The Court in Blackwell found that because Excel maintained a ‘master’ of the course pack, gave it to a student to copy, and accepted payment, Excel was the party actually making the photocopies, regardless of the fact that the students were performing a “self-serve checkout” as part of the commercial transaction.  (All of this despite the fact that the course packs in question were assembled under a university license that expressly permitted students to make copies of course pack materials for themselves at no additional cost.  To me, this indicates that the court was, in effect, indirectly interpreting that underlying license to only apply after one copy was purchased.)

Commentators are now hypothesizing that libraries may be next.  Section 108(f) of the US Copyright Act shields libraries from liability for infringing uses of photocopy machines as long as the libraries conspicuously post a sign stating that the user takes responsibility for copyright infringement.  LibraryLaw Blog questions whether this protection for libraries is invalidated by the Blackwell decision (I think this is unlikely, given the clear intent of Section 108 and the fact that the exemption was specifically crafted in the 1976 Act to protect libraries so that they can continue their vital role in disseminating information.)

Via TechDirt

If you’re unemployed or looking to re-educate and change careers, you can identify training opportunities for green jobs by county or region.

If you have a business, the No Worker Left Behind program will assist you in moving into green industries — by providing consulting and employee training resources to facilitate the development of employee skills and expertise for green jobs within your company. Here’s a resource page containing links to several local and regional green initiatives. There’s a mailing list to receive information about green jobs in Michigan here.

Do you need to amend your non-profit organization bylaws to add directors?
An existing nonprofit corporation with only 1 or 2 directors will need to increase the size of the board to at least 3 directors. If you have a nonprofit corporation formed in Michigan which provides for a board with less than 3 directors, the organization’s bylaws will need to be amended. To comply with the new law, a nonprofit may elect additional directors at its annual meeting or a special meeting called by the board.

Non-profits may be automatically dissolved for failure to file annual reports
Smaller non-profits corporations are typically stretched thin, with several individuals serving multiple roles and functions, in their spare time. Sometimes forms don’t get filed on time. With the new law, failure to file regular reports within 2 years of the due date could cause the non-profit to be dissolved. This is, by far, the most dangerous part of the new law.

Dissolving non-profits must receive state permission before disposing of assets
Nonprofits dissolving after the new law’s effective date of July 16, 2008 must provide notice of the impending dissolution to the Attorney General to obtain approval of the dissolution, before disposing of any of the non-profit’s assets.

Legislative history and bill analysis of the new amendments to the Michigan non-profit law are available on the Michigan Legislature’s website.

• 40% cash rebate across the board on qualifying Michigan expeditures, with a minimum required spending threshold of $50,000.
• Michigan will add an extra 2% if the qualifying project is filmed in one of the  103 Core Communities in Michigan.
• Project labor and crew makeup: 40%-42% Michigan residents, 30% Michigan non-residents
• The law includes a workforce development tax credit for hiring and training current Michigan-based crew to acquire new professional skills or attain a higher professional level.
• The law includes a low interest loan program and an infrastructure tax credit program.
• The only salary cap will be a maximum of $2 million salary per employee.
• There is no sunset on the incentives law.

Here are links to the texts of the new law:

Michigan Public Acts 74 75 76 77 78 79 80 81 82 83 84 85 86 87 of 2008

Proposals are included in the bill package to give tax breaks for the development of entertainment industry infrastructure in Michigan, and for Michigan-based job training related to film and video production. Assistance is to be made available to companies making movies, documentaries, TV series and specials, and for an assortment of new media ventures, including video game, Internet and interactive programming. The emphasis is on supporting feature and creative production: producers of live sporting events, game and award shows, and adult entertainment would not be eligible.

The proposed law is part of a sustained effort to welcome film and entertainment businesses and startup activity to the state. A law which took effect in January 2007 gives film and production companies a break on the Michigan state sales tax. Rep. Bill Huizenga (R-Zeeland) initially sponsored that legislation. According to a Screen Magazine article commenting on the legislation and reporting on an interview with Huizenga, these bills “were crafted after seeing what other states, like Louisiana, Illinois and New York, had done to provide incentives.”

Just add “or, unmaking” to the end of that — and you have an adept aphorism for the Michigan Legislature’s services tax fandango.

