Michigan Builders - Use Tax

[BobbyLucas]

Originally Posted by 9GT

Keep good records of everything you bought and separate those receipts by what you did and did not pay MI taxes on. When I built my RV-10, pretty much everything I purchased did not include any MI sales tax, so when it came time to register the plane, I made copies of the receipts, a completed MI tax form, and forwarded those, along with a big $$$ check to the MI department of treasury. I paid no penalty. Remember when it comes to taxes: report what you have to and claim whatever deduction you can. There is no good reason to pay more than you are legally required to.

Luckily it's a bit simpler with an RV-12; everything but paint is included in the kits from Van's. Which tax form are you referring to?

[BobbyLucas]

I should buy a lottery ticket... Both TaxAct and the MI treasury called me back!

TaxAct was of no use, although the nice lady, Bobbie, certainly tried. Honestly I think they changed their software and the line-item detail I entered about the use tax I paid for 2019 was lost. Anyway, I finally figured out that the two items I included were the empennage kit and the down payment for the fuse kit.

The gent I spoke to at the treasury made it sound pretty loosey-goosey tbh. He said that if a build takes many years to complete they would prefer you pay as you go, but if you complete it, "in a year as an example," then you can wait until completion. When I told him I paid some use-tax on a kit last year, but my tax return didn't show that it was towards the plane, he said no problem - as long as you can show you paid enough use tax to cover the purchases made as evidenced by invoices/receipts, you'll be fine. He actually said at that point it would be up to the treasury department to prove that the tax you paid wasn't for the plane. Of course I have none of this in writing.

[Brian Perry]

Originally Posted by BobbyLucas

So are you just going to put a lump sum on this year's MI-1040 to cover everything but the engine, or did they provide different instructions in their request for payment?

I followed the instructions on michigan.gov/aero. They direct you to form 1989 found here. This form will calculate your tax liability for the use tax. I sent the form 1989 in with my use tax payment, receipts for the kits and avionics/engine, registration paperwork, and registration fee of 1 cent per pound(max gross weight). They have cashed my check but I have yet to receive anything from them for the registration. I'm not sure what to expect for the registration, whether it is a sticker or a piece of paper to keep in the plane.

The use tax is a one-time payment but the registration fee of 1 cent per pound is a recurring yearly fee.

My wife, who is an accountant, says that this tax is not applicable to the MI 1040.

[9GT]

Originally Posted by BobbyLucas

Which tax form are you referring to?

As Brian pointed out in his post, it was form 1989.

[goatflieg]

I paid my my use tax right after registration. It was a hefty chunk... some builders have gotten away with paying theirs early, before they bought their engine and avionics... but I have a motto: Never mess with a tax man... or a mafia boss. I paid a justifiable amount.

[BobbyLucas]

Just got off the phone with THE Man himself, Franklin Argentine, at the Michigan Department of Treasury - Aircraft Unit, Discovery and Tax Enforcement. My mind has been set at ease! It was a very pleasant conversation, Franklin is a very amicable and talkative gentleman. I got the phone number for their department from form 1989. (Thanks Brian and David)

He said if I wanted, I could self-report now with my reserved N-number, pay the tax on the kits I've bought so far (or show that I already paid on my MI-1040 or on a Van's invoice) and I would never hear from their office when I do actually register the plane because they would already have a record for it (unless I change the N-number, or register the plane under a different name or corporation). For the remainder of the kits, I would still be liable for the use/sales tax, but that would be handled through Van's if they start collecting, or through my MI-1040 if not; his office would not get involved.

He also stressed that they're only concerned about the big stuff, so don't try to keep records of every extra rivet purchased. They aren't going to argue over a couple hundred bucks worth of tax revenue from a homebuilder, they've got much bigger fish to fry. Along those same lines, he said there would not be any equalization tax; they consider the purchase price to be the fair market value for tax calculation.

To self-report with their office, he said to use form 1989 if you still owe some tax, or form 4281 if you've already paid all your use/sales tax and have the invoices and/or tax returns to back it up.

[Plummit]

Originally Posted by BobbyLucas

Just got off the phone with THE Man himself, Franklin Argentine, at the Michigan Department of Treasury - Aircraft Unit, Discovery and Tax Enforcement.

Wow, that's quite a title. Can you imagine if the Wright brothers were taxed on their "Home-built"?

-Marc

[GaryK]

Bobby,
Looks like you have all the info needed for MI form 1989. When I filled out the form back in 2014 on a Just Highlander they specifically said they were not interested in any receipts. They were only interested in line 1 (purchase price). They asked my to add (Kit and Componets) next to purchase price in line 1.

Somewhat of a none event.

Gary