sells $50 in goods, accepts the customer’s credit card as payment and passes on the $2.99 processing fee as a credit card surcharge to the customer, the business must collect and remit the 6% sales tax on $52.99, not just the original $50 retail price.

According to the Michigan Department of Treasury:

“A payment processor provides a financial service for the seller for which it imposes a fee on the seller. Since that fee represents a cost or expense for which the seller is responsible, the fee is fairly characterized as a ‘service cost’ or an ‘expense of the seller.’ Thus, the fee is part of the sales price and thus part of the tax base. For these reasons, Treasury concludes that the credit-card surcharge is part of the sales price as a ‘service cost’ or ‘any other expense of the seller.’”

Action Steps for Business Owners:

1. 1. Review current pricing and surcharge practices.
  2. Adjust point-of-sale systems to correctly calculate tax on the total amount, including surcharge add-ons.
  3. Ensure that point-of-sale system accurately marks surcharge on the customer’s bill or receipt as a taxable item.
  4. Update accounting procedures to ensure proper tax remittance.

Compliance with this guidance is important. Failure to do so may result in underpayment of taxes due to the State of Michigan, potentially subjecting your business to penalties and interest. If you have any questions about how this guidance applies to your specific situation, please contact Paul McCord or your Fraser Trebilcock attorney.

This alert serves as a general summary and does not constitute legal guidance. Please contact us with any specific questions.

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.

Michigan’s Repealed “Right-to-Work” Law Takes Effect

On Tuesday, February 13, 2024, Michigan’s repeal of the prior “right-to-work” law governing private-sector workers went into effect. The result of the repeal is that private-sector unions may permissibly negotiate to impasse, and enforce, “union security” provisions requiring membership in, or financial support through “Beck Objector” fees, of those unions. See NLRB FAQ’s.

Michigan’s “Freedom to Work” law enacted under Republican Governor Rick Snyder became effective in 2013. That law prohibited public and private sector employees from being required, as a “condition of employment,” to belong to a labor union or to pay a “service fee” in lieu of membership. The 2013 law invalidated any collective bargaining provision to the contrary, and prohibited enforcement of such unlawful provisions.

In 2023, Governor Gretchen Whitmer signed into law legislation repealing the Freedom to Work law insofar as it applies to private-sector employees. Governor Whitmer also signed a separate bill that would similarly repeal this prohibition as to public sector workers in the event the U.S. Supreme Court reverses a 2018 decision that essentially adopted similar “right-to-work” principles with respect to public sector employees and unions, which reversal has not occurred. So, the present change does not affect the current prohibition of a membership requirement in a public sector collective bargaining agreement.

Per data collected by researchers available at unionstats.com, in 2022, close to 39,000 private sector workers in Michigan were covered by a collective bargaining agreement but were not union members paying dues or service fees. Now, those individuals may permissibly be required to pay dues or fees if “union security” provisions are bargained into, or “suspended” in, applicable collective bargaining agreements. In that event, affected employers could be required to fire bargaining unit workers who refuse to pay dues or fees under the enforcement of a lawful union security clause.

Employers with unionized workforces should anticipate attempts by unions to enforce “suspended” union security clauses or negotiate such provisions into future collective bargaining agreements, and plan accordingly. If you have questions about the new law or require assistance, please contact David J. Houston or your Fraser Trebilcock attorney.

This alert serves as a general summary and does not constitute legal guidance. 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.

Five Stories That Matter in Michigan This Week – June 2, 2023

Governor Whitmer Announces Initiative to Grow Michigan Population

Governor Whitmer made news at this week’s Mackinac Policy Conference by announcing a new initiative to grow Michigan’s population, which has remained relatively stagnant for the last few decades. The initiative will include the formation of a new “Growing Michigan Together Council,” which will develop a plan to attract new residents to the state and keep those currently in Michigan.

Why it Matters: A lack of population growth has inhibited Michigan’s economic growth, and hindered businesses’ efforts to find talented people to fill open jobs.

