Michigan Flow-Through Entity Tax Election Deadline Extended

Michigan's Flow-Through Entity Tax Election Deadline Extended

For tax years beginning on or after January 1, 2024, eligible Michigan taxpayers who wish to make the flow-through entity (FTE) tax election now have until the last day of the ninth month after the end of their tax year. For example, a calendar year FTE must file the election with the department on or before September 30, 2025, for the 2024 tax year. 

Before the amendment in House Bill 5022, the same entity would have had to file its FTE tax election by March 15, 2024.

Taxpayers who make or have made the FTE tax election, and reasonably expect to owe tax for the year, are required to file quarterly estimated returns and make payments. House Bill 5022 includes the following situations in which elective taxpayers will not be subject to penalties and interests:

Penalties and interest will not be assessed for tax years beginning on or after January 1, 2024, as long as the taxpayer submits four equal payments that total:

  1. 90% of the taxpayer’s current-year liability, or
  2. 100% of the taxpayer’s previous year’s liability.

Penalties and interest will not be assessed for tax years 2022 and 2023 as long as:

  1. The preceding year’s tax liability was $20,000 or less, and
  2. The taxpayer submitted four equal payments totaling the immediately preceding tax year’s tax liability.

Penalties and interest will not be assessed for any quarterly estimated payment due before the taxpayer makes the FTE tax election for that tax year.

A member may claim credits on their personal or corporate tax returns for FTE payments. Under House Bill 5022, for tax years beginning after January 1, 2024, the member’s share of FTE tax is creditable if the payment was made before the filing date of the annual return. This is an extension from the previous cutoff of the 15th day of the third month after the close of the FTE’s tax year.

Varnum’s Tax Planning, Compliance and Litigation Team is available to assist and answer any questions about the FTE tax election.

 

Eleventh Circuit Invalidates FCC’s One-to-One Consent Rule

Eleventh Circuit Invalidates FCC's One-to-One Consent Rule

Varnum Viewpoints:

The Federal Communications Commission’s (FCC) proposed one-to-one consent rule under the Telephone Consumer Protection Act (TCPA) was recently invalidated by the 11th Circuit Court of Appeals. This ruling was issued immediately after the FCC announced a delay in the rule’s implementation until January 2026, or until the 11th Circuit completed its judicial review. For businesses involved in direct-to-consumer marketing, the future of the rule remains uncertain, with its timing and potential enforcement dependent on the regulatory direction of the new Administration’s FCC.

On January 24, 2024, FCC delayed the effective date of the TCPA one-to-one consent rule until January 26, 2026, or until the Eleventh Circuit concludes its judicial review of the rule and—if the court upholds the rule—the FCC issues a Public Notice specifying a sooner date (within 90 days of the court’s decision).

Hours later, the Eleventh Circuit issued its ruling, invalidating the rule on the grounds that the FCC had exceeded its statutory authority in its interpretation of “prior express consent.” The TCPA requires companies to obtain “prior express consent” before robocalling consumers. However, the FCC’s 2023 one-to-one consent rule expanded this requirement by mandating entity-specific consent and requiring that the subject matter of each call be logically and topically related to the interaction that prompted the consent. In striking down the rule, the Eleventh Circuit noted: “Rather than respecting the line that Congress drew, the FCC stepped right over it.”

The practical implications of this decision remain pending, as the FCC must now determine whether to appeal the ruling, substantially revise the rule, or pursue an alternative approach. Notably, the current FCC appears to have adopted a distinct regulatory posture from its predecessor. In its delay order, the Commission emphasized the substantial implementation burden on industry stakeholders while acknowledging limited public interest harms associated with postponement.

Presently, the one-to-one consent rule will remain ineffective until at least January 2026, or until the FCC issues a Public Notice addressing the rule’s effective date—in the event that the rule withstands additional legal challenges. The FCC is expected to announce its intended course of action in the near future, whether that involves pursuing an appeal, undertaking rule revision, or withdrawing the initiative altogether.

Contact a member of Varnum’s Data Privacy and Cybersecurity Practice Team to discuss how these changes impact your business and how to help ensure compliance.