Approximately five hours after the unpopular 6% sales tax on services went into effect at 12:01 on December 1, the Michigan Legislature reached a “twelfth hour” deal to repeal the tax, replacing the missing budget revenue with a 22% increase in the business tax. The repeal legislation includes legal immunity for affected businesses which failed to collect the tax for the brief period of time that the law was actually in effect.

Too bad thousands of Michigan businesses were required to spend time and money preparing for this Adventure in Bad Governance.

Sadly — I have been spending the last few days analyzing the latest information from Treasury, to be able to provide clients with some preliminary guidance on the new Michigan services tax (which goes into effect TOMORROW December 1, 2007. Unless it is repealed by the legislature before midnight — an event which the entire state of Michigan is now actively praying for). The Michigan Legislature deserves to be run out on a rail for not achieving a compromise that would repeal the tax before the deadline. Here’s hoping that we will wake up tomorrow, December 1, to the news that this tax is not in effect. As of right now, I’m NOT confident that they will be able to conclude a deal before midnight — these cats have already proven to have no discipline in meeting deadlines and no regard for the business-killing consequences of their actions.

I have quickly reviewed the Treasury Department’s position on which transactions are exempt and which are taxable. I’m outlining certain logical courses of action which might be applicable across the board to affected businesses. (PLEASE NOTE: the following information does not constitute specific legal advice to any person or business. You will need to consult with your attorney and/or your accountant to determine the right course of action for you — if the tax goes into effect.)

>> Separate invoicing for pre- and post-tax activity.
Businesses which provide any services at all which could conceivably be subject to the tax, should send invoices as of November 30, 2007 (today) if possible, to avoid mixing charges for services pre- and post- the tax implementation date on the same invoice.

>> Register with the State of Michigan to collect and pay the new services tax.
If a business already has a Treasury number for sales, use and withholding (that includes everyone with employees), that business does not need to register, it just uses the existing number. If a business will be collecting payent for services through an entity which does not have employees (including a self-employed individual), the business will need to register that entity as of December 1, 2007 (tomorrow).

>> Consult the Treasury Department list of taxable services.
The Treasury Department has issued a list of services indicating whether, for purposes of enforcement, the described services are “TAXABLE” or “EXEMPT”. Addressing the complete hodge-podge of industries and markets covered by the new tax is not possible for me in this post. Instead, I’ll make an example of the computer consulting services industry (as I have dozens of clients in this industry, and the original legislation was completely vague as to whether these services were intended to be included).

Example: most computer consulting services are NOT TAXABLE
If a business primarily provides computer-related consulting services, such as programming and systems design, the majority of services rendered will be exempt from the tax. The following services descriptions are expressly excluded:

• Computer facilities management services
• Computer hardware consultant services
• Computer hardware consulting services
• Computer software consultant services
• Computer software consulting services
• Computer systems design and related services
• Computer systems design services
• Data processing services
• Public relations services

So, for example, if ABC Company provides custom programming services to clients on their accounting software custom implementations, the programming services will be tax exempt.

Example: services incidental to computer consulting can still be TAXABLE
Services which are not the core business of a company but which are provided as part of a bundled services contract or for the convenience of a client may nevertheless be separately subject to the tax. So, if a computer consulting company is performing any of the following services for pay, and the service is separately itemizable (ie, it will have its own line item on an invoice), the service will be taxable. The State is very clear that the new tax is TRANSACTIONAL. Here’s a list of TAXABLE services that a computer consulting company might provide to its clients for pay:

• General management consulting services
• Commercial art, graphic design, logo/identity design, or consulting on identity/branding
• Billing and recordkeeping services
• Business management consulting and business management services
• Business start-up consulting services
• “Consulting services” (*this is a general catch-all category which
  is not further defined. This is basically a category which gives
  the State absolute discretion to classify anything as falling
  under the tax. I can’t give you any more help than that.)
• “Consulting Services, Technical” (*see comment above)
• “Custom Consulting Services” (*see comment above)
• Customer service management services (many software and Internet companies will fall into this classification, if they manage client interactions with a client’s users or customers, via websites or otherwise)
• Desktop publishing services
• Editing services
• Marketing consulting services (yes, this INCLUDES Internet search-engine optimization (SEO))
• “New product development” consulting services
• Organization development consulting services
• Professional and management development training (ie, seminars)
• Recruiting services (ie, placing a worker with employment for a fee)
• Scanning and imaging services
• “Specialized Design Services” (*see comment above)
• Strategic planning consulting services
• “Technical Consulting Services” (*see comment above)
• Temporary employment services (typically, placing a worker in a position with a client, and collecting fees above the worker’s pay, where the worker is not a company’s permanent employee, but is hired by the company as a temporary project-by-project employee. This remains to be clarified.)
• Word processing services