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Assets of Marijuana Business Skymint to be Auctioned

As we reported earlier, Skymint Brands was placed into receivership on March 7. Now, almost three months later, the receiver has determined that the best course of action for the receivership estate and the creditors is to sell off the assets of the business.

Why it Matters: While Michigan has experienced strong sales of recreational marijuana, prices per ounce have fallen significantly, making it difficult for many dispensaries to generate profits. The fact that Skymint’s assets were put into receivership is also noteworthy, as state court receivership has become an alternative to bankruptcy for distressed cannabis companies. Because cannabis is still illegal at the federal level, companies can’t access federal bankruptcy to reorganize or liquidate.

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Fiscal Responsibility Act of 2023 Passes

Earlier this week, the federal government passed the Fiscal Responsibility Act of 2023, which raised the debt ceiling and allowed the government to continue borrowing.

Why it Matters: With the passing of this act, the federal government avoids any possibility of default or shutdown, which can have sweeping effects at every level of government. This also allows the government to continue investing in infrastructure and economic development.

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June 5 Business Education Series

During this two-presentation dynamic program, attendees will learn about the SBA 504 Loan from the MCDC (Michigan Certified Development Corporation), and Government Contracts from APEX (formerly known as PTAC Procurement Technical Assistance Centers).

Why it Matters: The SBA 504 Loan presentation you will learn the basics of SBA 504 loan, the benefits and how to qualify and apply. MCDC is a non-profit certified by the US SBA to administer the SBA 504 Loan Program in Michigan. The SBA 504 loan provides small businesses with low-rate, long-term loans for building purchases, construction, machinery and equipment. In addition, these loans require a smaller down payment than what traditional lenders can offer, allowing the business owner to preserve capital. Learn more and to register.

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Client Alert: IRS Announces 2024 Adjustments for HSAs & Excepted Benefit HRAs

The IRS has released its 2024 annual inflation adjustments for Health Savings Accounts (“HSAs”) as determined under Section 223 of the Internal Revenue Code. Specifically, IRS Revenue Procedure 2023-23 provides the adjusted limits for contributions to a HSA, as well as the high deductible health plan (“HDHP”) minimums and maximums for calendar year 2024.

Why it Matters: HSA contributions for an individual will increase in 2024 to $4,150 from $3,850 in 2023, and the minimum deductible on a HDHP for an individual will increase to $1,600 in 2024 from $1,500 in 2023. Read more from your Fraser Trebilcock attorney.

Related Practice Groups and Professionals

Labor, Employment & Civil Rights | Dave Houston
Cannabis Law | Sean Gallagher
Employee Benefits | Robert Burgee

Five Stories That Matter in Michigan This Week – May 19, 2023

Plans for Binational Electric Vehicle Corridor Announced

On Tuesday, May 16, the United States and Canada announced plans to launch a binational electric vehicle corridor stretching from Kalamazoo, Michigan, to Quebec City. The corridor will include fast EV chargers approximately every 50 miles along the 872-mile route.

Why it Matters: In announcing the plans, officials said the plan would increase domestic manufacturing, strengthen supply chains and create jobs while supporting climate and alternative energy transportation goals.

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Michigan Cannabis Sales Surpass $245 Million in April

Cannabis sales peaked over $245 million in April, via the monthly report from the Michigan Cannabis Regulatory Agency. Michigan adult-use sales came in at $238,211,384.43, while medical sales came in at $7,842,858.60, altogether totaling $246,054,243.03.

Why it Matters: Marijuana sales remain strong in Michigan, particularly for recreational use. However, there still are significant concerns about profitability and market over-saturation that the industry is contending with.

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May 24 Business Education Series

During this two-presentation dynamic program, attendees will learn about the SBA 504 Loan from Coty Gould with the MCDC (Michigan Certified Development Corporation), and Government Contracts from Mike Hindenach with APEX (formerly known as PTAC Procurement Technical Assistance Centers).