Michigan’s Earned Sick Time Act – Legislative Update

Michigan’s Earned Sick Time Act – Legislative Update

There are only 36 days before the Earned Sick Time Act (ESTA) takes effect on February 21, 2025. Presently, both the state House and Senate have introduced bills to amend the ESTA. The House acted quickly convening a committee to hear testimony on House Bill 4002 and proposed amendments to the minimum wage law (HB 4001). Varnum’s Labor and Employment team has been closing monitoring the progress of these amendments.

Varnum attorney Ashleigh Draft testified before the House Select Committee on Protecting Michigan Employees and Small Businesses in support of House Bill 4002. To date, the Senate has not yet convened a committee to discuss the Senate Bill. A summary of both the House and Senate bills follow:

House Bill (HB 4002)

The House Bill includes crucial amendments to make the Act more workable for both employees and employers, including:

  • Clarifies the definition of employees eligible for the benefits of the ESTA. Independent contractors, out of state employees, seasonal workers (working 25 weeks or less in a year), part-time employees (working 25 hours or less per week) and variable hour workers are not eligible for benefits under the Act.  
  • Exempts small businesses (employers with less than 50 employees) from ESTA.
  • Employers may limit increment of use to 1 hour.
  • Retains the accrual method of 1 hour for every 30 hours worked, with usage capped at 72 hours per year, and limiting carryover to 72 hours.
  • Recognizes that employers that frontload 72 hours per year are in compliance with the Act and do not need to carryover time from one benefit year to the next.
  • Permits employers to provide a single PTO bank that can be used for all purposes including ESTA. 
  • Allows employers to require employees to take ESTA time concurrently with FMLA, ADA or any other applicable law.

Senate Bill (SB 15)

The bill pending in the Senate proposes the following amendments:

  • Defines small business as an employer with fewer than 25 employees.
  • Allows small businesses to frontload 40 hours of paid and 30 hours of unpaid earned sick time at the beginning of the year.
  • Employers may limit increment of use to 1 hour.
  • Retains the accrual method of 1 hour for every 30 hours but permits frontloading of 72 hours as an alternative to the accrual method, while retaining the carryover from year to year. 
  • The amount of accrued sick time that an employee may carry over from year to year may be limited to 144 hours if the employer pays the employee the value of the employee’s unused sick time before the end of the year. If the employer does not pay out the value of the employee’s unused sick time, carryover may be capped at 288 hours.

Varnum’s Labor and Employment Team continues to monitor action on the ESTA. If you would like to support HB 4002, or otherwise voice your opinion on the Earned Sick Time Act, the Michigan Chamber of Commerce provides a link to help connect with your elected representatives.

2024 Title IX Regulations Vacated Nationwide

2024 Title IX Regulations Vacated Nationwide

On January 9, 2025, a district court within the Sixth Circuit decided the case of Tennessee v. Cardona, vacating the 2024 Title IX regulations nationwide. The court ruled that the issuance of the 2024 regulations exceeded the Department of Education’s authority and was unconstitutional on multiple grounds.

The ruling may be appealed, but for now, institutions covered by Title IX should revert to compliance with their policies in effect under the 2020 Title IX regulations.

The 2024 Title IX regulations, which took effect on August 1, 2024, had faced several challenges that led to injunctions with varying geographic scopes. As a result, prior to the Cardona decision, the Title IX regulations were only effective in about half of the states across the U.S.   

Varnum’s educational attorneys will continue to monitor this case and provide updates as they become available.

NHTSA Proposes National Voluntary Framework for Autonomous Vehicle Oversight

NHTSA Proposes National Framework for Autonomous Vehicle Oversight

The U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) has proposed a voluntary national framework to evaluate and oversee certain vehicles equipped with automated driving systems (ADS). This proposal aims to enhance transparency and safety in autonomous vehicle (AV) operations through the ADS-Equipped Vehicle Safety, Transparency, and Evaluation Program (AV STEP). 