So, continuing the above example. ABC Company now agrees to take on a project for a client, to perform a comprehensive upgrade and re-programming of the client’s website. This involves analyzing the client’s web presence and redesigning the Internet approach for search-engine optimization (SEO) purpoases, collecting written materials and documentation from the client for inputting to digital format and then posting to the website, designing artwork and images for the website’s graphical look and feel, performing the back-end programming to make the website operate, and providing the client with personnel who will remain onsite as a permanent webmaster. Of the services I have just listed, ONLY the back-end programming services will be exempt from the new tax: the remaining services would be taxable.

>> Separate bundled services into separately itemized transactions.
To repeat the major compliance issue with this legislation — the new services tax is TRANSACTIONAL in application. A business cannot rely on the fact that the majority of services it provides are exempt; if a company provides 1% taxable services and 99% nontaxable services, the company will still need to collect tax on the 1% of services which are taxable.

Further — a prudent business will invoice separately for any services which are TAXABLE, or which are UNCERTAIN as to their taxable status. Since the Michigan Department of Treasury has historically subjected the entire amount of mixed invoices (invoices containing taxable and non-taxable goods) to the sales tax — businesses which do not invoice taxable and nontaxable items separately will risk a determination that the entire amount is taxable (most likely, after the business has collected, which means that it will come out of profits).

>> Decide where services are being rendered — in Michigan or outside?
Businesses will need to consider whether services are provided in Michigan (even if the client is outside Michigan). It will most likely be the case that if workers are physically performing the services at a Michigan location, the services will be subject to the tax. However, services may be rendered in one location and received in another — via the Internet, for example. In such cases, businesses will need to consult with their attorney or tax preparer, as the Department of Treasury has not yet provided guidance. The reverse is also true: if workers are performing services for a Michigan customer, but the workers are located outside of Michigan, the business may nevertheless want to collect the tax pending a determination that it might or might not apply (a business can always refund a tax collected in error; if not collected, and then later assessed, it will come out of profits).

>> Keep records on services consumed which are subject to the tax.
Here’s the worst part of this pernicious legislation: anyone purchasing services covered by the new tax will owe the tax as a “use tax,” if the service provider does not collect at the time of payment. Get ready for a whole new set of recordkeeping activities. Individual taxpayers should retain all receipts, check them to determine whether the services tax was collected and paid, and pay the uncollected use tax, if any, on annual state income tax returns. Business taxpayers subject to quarterly or monthly payments to the State’s Sales, Use and Withholding tax division will need to pay use tax on the same period with other tax payments.

>> Amend service contracts to provide for one party’s responsibility for the tax.
Many service contracts provide that the customer pays all taxes (ie, the taxes are passed through to the customer). This may or may not be the case with the hundreds of thousands of existing service contracts in place in the State of Michigan on December 1, 2007. All businesses should review their contracts to determine which party has responsibility for the collection and payment of the tax.

Let’s hope the Legislature leaves the Twilight Zone and we wake up on Saturday morning with a repealed tax.

Business owners who are subject to the new services tax must register with the State of Michigan, Department of Treasury, and start collecting and paying the tax as of December 1, 2007. This applies to all business owners providing a service which is on the COMPLETE LIST of services subject to the new tax.

For business owners who are individuals WITHOUT EMPLOYEES, the State’s paperwork and online registration are extremely misleading, and following them may result in unnecessary legal and tax consequences.

No employees = no need for a Federal Employer Identification Number (FEIN)
If an individual doing business in Michigan is NOT going to have employees, he or she does not need to obtain a Federal Employer Identification Number, either for the federal government, or for the state. This is true whether the form of business is (A) a sole proprietor, (B) an independent contractor, or (C) a single-member LLC. (A single-member LLC without employees is a “disregarded entity” for federal tax purposes and the owner usually files federal income and self-employment taxes on Schedule C on a regular Form 1040. Once an LLC has multiple members or owners, it must have an FEIN).