Why it Matters: The SBA 504 Loan presentation you will learn the basics of SBA 504 loan, the benefits and how to qualify and apply. MCDC is a non-profit certified by the US SBA to administer the SBA 504 Loan Program in Michigan. The SBA 504 loan provides small businesses with low-rate, long-term loans for building purchases, construction, and machinery and equipment. In addition, these loans require a smaller down payment than what traditional lenders can offer, allowing the business owner to preserve capital. Learn more and to register.

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Fraser Trebilcock Welcomes Paula C. Spicer to the Firm

Fraser Trebilcock is pleased to announce the hiring of attorney Paula C. Spicer who will work primarily in the firm’s Lansing office.

Why it Matters: Ms. Spicer joins Fraser Trebilcock with expertise in complex real estate and commercial transactions, property tax appeals, health care facility formation, business operations, zoning law, and structuring of high-complexity laboratory facilities. Ms. Spicer also worked as an attorney in multi-family affordable housing financing through HUD (Housing and Urban Development). Learn more.

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CRA Publishes April 2023 Data, Average Price Hovers

Per data released by the Cannabis Regulatory Agency, the average retail price for adult-use sales of an ounce of cannabis is $87.76, a small increase from $86.87 in March. This is still a large decrease from April 2022, where the average price was $133.19.

Why it Matters: While the prices of cannabis and cannabis-related products continue to decrease and make consumers happy, growers on the other hand are seeing profits decrease resulting in them seeking ways to halt new licenses to be granted in an effort to steady prices. Contact our cannabis law attorneys if you have any questions.

Related Practice Groups and Professionals

Energy, Utilities & Telecommunication | Mike Ashton
Business & Tax | Paula Spicer
Cannabis Law | Sean Gallagher

Michigan Repeals “Right-to-Work” Law

Michigan’s “Freedom to Work” law, effective since 2013, currently prohibits public and private sector employees from being required, as a “condition of employment,” to belong to a labor union or to pay a “service fee” in lieu of membership. The current law also invalidates any collective bargaining provision to the contrary, and prohibits enforcement of such unlawful provisions.

Governor Gretchen Whitmer signed into law legislation repealing the Freedom to Work law insofar as it applies to private-sector employees. The repealer will be effective as of March 30, 2024. Governor Whitmer signed a separate bill that would similarly repeal these prohibition as to public sector workers in the event the U.S. Supreme Court reverses a 2018 decision that essentially adopted similar “right-to-work” principles with respect to public sector employees and unions. That decision ruled that it is a violation of public workers’ first amendment speech rights to be required to join or financially support public sector labor unions through mandatory “service fees.”

When the new law takes effect, it will, for the first time since 2013, be legal for private-sector unions to negotiate and enforce “union security” requiring membership in, or financial support through “Beck Objector” fees, of those unions. See NLRB FAQ’s

Per data collected by researchers available at unionstats.com, in 2022, close to 39,000 private sector workers in Michigan were covered by a collective bargaining agreement but were not union members paying dues or service fees. Now, when the new law goes into effect, those individuals will be required to pay dues or fees. Employers can be forced to fire bargaining unit workers who refuse to pay dues or fees under the enforcement of a lawful union security clause.

Private Sector employers in Michigan have approximately one year to prepare for the effective date of the new law. Employers with unionized workforces should anticipate attempts by unions to enforce “suspended’ union security clauses or renegotiate such provisions into future collective bargaining agreements, and plan accordingly.

If you have questions about the new law or require assistance, please contact David J. Houston or your Fraser Trebilcock attorney.

This alert serves as a general summary and does not constitute legal guidance. Please contact us with any specific questions.

Michigan Supreme Court Eliminates Mandatory Case Evaluation Requirement for Tort Cases, Effective January 1, 2022

The Michigan Supreme Court, by Order dated December 2, 2021, eliminated the mandatory case evaluation requirement for all tort cases in Michigan courts, effective January 1, 2022. This change, and others, are reflected in amendments to Michigan Court Rule 2.403.