Participation Requirements

Entities with operational control over subject ADS-equipped vehicles would be able to apply to participate in AV STEP at one of two “steps,” depending on whether their ADS requires “fallback personnel” — a human supervisor who is expected to intervene and exercise control over the vehicle in necessary circumstances. Approval would involve an evaluation of an applicant’s safety case, including a third-party independent assessment, and each step would set minimum eligibility requirements relative to the extent of ADS operations. 

Ongoing Obligations

Once admitted into AV STEP, a participating entity would be required to submit periodic quarterly reports, event-triggered reports, and reports of operational changes above a certain threshold. Information required in such reports ranges from the number of vehicles operated and miles traveled to vehicle recovery events and contact events. NHTSA will also publicly publish a subset of information gathered in the application and participation process in an effort to promote transparency surrounding ADS technology.

Exemption Pathways

AV STEP would also add two exemption pathways for ADS-equipped vehicles:

  1. A Federal Motor Vehicle Safety Standards (FMVSS) Exemption under 49 U.S.C. 30114(a); and
  2. A Make Inoperative Exemption under 49 U.S.C. 30122.

NHTSA states these additional exemption pathways will exist alongside current exemption processes to offer more regulatory flexibility.

Building on Existing Initiatives

The AV STEP proposal builds on current NHTSA programs and actions related to AV regulation.  NHTSA has encouraged AV companies to complete a Voluntary Safety Self-Assessment to demonstrate their safety approaches, testing methods and technological developments to regulators and the public. Additionally, NHTSA has issued a Standing General Order (SGO), amended in April 2023, requiring certain manufacturers and operators of ADS technology to report details of collisions involving vehicles equipped with Level 2 advanced driver assistance systems (ADAS) or higher autonomous technology.

NHTSA’s AV STEP proposal will be open for public comment for 60 days after it is published in the Federal Register and will appear on Regulations.gov as docket No. NHTSA-2024-0100. The unofficial version of the notice of proposed rulemaking (NPRM) is currently available on NHTSA’s website. The outcome of the NPRM remains unclear with the incoming administration, and industry feedback is likely to shape the proposed program.

Varnum’s Privacy and Mobility Team will be closely monitoring these regulatory developments and is prepared to assist clients in navigating the complexities of emerging AV regulation. 

Emerging Trends in AI Governance: Insights from State-Level Regulations Enacted in 2024

Emerging Trends in AI Governance

In the absence of comprehensive federal artificial intelligence (AI) legislation, individual states stepped into the spotlight in 2024, crafting a patchwork of laws that are shaping the regulatory landscape. Utah, Colorado and California have emerged as pioneers, enacting distinct approaches to govern the development and deployment of AI systems. These state laws are not mere stopgaps; they’re setting precedents that will likely inform the trajectory of AI regulation nationwide in 2025 and beyond.

In this advisory, “AI developers” refers to those creating AI tools and systems and “AI deployers” refers to those implementing AI tools and systems. However, the specific definitions of these terms may vary across the different laws described below.

State Law Overview

1. Utah Artificial Intelligence Policy Act (UAIP)

  • Effective Date: May 1, 2024
  • Primary Focus: Transparency in generative AI use and consumer protection
  • Scope: Entities using generative AI with customers in Utah
  • Main Requirements:
    • Sets forth disclosure requirements:
      • Regulated occupations must “prominently” disclose generative AI use at the beginning of customer interactions
      • Other entities must “clearly and conspicuously” disclose AI use if asked by a consumer
    • Prohibits using generative AI as a defense against consumer protection violations
    • Creates an Office of Artificial Intelligence Policy and an AI Learning Laboratory Program; Learning Lab participants may enter into a “regulatory mitigation agreement” with the Office to receive 24 months of regulatory reprieve as they develop and test innovative AI technology

2. Colorado Artificial Intelligence Act (CAIA)

  • Effective Date: February 1, 2026
  • Primary Focus: Regulation of high-risk AI systems and algorithmic discrimination
  • Scope: Developers and deployers of high-risk AI systems in Colorado
  • Main Requirements:
    • Focuses on “high-risk” AI systems making “consequential decisions” in areas like education, employment and healthcare
    • Obligations for developers:
      • Provide detailed documentation to deployers
      • Disclose high-risk AI systems on website
      • Inform Attorney General of algorithmic discrimination within 90 days
    • Obligations for deployers:
      • Notify consumers of high-risk AI use before decisions are made
      • Provide reasons for adverse decisions and allow appeals
      • Conduct impact assessments and annual reviews
      • Establish risk management policies
    • Note that this law may be amended prior to its effective date, as Governor Polis expressed concerns about the law’s potential effect of stifling innovation at the time of signing

