There’s Nothing Like the Feelings of a New Pencil for School: Michigan’s Proposed Tax Holiday for Back-To-School Supplies

House Bills 4824 and 4825 were introduced and referred to the Tax Policy committee early August. These house bills propose what will be, if passed by the Michigan Legislature and signed by the Governor, the only annual tax holiday in Michigan.

The proposed tax holiday provides an exemption on certain school supplies from the state sales and use tax every third Saturday in August. As written in the bills, the following items would be exempt from tax:

  • Clothing, if the sales price of each individual item is not greater than $100.00;
  • School supplies, if the sales price of each individual item is not greater than $20.00;
  • A personal computer purchased for noncommercial home or personal use, if the sales price, less any manufacturer’s rebate, of each individual personal computer is not greater than $1,000.00; and
  • A personal computer accessory purchased for noncommercial home or personal use, if the sales price, less any manufacturer’s rebate, of each individual personal computer accessory is not greater than $500.00.

School supplies are defined by the bill as “pens, pencils, erasers, crayons, notebooks, notebook filler paper, legal pads, binders, lunch boxes, construction paper, markers, folders, poster board, composition books, poster paper, scissors, cellophane tape, glue, paste, rulers, computer disks, protractors, compasses, calculators, and similar items.”

Having many educators in my family and circle of friends, August signals the time when they would go bargain hunting for the “best deal” on school supplies for their classrooms. Messages and phone calls regarding the “deal” they just saw would be commonly shared amongst the educators. Then they would collaborate their efforts to buy the supplies from all of the store’s locations in the tri-county area. This legislation would assist in easing the economic burden as they prepare their classrooms for the new school year.

Twenty-one states have at least one sales tax holiday. Most are back-to-school tax holiday, like the one proposed in House Bills 4824 and 4825, but others include energy star appliance sales tax holiday (to encourage consumers to buy energy efficient appliances) and severe weather preparedness sales tax holiday (to encourage people to buy items needed during severe weather, for example, batteries and flashlights).

Dickinson Wright’s Tax Attorneys will continue to monitor the status of the proposed bills, and update the Tax Blog accordingly.

If you have any questions, please contact Emily Burdick in the Detroit office at ext. 3127.

IRS Notifying Owners of Virtual Currency to Report Transactions

The IRS has recently began sending letters to certain owners of virtual currency (e.g., Bitcoin, Ether, etc.) regarding requirements for reporting transactions involving such virtual currencies. See IRS Information Release 2019-132. The IRS is concerned that taxpayers have been entering into virtual currency transactions and failing to properly report them. The letters are an offshoot of the IRS’ Virtual Currency Compliance program launched in 2018. The names of the taxpayers that will be receiving the letter were obtained by the IRS through its efforts as part of this program.

In Notice 2014-21, the IRS determined that virtual currency is considered “property”, and not currency, for federal income tax purposes. Taxpayers are generally required to report all sales and other dispositions of virtual currency, which includes the use of virtual currency to pay for goods, services or other property. This means that any sale, exchange or other disposition of virtual currency will trigger a gain or loss.

According to the IRS, by the end of August, more than 10,000 taxpayers will receive one of three forms of the letter (IRS Letter 6173, IRS Letter 6174 and IRS Letter 6174-A) that aim to educate taxpayers regarding their tax and filing obligations and how, in certain circumstances, to correct past errors or omissions with respect to these obligations. One form of the letter directs the taxpayer to take prescribed actions in certain situations (filing of a return, amending a return, etc.) by a date specified in the letter. The other letters do not require the taxpayer to take any action but are more informational in nature.

If a taxpayer receives any of the IRS letters related to virtual currency transactions, they should consult their tax advisors prior to responding to the IRS in order to determine the appropriate action to take, if any.

For more information, please contact J. Troy Terakedis in the Columbus, Ohio office (614-744-2589) or any other member of the Dickinson Wright Tax Practice Group.