Under the amended rule, the parties may stipulate to, and the court may approve, an alternative dispute resolution process, such as mediation or facilitation in the discovery plan. However, case evaluation remains the default method of dispute resolution.

The Supreme Court also did away with Michigan Court Rule 2.403(O), which outlines a party’s potential liability for costs to the extent it rejects a case evaluation award. According to the soon-to-be-deleted rule:

“If a party has rejected an evaluation and the action proceeds to verdict, that party must pay the opposing party’s actual costs unless the verdict is more favorable to the rejecting party than the case evaluation. However, if the opposing party has also rejected the evaluation, a party is entitled to costs only if the verdict is more favorable to that party than the case evaluation.”

As of January 1, 2022, there will be no liability for an opposing party’s costs when a party rejects the case evaluation and proceeds to trial, even if they do not prevail at trial or by way of motion.

The new rule also reduces the number of days in advance the parties must submit case evaluation materials from fourteen (14) to seven (7).

These changes will give parties to litigation and their legal counsel more control and flexibility over how they develop and execute their litigation strategies.

If you have any questions about these issues, please contact your Fraser Trebilcock attorney.

Morgan, Thaddeus.jpg Thaddeus E. Morgan is a shareholder with Fraser Trebilcock and formerly served as President of the firm. Thad is the firm’s Litigation Department Chair and serves as the firm’s State Capital Group voting representative. He can be reached at tmorgan@fraserlawfirm.com or (517) 377-0877.

Matthew J. Meyerhuber is an associate at Fraser Trebilcock focusing on general litigation, environmental law, and real estate. Matthew can be reached at mmeyerhuber@fraserlawfirm.com or 517.377.0885.

Michigan House and Senate Pass Bills Imposing 45-Day Data Breach Notification Requirement

The Michigan House of Representatives recently voted to approve legislation that will impose a 45-day data breach notice requirement on Michigan businesses. House Bills 4186 and 4187, which were passed on December 16, 2020, will become law if signed by Governor Whitmer. Identical bills were passed by the Michigan Senate on December 10.

Data security is a major concern for many businesses across industries. A report issued by the FBI, Department of Health and Human Services, and Cybersecurity and Infrastructure Security Agency in October warns of “an increased and imminent cybercrime threat” to businesses, particularly those in the health care sector. Recent revelations of a sophisticated cyberattack on the U.S. government shows how vulnerable even the most secure systems are to a breach. This new legislation, if enacted, will impose new obligations on Michigan businesses when a data breach occurs.

Key Provisions of New Legislation

The legislation requires a “covered entity” to provide notice within 45 days to state residents whose “sensitive personally identifying information” (PII) was exposed in a data breach.

A “covered entity” includes an individual or a sole proprietorship, partnership, government entity, corporation, limited liability company, nonprofit, trust, estate, cooperative association, or other business entity, that has more than 50 employees and owns or licenses sensitive personally identifying information, or a franchisee of any of the foregoing.

The scope of PII that gives rise to an obligation to notify state residents in the event of a data breach includes a state resident’s first name or first initial, and last name, in combination with one or more of the following data elements that relate to that state resident:

A nontruncated Social Security number.
A nontruncated driver license number, enhanced driver license number, state personal identification card number, enhanced state personal identification card number, passport number, military identification number, or other unique identification number issued on a government document that is used to verify the identity of a specific individual.
A financial account number.
A state resident’s medical or mental history, treatment, or diagnosis issued by a health care professional.
A state resident’s health insurance policy number or subscriber identification number and any unique identifier used by a health insurer to identify the state resident.
A username or electronic mail address, in combination with a password, security question and answer, or similar information, that would permit access to an online account affiliated with the covered entity that is reasonably likely to contain or is used to obtain sensitive personally identifying information.

