A gas station was liable for Michigan sales tax on its sales of certain wireless calling arrangements for prepaid cell phones because they were sales of prepaid authorization telephone numbers for telephone use. Sales tax applies to the sale of a prepaid telephone calling card or a prepaid authorization number for telephone use. In an “EPIN transaction,” the taxpayer’s customers buy a PIN which is provided on a receipt. That PIN is entered on their cell phones in order to access to telephone services. The EPIN falls within the scope of a prepaid authorization number because it represents a prepaid account that is used to access the purchased telephone services.
However, the taxpayer’s “PINless top-up” transactions are not taxable as there is no sale of a prepaid authorization number. When purchased, the additional minutes are downloaded to the customer’s phone. No PIN or authorization number is required to access the telephone services.
While the taxpayer also contested the accuracy of the audit, it failed to maintain adequate records. In this instance, the department may use an indirect audit procedure. Furthermore, the taxpayer did not have the right to decide on the specific audit methodology and did not rebut the presumption that the audit’s results were accurate. As the PINless top-up sales were not taxable, the negligence penalty must be adjusted.
Garfield Mart Inc v. Department of Treasury, Michigan Court of Appeals, No. 333094, August 8, 2017, ¶402-219