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Contact Information:
Edward S. Kisscorni, CPA
290 Suncrest Court, SW
Grandville, MI 49418

Cell: 616/443-6730




 Michigan Sales Tax 

Imposition of the Tax


The Michigan Sales Tax was originally created in 1933 with the enactment of Public Act 167 of 1933.  The original intent was for the tax to be temporary, a temporary tax to provide public funds to enable Michigan to survive the depression.  As we all know, the tax was never repealed and today comprises a great portion of Michigan taxes.


The preamble to 1933 PA 167 reads: 


An act to provide for the raising of additional revenue by prescribing certain specific taxes, fees, and charges to be paid to the state for the privilege of engaging in certain business activities; to provide, incident to the enforcement thereof, for the issuance of licenses to engage in such occupations; to provide for the ascertainment, assessment and collection thereof; to appropriate the proceeds thereof; and to prescribe penalties for violations of the provisions of this act.


The preamble to the General Sales and Use Tax Rules reads as follows:


There shall be collected from all persons engaged in the business of making sales of tangible personal property at retail, an annual tax for the privilege of engaging in such business equal to 6% of the gross proceeds thereof, less deductions allowed by law and indicated in these rules and regulations.


Section 1 of the Sales Tax Act (MCL 205.51) provides definitions to control the imposition of the law.  Section 1a of the Sales Tax Act (MCL 205.51a) provides additional definitions.




"Person", in the Sales Tax Act, means an individual, firm, partnership, joint venture, association, social club, fraternal organization, municipal or private corporation whether organized for profit or not, company, estate, trust, receiver, trustee, syndicate, the United States, this state, county, or any other group or combination acting as a unit, and includes the plural as well as the singular number, unless the intention to give a more limited meaning is disclosed by the context.  (MCL 205.51(1)(a))




A "Business" is defined to include an activity engaged in by a person or caused to be engaged in by that person with the object of gain, benefit, or advantage, either direct or indirect. 

(MCL 205.51(1)(e))


Tangible Personal Property


The most important definition in the Sales Tax Act is the definition of "Tangible Personal Property".  That is because the tax is only imposed on the retail sale of "Tangible Personal Property."  Michigan taxes only two services in the Use Tax Act, communication services and rental of accommodations. "Tangible personal property" means personal property that can be seen, weighed, measured, felt, or touched or that is in any other manner perceptible to the senses and includes electricity, water, gas, steam, and prewritten computer software.  (MCL 205.51a(p))


Sale at Retail or Retail Sale


The Michigan Sales Tax is imposed only on a retail sale.  The tax is not imposed until the final sale of tangible personal property to that person who will use or consume the property.  "Sale at retail" or "retail sale" means a sale, lease, or rental of tangible personal property for any purpose other than for resale, sublease, or subrent.  (MCL 205.51(1)(b))


Sales for Purposes of Resale


Since the Michigan Sales Tax is not imposed until the final sale at retail, all sales or transfers of tangible personal property up to that final sale at retail are exempt from the tax.  Herein lies the difference between the Sales Tax and a Gross Receipts Tax.  In a Gross receipts Tax all economic transactions are subject to tax.  Sales for purposes of resale, under the sales tax, include sales of tangible personal property not to be consumed or used by the immediate purchaser but to be resold in the regular course of business by the purchaser:  Provided, that property purchased for resale purposes which is not resold, but is used or consumed by the purchaser, is taxable on the delivered cost of the purchaser who shall remit the tax to the state.  (Rule 205.9)


The Michigan Sales Tax is a "privilege tax" imposed on the privilege of making retail sales.  (Gardner-White Co. v. Dunckel (1941))  More specifically, it is a privilege tax exacted for the privilege of engaging in the business of selling tangible personal property at retail in Michigan.  (Standard Oil Company v. State (1938))  Because it is a privilege tax, the Michigan Sales Tax is imposed on the seller.  However, the seller may pass the tax on to the purchaser and collect it at the point of sale.  (World Book, Inc. v. Department of Treasury (1999))   The Sales Tax, imposed on the privilege of making retail sales, is measured by gross proceeds on such sales.  (Detroit and Cleveland Nav. Co. v. Michigan department of revenue (1955))


The Sales Tax Act imposes no requirement on the retailer to collect the tax from the purchaser or consumer.  The direct legal incidence of the tax, and to some extent the economic burden, falls upon the retailer.  However, the economic burden falls chiefly upon the consumer.  (Federal Reserve Bank of Chicago v. Department of Revenue of State (1954)) 


Gross Proceeds


The tax base for the Sales Tax is generally total gross proceeds.  There is no deduction from total gross proceeds for cost of goods sold, interest, labor or any other cost of doing business incurred by the seller prior to the transfer of title and possession of the tangible personal property.  In a sense, the Sales Tax is a transfer tax because the legal incidence for the tax is the transfer of tangible personal property from the seller to the purchaser.