All covered entities and third-party agents are required to implement and maintain reasonable security measures designed to protect PII against a breach of security. The legislation lays out a long series of factors covered entities must consider in developing reasonable security measures, including the size of the covered entity and the amount of PII it maintains and processes.

If a covered entity determines that a breach of security has or may have occurred, the covered entity must conduct a good-faith and prompt investigation into the scope and extent of the breach.

If a covered entity determines that a breach has occurred, it must notify state residents whose PII was acquired in the breach, as expeditiously as possible and without unreasonable delay. Notification must occur within 45 days of a determination that a breach has occurred unless law enforcement determines that such notification could interfere with a criminal investigation or national security. Written notice must at least include the following:

The date, estimated date, or estimated date range of the breach.
A description of the PII acquired by an unauthorized person as part of the breach.
A description of the actions taken to restore the security and confidentiality of the PII involved in the breach.
A description of steps a state resident can take to protect against identity theft, if the breach creates a risk of identity theft.
Contact information that the state resident can use to ask about the breach.

A covered entity may provide substitute notice in lieu of direct notice, if direct notice is not feasible because of excessive cost or lack of contact information. Under the legislation, the cost of direct notification to state residents is considered excessive if it exceeds $250,000 or if notice must be provided to more than 500,000 state residents. Substitute notice must include a conspicuous notice on the covered entity’s website (if it has one) for at least 30 days, and notice in print and broadcast media.

Penalties for Noncompliance with Notification Requirements

A covered entity that fails to comply with the notice requirements set forth in the legislation faces potentially steep fines. Penalties may include a civil fine of not more than $2,000 for each violation, or not more than $5,000 per day for each consecutive day that the covered entity fails to take reasonable action to comply with applicable notice requirements. Aggregate liability for civil fines for multiple violations related to the same security breach shall not exceed $750,000.

This legislation is not yet law, but soon may be. This article touches upon many of the important provisions of the legislation, but there are additional details to be aware of. Businesses and other entities covered by this legislation should take steps to assess their preparedness to comply with the new obligations imposed by these bills. If you have any questions, or require assistance in planning for the implications of this legislation, please contact Fraser Trebilcock shareholder Thad Morgan.

Thaddeus E. Morgan is a shareholder with Fraser Trebilcock and formerly served as President of the firm. Thad is the firm’s Litigation Department Chair and serves as the firm’s State Capital Group voting representative. He can be reached at tmorgan@fraserlawfirm.com or (517) 377-0877.

Fall in Michigan: Safely Handling Deer/Automobile Accidents

You did the right thing… you did not swerve but have hit a deer… now what?

During the next couple of months there will be thousands of deer/car accidents in both rural and suburban Michigan. In fact, statistics suggest that there will be over 50,000 deer/car accidents during the 2020 calendar year. The Michigan State Police report that 80% of these accidents will occur between dawn and dusk, but they are not limited to rural areas. Indeed, for example in the Lansing area alone, Meridian Township had 129 car/deer accidents, and Delta Township had 128 deer/car accidents in 2018. Simply stated, if you drive enough, there is an excellent chance that at some point in time you will be involved in a car/deer accident.

When that happens what should you do?

First, and foremost, if it is still drivable, get your vehicle as far off the traveled portion of the highway as possible. Activate your hazard warning flashers but stay in your vehicle! Getting out of your vehicle places you in a zone of danger that you need to avoid at all costs. The adrenaline will be flowing right after the accident but control it and think safety. Use your cell phone and call 911 which, hopefully, will dispatch a police car to the scene. Regardless, you should receive a police report number even if a police car is not dispatched to the accident. This is important so that you can provide your insurance company with evidence that the accident was a car/deer accident as opposed to a collision claim. Car/deer accidents (or other car/animal accidents) are covered under what is referred to as the comprehensive insurance coverage of your auto policy. Typically, your comprehensive coverage will have a substantially lower deductible than your collision coverage. You will need to check with your insurance agent to determine your “out-of-pocket” costs of repair.