3. California AI Transparency Act

  • Effective Date: January 1, 2026
  • Primary Focus: Transparency and detection of AI-generated content
  • Scope: Generative AI providers with over 1 million monthly users in California
  • Main Requirements:
    • Provide free AI detection tools for image, video or audio content
    • Offer option for “manifest” disclosure on AI-generated content
    • Include “latent” disclosure in metadata of AI-generated content
    • Ensure licensees maintain disclosure capabilities

 4. California AB 2013

  • Effective Date: January 1, 2026
  • Primary Focus: Transparency in AI training data
  • Scope: Developers of generative AI systems available to Californians
  • Main Requirements:
    • Disclosure of training dataset information on developer’s website, including:
      • Data sources and owners
      • Number and types of data points
      • Copyright status of data
      • Whether datasets include personal information
      • Data collection time periods
      • Use of synthetic data generation

Emerging Trends in AI Governance

This recent wave of AI regulations enacted in 2024 showcases several key trends, including a growing emphasis on transparency, risk-based frameworks and consumer protection. These trends are shaping the regulatory landscape for AI development and deployment, presenting both challenges and opportunities for businesses operating in this space.

  1. Emphasis on Transparency: All three states prioritize disclosure and transparency, whether by focusing on customer interactions (as in Utah), comprehensive documentation requirements (as in Colorado), or mandates for content labeling and dataset disclosures (as in California). To stay ahead of the curve, AI developers and deployers should implement clear, user-friendly disclosures about AI use to customers, particularly for generative AI interactions.
  2. Risk-Based Approaches: Colorado’s law, in particular, demonstrates a shift towards risk-based regulation, focusing more stringent requirements on “high-risk” AI systems. This approach aligns with international trends, such as the EU AI Act. When possible, AI developers should recognize their AI systems’ risk level early in the design process and integrate appropriate risk management functionality into the tool. Developers and deployers should also monitor for risks on an ongoing basis and take commensurate risk management measures upon identifying new risks.
  3. Emphasis on Consumer Protection: The laws of Utah, Colorado and California all prioritize consumer protection in their AI regulations. This trend reflects a growing concern about the potential negative impacts of AI on individuals, such as algorithmic discrimination and privacy violations. AI developers and deployers should ensure that their systems are designed and implemented in a way that intentionally protects consumer rights and interests.
  4. Regulatory Fragmentation: As more states implement distinct AI regulations, companies will face the challenge of complying with a growing patchwork of laws. The variations in requirements between states, such as disclosure obligations and risk assessments, could complicate operations for developers and deployers working across multiple regions. To stay ahead of the curve, AI stakeholders should invest in adaptable compliance frameworks that can be tailored to meet the varying legal standards of different states, ensuring seamless compliance while maintaining operational efficiency.

As states take the lead in crafting AI regulations, businesses must adapt to a rapidly evolving regulatory landscape. Emerging laws that emphasize transparency, consumer protection and risk management are shaping the future direction of AI governance. By proactively anticipating and addressing these trends in 2025, AI developers and deployers can establish themselves as industry leaders, driving responsible innovation while gaining a competitive edge.

Federal Appeals Court Reinstates Injunction Against the CTA, Pending Appeal

Federal Appeals Court Reinstates Injunction Against the CTA, Pending Appeal

At approximately 8:15 p.m. Eastern Time on December 26, 2024, the United States Court of Appeals for the Fifth Circuit (Fifth Circuit) reversed course from its prior ruling in Texas Top Cop Shop, Inc., v. Garland to allow a lower court’s nationwide preliminary injunction stand against the Corporate Transparency Act (CTA), pending the Government’s appeal. This means that, once again, the Government, including the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), is barred from enforcing any aspect of the CTA’s disclosure requirements against reporting companies, including those formed before January 1, 2024. This decision prevents FinCEN from enforcing its recently announced deadline extension that would have deferred the compliance deadline for such existing entities from January 1, 2025, to January 13, 2025.