An individual using any of these typical forms of business — (A), (B), or (C) — without employees — does not use an FEIN in filing taxes and returns with the IRS or other taxing authority, but uses his or her SSN as the TIN (Tax ID Number) instead. (PLEASE NOTE: this not specific or individual legal advice, but general information. Some tax situations are unusual. Business owners should always check with your tax attorney, tax accountant or tax preparer about a specific situation.)

Of course, at the time a business hires employees, the business owner DOES need to apply for an FEIN, and will need to advise the IRS and the State of Michigan’s Department of Treasury of this change.

Subcontractors are NOT employees
What if an individual who owns and operates a business, uses individuals or companies who provide services to their business, as subcontractors or independent service providers? Subcontractors and independent contractors are NOT employees, and individuals who are business owners in categories (A), (B) or (C) above do NOT need to get an FEIN for hiring these types of workers, or for registering with the State of Michigan for the new services tax. Business owners are frequently confused about whether they have employees, by the common use of the word “employ” to refer to the hiring of any worker, where the worker can be EITHER an employee OR a contractor.

Here’s an example — an individual business owner named “John Doe” who is a consultant providing consulting services (which are services subject to the new 6% Michigan services tax) may hire and “employ” an individual worker “Jane Deer” for any business purpose (and this could include using Jane Deer to provide consulting services through John Doe’s business to John Doe’s clients).

As long as the IRS and Michigan rules for independent contractors are met*, Jane Deer is in a contracting relationship with John Doe. Jane Deer is NOT an employee of John Doe. People, the media, government forms, and business contracts and agreements all use the word “employ” casually to refer to workers whether they are employees or contractors — do not confuse the use of the word “employ” with an employment relationship.

*NOTE: The tax and labor law consequences of incorrectly classifying a worker as an independent contractor — when the worker is really legally an employee — are dramatic. A business owner cannot make a worker into an independent contractor simply by calling the worker a “contractor” or by signing a contract stating that the worker is a contractor rather than an employee — the legal relationship is determined by applying a legal test to the work situation. State and federal tax penalties to a business owner for incorrect classification of a worker can be 40%-100% of the amount paid to the worker, or more.

If you have questions about whether a worker is an employee or an independent contractor, you need to consult with a business attorney or accountant immediately. (If you contact Arborlaw, I can help you with this legal issue.)

Individuals who are Michigan business owners should ALWAYS file the paper Form 518
I called the Michigan Department of Treasury’s Sales, Use and Withholding (SUW) Tax Division to confirm that an FEIN is not needed to register a business for the new services tax where the business owner is an individual with no employees.

As instructed by the Customer Service Representative at Treasury, here’s what an individual Michigan business owner WITH NO EMPLOYEES needs to do:

• Download the State of Michigan’s paper form for registering a new business. (Form 518 — downloadable as a PDF from the Michigan Treasury website). Do not use online registration if you are a sole proprietor or independent contractor with no employees.

• Leave line #1 (FEIN) of Form 518 blank. Do not fill this in with your Social Security Number (SSN) or another Taxpayer Identification Number (TIN).

• Check #13 (Use Tax) rather than Sales Tax. According to the Department of Treasury, all references on their website and in the press which state that the new tax is a “sales tax” applied to services, are incorrect. The State’s Department of Treasury considers the new services tax to be “use tax” and is handling filings and payments of the new services tax as a “use tax”. If you file for a number and check the box for “sales tax” rather than “use tax”, it will cause problems with your account with the SUW Department of Treasury.

• Complete Form 518 and send it in the mail.

Why individual business owners SHOULD NOT use online registration
Michigan’s online registration procedure does not let you register a business for the new services tax (or for sales or use tax) without an FEIN — even though an FEIN is not legally needed or required for sole proprietors, independent contractors, or single-member LLCs. The State of Michigan assumes that all new businesses will have employees and has simply not provided on its website for online registration for businesses without employees.

Reasons to avoid getting a Federal Employer Identification Number (FEIN)
Individual business owners who are never going to have employees (even if they use independent contractors) usually want to avoid getting an FEIN. Having an unnecessary FEIN will create another official connection between the individual taxpayer and the IRS — that of an employer needing to file withholding tax returns and payments.