Finally, remember that if you wish to keep the deer you may do so. You will need to advise the responding police officer that you would like a highway deer kill permit. The police officer will then give you a tag to transport the deer. If you take the deer that you have hit without a permit you could be in trouble with law enforcement or the Department of Natural Resources. Keep in mind too that even if you are not a fan of venison there are organizations that would be happy to accept the donation of your deer.

Most importantly, stay safe after your unavoidable car/deer accident.

Fraser Trebilcock Shareholder Gary C. Rogers has firsthand experience with car/deer accidents, having been involved in four himself; Gary is recognized as one of the top civil defense attorneys in the area of automobile related cases, and he has co-written Michigan No-Fault Law-The Insurers’ Perspective, a handbook for handling claims under Michigan’s No-Fault Automobile legislation. Gary can be reached at grogers@fraserlawfirm.com or (517) 377-0828.

The Ins and Outs of Cottage Succession Planning in Michigan (Part Two)

This is part two of a two-part blog post series on cottage succession planning in Michigan.

As summer winds down, the second-home market continues to heat up in Michigan. One of the issues many second-home owners face is determining the best way to keep a family cottage in the family for generations to come. In this series on cottage planning in Michigan, we are addressing that very issue.

In part one, we discussed the reasons why a cottage owner may want to develop a cottage plan (including Michigan’s complicated real estate tax framework). This article deals with the mechanics of cottage succession planning in Michigan—specifically, utilizing a limited liability company or trust structure to allow a cottage to be used and enjoyed by future generations in an organized way that helps reduce the risk of family disputes, thereby increasing the likelihood that the cottage will be part of the family for years to come.

What is a Cottage Plan?

A cottage plan is an agreement that describes how a cottage will be shared, managed and passed on to future generations of family members. Cottage plans typically cover a range of issues that can impede the succession of a cottage if left unaddressed, including:

- - Who should own the cottage?
  - Who should manage it?
  - Who should pay for it?
  - What if an owner wants/needs out?
  - Who gets to use it?
  - How should use be scheduled?

By working through these issues in a cottage plan, an owner (or “founder” in cottage-planning lingo) can achieve various goals that are commonly shared by those who desire to keep the cottage in the family. Those goals include:

- - Keeping the cottage in the family for future generations so that it can continue to serve as a gathering place for extended family
  - Giving children equal shares of the cottage (while avoiding “trapping” an inheritance in the cottage)
  - Keeping interests in the cottage out of hands of in-laws and creditors
  - Reinforcing family interests versus any one individual’s interests

An effective cottage plan can and should also address the objectives of the family members (or “heirs”) who will enjoy the cottage beyond the owner’s lifetime. Such objectives include:

- - Protecting the cottage from a divorce
  - Developing decision-making structures and control mechanisms
  - Developing consequences for failure to abide by rules—financial and behavioral
  - Developing a fair, flexible scheduling system
  - Provide an exit strategy where desired or necessary by providing the ability to sell interests back to family

Cottage Planning Solutions

Most husbands and wives who own a cottage hold title as joint tenants with rights of survivorship, which means that title to the property automatically passes to the survivor on the death of the first co-owner regardless of any provision in a will or trust. Upon the death of the survivor, and in the absence of a cottage plan, the cottage will pass to heirs as tenants in common.

A tenancy in common can be problematic for a number of reasons, including:

- - Each tenant in common (“TIC”) has a right to partition
  - Each TIC may use the cottage at any time
  - A TIC may transfer his interest to any person at any time – including his/her spouse.
  - A TIC does not owe rent to the other owners for using the cottage.

A better approach, which helps avoid the issues that often arise when heirs are tenants in common, is to have title to the cottage held either by a limited liability company (“LLC”) or a trust. Under an LLC structure, a management committee, which serves a function similar to a board of directors, is formed to manage the cottage’s affairs. With a trust, co-trustees are appointed to make decisions. In either case, if the family and entity is structured by branches, it is advisable to have one representative from each branch of the family involved in decision making.

