Imposition of the Tax
The Michigan Use Tax Act was created in 1937 with the enactment of Public Act 94 of 1937. The use tax was enacted to compliment the sales tax. Where the sales tax is primarily imposed on the seller of tangible personal property at retail; the use tax is imposed primarily on the consumer of tangible personal property for use, storage or consumption.
The preamble to 1937 PA 94 reads as follows:
An act to provide for the levy, assessment and collection of a specific excise tax on the storage, use or consumption in this state of tangible personal property and certain services; to appropriate the proceeds thereof; and to prescribe penalties for violations of the provisions of this act."
Section 3 of the Use Tax Act (MCL 205.93) provides specific language for the imposition of the tax.
(1) There is levied upon and there shall be collected from every person in this state a specific tax for the privilege of using, storing, or consuming tangible personal property in this state at a rate equal to 6% of the price of the property or services specified in section 3a or 3b. Penalties and interest shall be added to the tax if applicable as provided in this act.
The following activities require a registration under the Use Tax Act. Unlike the Sales Tax Act, which requires a license, the Use Tax Act only requires a registration if any of the five following activities occur in Michigan:
An out of state seller, not registered as a retailer under the Sales Tax Act, actively soliciting sales of tangible personal property in Michigan.
Normally an out of state seller, because of federal constitutional limitations, would not be required to be licensed under the sales tax act. However, if they have a physical presence in the state of Michigan, a store, warehouse, inventory, or if they solicit sales through the use of employees or independent contractors or agents they must be registered under the Use Tax Act and remit the 6% Use Tax on all sales of tangible personal property in Michigan.
A Michigan consumer buying tangible personal property from non-registered sellers.
A Michigan consumer can be a business or an individual. Any person making purchases of tangible personal property for their own use or consumption is liable for the Michigan Use Tax if the original purchase was not subjected to the Michigan Sales Tax. Normally, a purchase of tangible personal property from a Michigan vendor would be subjected to the sales tax. The exception would be if the purchaser gave the seller a valid claim for exemption. The Use Tax comes into play when purchases are made from out of state sellers who are not required to be registered for the Use Tax.
However, the lessor has the option to purchase the tangible personal property tax-free and remit the 6% Michigan use Tax on the gross rental receipts. Under this option, the lessor must be registered under the Use Tax and remit tax, usually on a monthly basis, on the gross proceeds from the leases.
A seller of intrastate and interstate communication services.
A seller of both interstate and intrastate communications services is subject to the 6% Michigan Use Tax on the gross proceeds from the sale of such services. Therefore, the seller must be registered under the Use Tax Act. Purchases of tangible personal property used or consumed in the providing of the communication services would be exempt from the Michigan Sales Tax and the Michigan Use Tax.
A seller of rental accommodations to the public.
By a specific provision contained in the Use Tax Act, the seller of rental accommodations to the public would be subject to the Michigan Use Tax. The tax applies only if the room is provided for a period of less than 30 days. All tangible personal property By By a specific provision in the Use Tax Act, the seller of rental accommodations to the public would be subject to the Use Tax Act. The tax applies only if the room is provided for a period of less than 30 days. All tangible personal property used or consumed in the providing of rental room accommodations to the public would be subject to tax. (Rule 205.26
A lessor of tangible personal property has the option to pay sales tax on the original purchase of the property to be leased. If this is done there is no further tax responsibility. No tax returns need to be filed and no additional sales tax or use tax needs to be paid.
A lessor of tangible personal property when rental receipts are taxable.