Applying for an unneeded FEIN will cause the IRS to generate and send employment-related quarterly tax forms to the taxpayer via mail. The business owner will then be required to file information returns quarterly and annually (941′s and 940′s) about the “employer’s share” of federal withholding taxes — which in the case of an individual owning a business with no employees, will always be zero. Individual business owners have very thin resources and do not need this additional administrative burden.

Form 518 does not require an individual to have a business name
Individuals who are business owners filing for the new services tax (or for the sales or use tax) also do not have to file for an assumed name or business name for their business with the county clerk — even though Form 518 also asks for this. It is perfectly acceptable for a business owner to do business under his or her own legal name.

Don’t trust Form 518 OR Michigan’s online registration process for new businesses
The Department of Treasury’s Form 518 is very poorly written — but Michigan’s “streamlined” online registration process for new businesses is even less complete — it assumes all businesses are alike for tax purposes. Since most business owners registering new businesses do NOT have employees, both the paper form and the online registration form are misleading, and will cause many business owners to file incorrectly for an unneeded FEIN.

Needless to say, the State of Michigan is very unprepared for this new tax. Due to the overwhelming opposition, the services tax may eventually be repealed, but unfortunately all service providers covered by the COMPLETE LIST of services listed in the text of the new law must register and prepare to collect and pay the tax, because the liability starts on December 1.

This article contains general information and does not constitute specific legal advice for any particular individual or company. Readers should consult with a business attorney, accountant or tax preparer to determine what action to take in a specific situation.

Does it apply to my consulting business? If I am paid in royalties or on some other contingency basis, how do I compute the tax? When do I owe the tax, when I bill or when I collect? What if my client is not in Michigan but I am performing the work here? What if my client is not in Michigan and I am not performing the services in Michigan, but I have a tax home here? If my business is classified in one NAICS category can I assume it will not be considered subject to the tax in another NAICS category? What if I have charges for several different services on the same invoice, and some of them are taxable while others are not?

Simply put, these are all very good questions, and they have not been answered yet. Time is ticking down, responsibility for compliance is coming to business owners on December 1, and we have no guidance, or announcements about forthcoming guidance, from the Department of Treasury. Small business owners and entrepreneurs are wondering: How exactly am I going to collect this tax and comply correctly with this law? How much time will I have to get a system in place?

I understand that the Legislature is up against Take Two — Yet Another Deadline on finalizing the budget, and that several groups (including SBAM) are pushing hard for repeal. Nevertheless, based on the word around the Michigan Capitol, there’s no likelihood of a repeal happening. The services tax will go into effect.

There are literally hundreds of regulations on the applicability and administration of the sales tax in Michigan. Over the next few weeks, I’ll be poring over those, under the assumption that those, by analogy, are the best source of predicting what Treasury will do. Meanwhile, I’ve put in calls to Dale Vettel, the Director of the Bureau of Tax and Economic Policy and Terry Stanton, the Press Secretary for Treasury, to see if we can shake any compliance information out of the trees.

It’s bad enough that this tax falls disproportionately heavily on startups, small business creation, and entrepreneurs — people who primarily sell business-to-business services and who are creating companies and jobs in new industries that Michigan badly needs. These companies are already operating razor-thin in resources and time. It’s unforgivable that thousands of companies and individuals will be subject to compliance on December 1, without any advance indication whether the tax will actually apply to their business or not.

Do you know if you’re covered? Check the COMPLETE LIST of NAICS codes actually covered by the services tax law.

I have set up a mailing list on Google Groups called SERVICETAX-MI to discuss the extension of the State of Michigan’s 6% sales, use and withholding tax to services. The list is for attorneys and tax professionals, academics and students of both disciplines, and members of the media.

If you are or know of a professional who would benefit from discussing issues concerning the tax coverage and/or compliance — please forward them the group information so they can join the discussion. Since the new law takes effect December 1, 2007, our professions need to be on top of this topic as quickly as possible.

List discussions will be unmoderated and the list will not be archived on the
Internet. Professionals can be credentialed in any state and need not be in Michigan.

http://groups.google.com/group/servicetax-mi