Through the cottage planning process, the founders decide who may be a “member” (under an LLC) or beneficiary (under a trust). Virtually all cottage plans restrict participation to lineal descendants of founders, which ensures the cottage remains in the family—in other words, preventing in-laws from becoming members or beneficiaries.

One of the primary advantages of having a cottage plan utilizing an LLC or trust structure is that it provides a mechanism for transferring membership or beneficial ownership interests. Plans typically include a “put option” which requires the LLC or trust to purchase the interests of members or beneficiaries who want to sell their stake, and a “call option” that allows for the forced buy-out of difficult members or beneficiaries. Valuation and payment term guidelines for purchases are defined in the plan. This provides a predetermined exist strategy for those who do not wish to participate in the cottage or those who do not or are unable to contribute their fair share to cottage costs and expenses. The predetermined terms established for the buy-out provisions offer the opportunity for a graceful exit.

Plans also address issues related to expenses, such as taxes and maintenance, for the cottage. Expenses are typically allocated according to a predetermined sharing ratio among the members and beneficiaries. Often, an annual budget is prepared and an annual assessment is determined at the beginning of each year or season. Failure to pay expenses can be dealt with through an escalating series of sanctions, from the imposition of late fees and interest all the way to the forced buy-out of the delinquent member or beneficiary.

In many instances, founders choose to offset the ongoing expenses of a cottage by establishing an endowment, which is a dedicated sum of money for a specific use. For example, a $500,000 endowment invested at a five percent rate of return will create a pre-tax return of $25,000 per year, which is a sum sufficient to operate many cottages. The endowment may be held and managed by a bank trustee or by the LLC. If a cottage is sold, the endowment distributes to the founder’s descendants. One way to fund the endowment is to purchase a “second-to-die” life insurance policy.

Finally, a cottage plan typically addresses issues related to the use of the cottage—that is, who can use the cottage at any given time. Two common approaches include a “rooming house” structure in which any member or beneficiary can use it any time, and a “time share” structure in which members and beneficiaries are allocated specific time slots for use.

Take Action to Create a Cottage Plan

There are significant advantages to having a cottage plan that utilizes an LLC or trust structure. There is no single option that is best for all families, so it’s important to consult with an experienced cottage law attorney to determine what option is right for you. With a bit of planning, you can help ensure that your cottage will be a source of enjoyment for your family for generations to come.

If you have any questions about planning issues for your cottage in Michigan, please contact Fraser Trebilcock shareholder Mark Kellogg.

This alert serves as a general summary and does not constitute legal guidance. Please contact us with any specific questions.

Fraser Trebilcock attorney Mark E. Kellogg is a certified public accountant, and has devoted over 30 years of practice to the needs of family and closely-held businesses and enterprises, business succession, commercial lending, and estate planning. You can reach him at 517.377.0890 or mkellogg@fraserlawfirm.com.

Michigan COVID-19 Guidelines for Safely Running a Day Camp in the Summer of 2020

According to the American Camp Association, more than 14 million children attend summer camps across the country every year. Michigan has a long summer-camp tradition, with kids flocking to camp destinations throughout the state to swim, hike, and roast marshmallows around the campfire. Until recently, summer camp in Michigan was in doubt, another potential casualty of the COVID-19 crisis. However, with the case curve continuing to flatten, and more businesses across the state reopening, Governor Whitmer announced that summer day camps in Michigan would be allowed to open — subject to a number of health and safety guidelines.

Executive Order 2020-110, issued on June, 1, 2020, provides that day camps for children are allowed to operate as of June 8, 2020, subject to guidance issued by the Department of Licensing and Regulatory Affairs (“LARA”). On June 2, 2020, LARA issued its “Guidelines for Safe Day Camp Operations During COVID-19 (“LARA Guidance”),” which offers considerations and actions that camp operators must take before opening for the season. The various recommendations and requirements of the LARA Guidance are extensive and should be closely reviewed with legal counsel. What is clear is that it will not be carefree “camp-as-usual” in Michigan, but at least camps now have the guidance they need to get up and running for summer.