Although the tax imposed is measured by gross proceeds, the Sales Tax Act in Section 1 says "gross proceeds" means "sales price". (MCL 205.51(1)(c))   The term "sales price" which is defined in Section 1d.


Sales Price


"Sales price" is defined in the Sales Tax Act to mean the total amount of consideration, including cash, credit, property, and services, for which tangible personal property or services are sold, leased, or rented, valued in money, whether received in money or otherwise, and applies to the measure subject to sales tax.  (MCL 205.51(1)(d))  In a sale at retail, tangible personal property is transferred from the seller to the purchaser and consideration is transferred from the purchaser to the seller.  The measure of the consideration, in an arms length transaction, is the tax base.  In something less than an arms length transaction or a transaction which includes other than cash or a cash equivalent, the measure of the tax base is fair market value.


The following are included in sales price pursuant to Section 1d.  (MCL 205.51(1)(d)


The seller's cost of the property sold is included in the sales price.  Anotherwords, there is no deduction for the cost of goods sold.  (MCL 205.51(1)(d)(i))


The sales price cost of materials used, labor or service cost, interest, losses, costs of transportation to the seller, taxes imposed on the seller other than taxes imposed by this act, and any other expense of the seller.  All costs incurred prior to the transfer of the property are included in the tax base.  (MCL 205.51(1)(d)(ii))


Charges by the seller for any services necessary to complete the sale are included in the tax base except the following:  (MCL 205.51(1)(d)(iii))


Sales price does not include an amount received or billed by the taxpayer for remittance to the employee as a gratuity or tip, if the gratuity or tip is separately identified and itemized on the guest check or billed to the customer.  (MCL 205.51(1)(d)(iii)(A))


Sales price does not include labor or service charges involved in maintenance and repair work on tangible personal property of others if separately itemized.  (MCL 205.51(1)(d)(iii)(B))


Sales price includes all delivery charges incurred or to be incurred before the completion of the transfer of ownership of tangible personal property from the seller to the purchaser.  (MCL 205.51(1)(d)(iv))


Sales price includes installation charges incurred or to be incurred before the completion of the transfer of ownership of tangible personal property from the seller to the purchaser.  (MCL 205.51(1)(d)(v))


No credit, deduction or allowance because of a   trade-in on the purchase of tangible personal property is allowed to reduce sales price.  When a trade-in is involved, the tax base is the gross purchase price.  (MCL 205.51(1)(d)(vi))


"Sales price" does not include interest, financing, or carrying charges from credit extended on the sale of personal property or services, if the amount is separately stated on the invoice, bill of sale, or similar document given to the purchaser.  (MCL 205.51(1)(d)(vii))


Any taxes legally imposed directly on the consumers that are separately stated on the invoice, bill of sale, or similar document given to the purchaser are not included in the sales price. 

(MCL 205.51(1)(d)(viii)


Administrative Definitions


Section 1 of the Sales Tax Act provides definitions for administrative purposes as follows:


 (f) "Tax year" or "taxable year" means the fiscal year of the state or the taxpayer's fiscal year if permission is obtained by the taxpayer from the department to use the taxpayer's fiscal year as the tax period instead.  (MCL 205.51(1)(f))


(g) "Department" means the department of treasury.  (MCL 205.51(1)(g))


(h) "Taxpayer" means a person subject to a tax under this act.  (MCL 205.51(1)(h))


(i) "Tax" includes a tax, interest, or penalty levied under this act.  (MCL 205.51(1)(i))


Sales Tax Licenses


A "business" as defined in the Sales Tax Act must obtain license before engaging in business regardless of the amount of sales or the manner of obtaining goods for sale. 


An application for a sales tax license must be made before beginning business.  All licenses must be displayed.  Every license expires on June 30 and must be renewed.  Each location must have a license.  The license is not transferable.  (Rule 205.1)


Determination of Tax


The general rule for the determination of tax is the seller is liable for the tax.  Therefore, it is the sellers responsibility to determine if the tax is due.



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