SENATE BILL NO. 788

February 11, 2020, Introduced by Senator RUNESTAD and referred to the Committee on Finance.

"City income tax act,"

(MCL 141.501 to 141.787) by adding section 96 to chapter 2.

the people of the state of michigan enact:

CHAPTER 2

Sec. 96. (1) The administrator may enter into a voluntary disclosure agreement pursuant to subsections (2) to (11).

(2) A voluntary disclosure agreement may be entered into with a person who makes application, who is a nonfiler, and who meets 1 or more of the following criteria:

(a) Has a filing responsibility for income taxable under this ordinance.

(b) Has a reasonable basis to contest liability, as determined by the administrator, for a tax or fee administered under this ordinance.

(3) All taxes and fees administered under this ordinance are eligible for inclusion in a voluntary disclosure agreement.

(4) To be eligible for a voluntary disclosure agreement, subject to subsection (1), a person must meet all of the following requirements:

(a) Except as otherwise provided in this subdivision, has had no previous contact by the administrator regarding a tax covered by the agreement. For purposes of this subdivision, a letter of inquiry requesting information under section 73(2)(a) that was sent to a nonfiler shall not be considered a previous contact under this subdivision.

(b) Has had no notification of an impending audit by the administrator.

(c) Is not currently under audit by the department of treasury or the administrator, or under investigation by the department of state police, department of attorney general, or any local law enforcement agency regarding a tax covered by the agreement.

(d) Is not currently the subject of a civil action or a criminal prosecution involving any tax covered by the agreement.

(e) Has agreed to register, file returns, and pay all taxes due in accordance with all applicable laws of this state for all taxes administered under this ordinance for all periods after the lookback period.

(f) Has agreed to pay all taxes due for each tax covered under the agreement for the lookback period, plus statutory interest as stated in section 82, within the period of time and in the manner specified in the agreement.

(g) Has agreed to file returns and worksheets for the lookback period as specified in the agreement.

(h) Has agreed not to file a protest or seek a refund of taxes paid to this city for the lookback period based on the issues disclosed in the agreement or based on the person's lack of nexus or contacts with this city.

(5) If a person satisfies all requirements stated in subsections (2) and (4), the administrator shall enter into a voluntary disclosure agreement with that person providing the following relief:

(a) The administrator shall not assess any tax, delinquency for a tax, penalty, or interest covered under the agreement for any period before the lookback period identified in the agreement.

(b) The administrator shall not assess any applicable discretionary or nondiscretionary penalties for the lookback period.

(c) The administrator shall provide complete confidentiality of the agreement and shall also enter into an agreement not to disclose, in accordance with section 74, any of the terms or conditions of the agreement to any tax authorities of any state or governmental authority or to any person except as required by exchange of information agreements authorized under section 74. The administrator shall not exchange information obtained under this section with other cities or states regarding the person unless information regarding the person is specifically requested by another city or state.

(6) The administrator shall not bring a criminal action against a person for failure to report or to remit any tax covered by the agreement before or during the lookback period if the facts established by the administrator are not materially different from the facts disclosed by the person to the administrator.

(7) A voluntary disclosure agreement is effective when signed by the person subject to the agreement, or his, her, or its lawful representative, and returned to the administrator within the time period specified in the agreement. The administrator shall only provide the relief specified in the executed agreement. Any verbal or written communication by the administrator before the effective date of the agreement shall not afford any penalty waiver, limited lookback period, or other benefit otherwise available under this section.

(8) A material misrepresentation of fact by an applicant relating to the applicant's current activity in this city renders an agreement null and void and of no effect. A change in the activities or operations of a person after the effective date of the agreement is not a material misrepresentation of fact and shall not affect the agreement's validity.

(9) The administrator may audit any of the taxes covered by the agreement within the lookback period or in any prior period if, in the administrator's opinion, an audit of a prior period is necessary to determine the person's tax liability for the tax periods within the lookback period or to determine another person's tax liability.

(10) Nothing in subsections (2) to (9) shall be interpreted to allow or permit unjust enrichment. Any tax collected or withheld from another person by an applicant shall be remitted to the city without respect to whether it was collected during or before the lookback period.

(11) The department shall not require a person who enters into a voluntary disclosure agreement to make any filings that are additional to those otherwise required by law.

(12) As used in this section:

(a) "Lookback period" means 1 or more of the following:

(i) The most recent 48-month period as determined by the administrator or the first date the person subject to an agreement under this section began doing business in this city if less than 48 months.

(ii) Notwithstanding subparagraphs (i) and (iii), the most recent 36-month period as determined by the administrator or the first date the person subject to an agreement under this section began doing business in this city if less than 36 months, if tax returns filed in another state for a tax based on net income that included sales in the numerator of the apportionment formula that now must be included in the numerator of the apportionment formula under the Michigan business tax act, 2007 PA 36, MCL 208.1101 to 208.1601, or part 2 of the income tax act of 1967, 1967 PA 281, MCL 206.601 to 206.699, and those sales increased the net tax liability payable to that state.

(iii) If there is doubt as to liability for the tax during the lookback period, another period as determined by the administrator to be in the best interest of this state and to preserve equitable and fair administration of taxes.

(b) "Nonfiler" means a person that has not filed a return for the tax being disclosed.

(c) "Previous contact" means any notification of an impending audit pursuant to section 73(1), review, notice of intent to assess, or assessment. Previous contact also includes final letters of inquiry pursuant to section 73(2)(a).

(d) "Unjust enrichment" includes the withholding of income tax under this ordinance or the income tax act of 1967, 1967 PA 281, MCL 206.1 to 206.713, that has not been remitted to the city.

(e) "Voluntary disclosure agreement" or "agreement" means a written agreement that complies with this section.