COVID-19 Preparedness and Response Plan

Like other businesses conducting in-person work in Michigan, camps must establish a COVID-19 preparedness and response plan. According to the LARA Guidance, a response plan must be available at your camp or camp headquarters, be made available to families and staff, and be part of a camp’s health service policy and meet applicable camp licensing rules.

A plan should include:

How a camp will monitor for symptoms of COVID-19
How a camp’s programs practice social distancing, as developmentally appropriate
How a camp will ensure hygiene (including regular cleaning and disinfecting)
How a camp will obtain and use safety equipment
Communication and training for staff, parents, and campers related to new
expectations
Isolation procedures in the event of symptoms or confirmed cases onsite
How a camp will maintain required staff-to-camper ratios in the event of staff illness

While preparedness and response plans may be subject to review by a LARA licensing consultant, they do not need to be submitted to LARA for approval. LARA strongly recommends that camps (i) discuss plans with staff from the local health department so that all roles and responsibilities are clarified and updated contact information is included, and (ii) that the local health department be provided with a final version of a response plan.

Communication and Training

The LARA Guidance urges camps to engage in proactive communication and training of employees, including discussing any concerns staff members have about returning to work, and sharing steps being taken, including those outlined in a preparedness and response plan, to make camp as safe as possible.

Camps should establish a staffing plan based on a camp’s projected enrollment, the need (based on “strongly recommended” guidance”) to maintain groups of fewer than 10 campers, and the importance of maintaining physical distancing. Staff members should also be trained on the various protocols and procedures of a camp’s preparedness and response plan.

The LARA Guidance also acknowledges that campers and staff, alike, may be impacted emotionally by the return to a social, structured environment like camp, and that plans should be put in place to support their emotional needs. Camps should also proactively communicate with families in order to address concerns, explain health and safety procedures, and help prepare kids for what, for some, may be a difficult transition to the camp environment after months of isolation.

Health Screening for COVID-19

One of the most important and challenging aspects of running a camp this summer will be adhering to health screening protocols. Pursuant to the LARA Guidance, camps are required to check for COVID-19 symptoms when campers and staff arrive daily. While there is no mandated health screening process, the LARA Guidance suggests that camps adopt screening practices including:

Daily temperature checks for campers
Visual checks for signs of illness
Asking campers and parents about contact with COVID-19-positive individuals and general health questions
Continuing to monitor campers for symptoms throughout the day and monitor
temperatures when campers appear ill or “not themselves”
Conducting similar daily health screening for staff members

For additional guidance, the CDC offers tips on how to practically conduct health screening checks.

Response to Possible or Confirmed Cases of COVID-19

Beyond screening for illness, camps must respond in accordance with LARA Guidance to the extent a COVID-19 case is suspected or confirmed, including:

Identifying a point of contact adult onsite during the camp operation to manage health-related concerns, and ensure that camp staff and families know who this person is and how to contact them
Monitoring the health of staff and campers throughout the day
Immediately sending home someone who becomes ill
To the extent someone becomes sick with COVID-19 symptoms, calling the local health department to report exposure and determine whether those who have been in close contact need to leave camp
Reporting exposure that occurs outside of camp to the local health department
Determining whether to close the camp based on guidance from the local health department

Camps Must be Vigilant this Summer

Running a day camp in Michigan is never easy, and this summer it will be even harder. This article has addressed a few of the key provisions in the LARA Guidance, but camp operators should carefully review the full extent of the guidance, as well as Governor Whitmer’s various executive orders that impact camp operations. From additional legal and regulatory to compliance requirements, to mandated health screening and safety protocols, there is a great deal of complexity that camps need to review and understand in order to run their operations safely and compliantly. To the extent that you have any questions or concerns, or require assistance in the creation of a preparedness and response plan, please contact Mark Kellogg.

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.