This abrupt about-face appears to be the result of a reassignment of Texas Top Cop Shop, Inc., v. Garland from one three-judge panel of the Fifth Circuit to another. The Fifth Circuit’s prior decision was issued by a “motions panel,” which decided only the Government’s motion to stay the lower court’s injunction. The motions panel also ordered that the case be expedited and assigned to the next available “merits panel” of the Fifth Circuit, which would be charged with deciding the merits of the Government’s appeal. Once the case was assigned to the merits panel, however, the judges on that panel (whose identities have not yet been publicized) appear to have disagreed with their colleagues. The new panel vacated the motions panel’s stay “in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.” The Government must now decide whether to seek relief from the United States Supreme Court, which may ultimately determine the fate of the CTA.

Varnum’s CTA Taskforce is closely tracking this case, as well as the dozen other pending cases challenging the constitutionality of the CTA, and will provide updates as they become available.

FinCEN Extends Certain Deadlines After Federal Appeals Court Revived CTA Reporting Obligations 

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Updated December 26, 2024: the Fifth Circuit reversed its prior decision, reinstating a nationwide injunction against the Corporate Transparency Act (CTA). This bars the government and FinCEN from enforcing the CTA’s disclosure requirements, including recently extended compliance deadlines. Read the latest in our recent advisory.

Updated December 24, 2024

Within hours of the Fifth Circuit’s ruling that lifted a nationwide preliminary injunction against the CTA, FinCEN announced that it had extended certain compliance deadlines, including:

  • Reporting companies created or registered prior to January 1, 2024, that had a filing deadline of January 1, 2025, now have until January 13, 2025, to file their initial reports with FinCEN.
  • Reporting companies created or registered on or after September 4, 2024, that had a filing deadline between December 3, 2024, and December 23, 2024, now have until January 13, 2025, to file their initial reports with FinCEN.
  • Reporting companies created or registered on or after December 3, 2024, and on or before December 23, 2024, now have an additional 21 days from their original filing deadline (i.e., 90 days from creation or registration, plus 21 days) to file their initial reports with FinCEN.

As a reminder, reporting companies created or registered on or after January 1, 2025, have 30 days to file their initial reports with FinCEN. This compliance deadline is unchanged.

Additionally, the CTA requires any reporting company that has filed an initial report with FinCEN to submit an updated report within 30 days of certain events, including any change to information required to be reported to FinCEN. This compliance obligation is unchanged.

On December 24, 2024, the Plaintiffs in Texas Top Cop Shop, Inc. v. Garland filed an emergency petition with the Fifth Circuit for en banc review of the panel’s decision to stay the lower court’s injunction. According to the Plaintiffs, the panel’s ruling that the CTA is a valid exercise of Congress’s commerce power is in “plain conflict” with U.S. Supreme Court precedent. The Plaintiffs request that a decision be made by January 6, 2025, which is one week before the extended compliance deadline described above. Varnum will continue monitoring developments.

December 23, 2024

At approximately 1:30 pm Eastern Time on December 23, 2024, the United States Court of Appeals for the Fifth Circuit (Fifth Circuit) revived the immediate enforceability of the Corporate Transparency Act (CTA). In Texas Top Cop Shop, Inc. v. Garland, a three-judge panel of the Fifth Circuit stayed a lower court’s nationwide preliminary injunction against the CTA, which was issued on December 3, 2024. This means that, among other obligations, the January 1, 2025, compliance deadline for reporting companies in existence as of January 1, 2024, is back in effect.

This situation is rapidly evolving. In the coming days, the challengers in this case could seek further review from the Fifth Circuit or seek relief from the United States Supreme Court. Additionally, several other federal courts are actively considering challenges against the CTA. At the time of this publication, the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has not publicly released any guidance based on today’s ruling.

Varnum’s CTA Taskforce is closely tracking this case, as well as the dozen other pending cases challenging the constitutionality of the CTA and will provide updates as they become available.