Michigan Small Business Tax Exemptions
Is your Michigan business exempt from Taxes? Here is a list of all exemptions. Continue reading to see if you are exempt.
Questions? Contact ATS Advisors of Michigan
Common Michigan Small Business Taxpayer Exemptions:
501(c)(3) and 501(c)(4) Organizations
Churches
Government
Hospitals
Industrial Processors
Retailers
Schools
Wholesalers
Additional Exemptions and Deductions
Third-Party Lenders – Bad Debt Deductions
Effective October 1, 2009, a bad debt deduction may be claimed by a third-party lender or a retailer, provided that the retailer who reported the tax and the third-party lender financing the sale execute and maintain a written election designating which party is entitled to claim the deduction. There is no Treasury form to make this election. However, the election must be written, must be signed by both parties, and must clearly and unequivocally state which party is entitled to the deduction; the mere assignment of the right to the debt alone does not satisfy the written election requirement. The election must be executed before the bad debt is incurred.
The written election must be retained by the parties and made available to the Department upon request or audit. In addition to the written election, the following conditions must also be met:
- No deduction or refund was previously claimed or allowed on any portion of the account receivable.
- The account receivable has been found worthless and written off by the seller that made the sale or by the lender on or after September 30, 2009.
- The bad debt is eligible to be claimed, in accordance with the taxpayer’s accounting method, as a deduction under Section 166 of the Internal Revenue Code, 26 USC 166, or would be recognized as a bad debt if the claimant were a corporation.
A party making a refund claim must provide the written election to the Department with its refund request. A request for a refund based on bad debt incurred from the sale of motor vehicle must include a copy of the RD-108 for that vehicle.
For purposes of this deduction, “lender” includes any of the following:
- A person that holds or held an account receivable that was purchased directly from the taxpayer that reported the tax.
- Any person that holds or held an account receivable pursuant to that person’s contract directly with the taxpayer that reported the tax.
- The issuer of a private label credit card that may only be used to make purchases from the vendor whose name or logo appears on the card or instrument.
The following amounts shall not be included as bad debt:
- Interest or finance charges.
- Sales or use tax charged or collected on the original sale.
- Uncollectible amounts on property that remains in possession of the seller until the full purchase price is paid, e.g., property placed on layaway.
- Expenses incurred in attempting to collect any account receivable or any portion of an account that is subsequently recovered.
- Sales tax charged on property that is subsequently repossessed.
- Any debt or account receivable that was sold, assigned, or transferred to, and remains in the possession of, a third party for collection.
- A sale where the tax was remitted to the Department after the expiration of the applicable statute of limitations.
Source MCL 205.54i; MCL 205.99.
Interstate (Fleet) Motor Carriers Exemption
Michigan provides a sales and use tax exemption to interstate (fleet) motor carriers for rolling stock and parts affixed to rolling stock that are purchased, rented or leased by an interstate (fleet) motor carrier and used in interstate commerce. The exemption is for the purchase or use of qualified trucks and trailers (and parts affixed to them) that are purchased, leased, or rented after April 30, 1999. For additional information please refer to Internal Policy Directive 2003-1 and Internal Policy Directive 2010-1.
Interstate (fleet) motor carriers who qualify for exemption may claim exemption from sales or use tax by providing the seller or lessor with the prescribed Michigan Sales and Use Tax Certificate of Exemption, form 3372. The buyer or lessee would check the box “Rolling Stock purchased by an Interstate Motor Carrier”.
Use Tax Exemption on Vehicle Title Transfers
Michigan grants an exemption from use tax when the buyer and seller have a qualifying family relationship.
Common Questions and Answers:
Can a customer instruct a seller not to charge sales or use tax because they will pay it directly to Michigan?
Yes, if the customer is authorized by Treasury and has a “direct pay permit” that covers the property purchased or leased. The customer must provide to the seller a completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption, or the required information in another acceptable format. See Revenue Administrative Bulletin (RAB) 2016-14. When stating its basis for claiming an exemption, the customer should state, “Authorized to pay sales or use taxes on purchases of tangible personal property directly to the State of Michigan” and must include its account number.
Does Michigan issue tax exempt numbers? If not, how do I claim an exemption from sales or use tax?
The Michigan Department of Treasury does not issue tax exempt numbers. In order to claim an exemption from sales or use tax, a purchaser must provide a valid claim of exemption to the vendor by completing one of the following:
- Michigan Sales and Use Tax Certificate of Exemption (Form 3372)
- Multistate Tax Commission’s Uniform Sales and Use Tax Certificate
- Streamlined Sales and Use Tax Agreement Certificate or the same information in another format.
Note: A seller should not solely accept an FEIN as evidence of exemption from sales and use taxes.
How do I claim a valid exemption with my supplier?
To claim exemption, a purchaser must provide the supplier with one of the following:
- Michigan Sales and Use Tax Certificate of Exemption (Form 3372)
- Multistate Tax Commission’s Uniform Sales and Use Tax Certificate
- Streamlined Sales and Use Tax Agreement Certificate or the same information in another format
Is manufacturing equipment tax exempt?
Michigan provides an exemption from sales or use tax on machinery or equipment used in industrial processing and in their repair and maintenance. The exemption does not include tangible personal property affixed to and becoming a structural part of real estate.
For further information on exemptions refer to Revenue Administrative Bulletin 2000-4.
Are purchases made for agricultural production tax exempt?
Michigan provides an exemption from sales or use tax on tangible personal property used in tilling, planting, caring for or harvesting things of the soil, in the breeding, raising or caring of livestock poultry or horticultural products for further growth. The exemption does not include tangible personal property affixed to and becoming a structural part of real estate.
For further information on exemptions refer to Qualified Agricultural Property Exemption Guidelines.
Is my purchase of a truck or trailer considered “rolling stock” and exempt from tax?
NOTE: Your first tractor/trailer lease/purchase IS NOT EXEMPT from Michigan sales or use tax.
In order to be exempt from Michigan sales or use tax certain criteria must be met. Exemption is allowed in Michigan on the sale of rolling stock purchased by an interstate motor carrier or for the rental or lease of rolling stock to an interstate motor carrier and used in interstate commerce.
According to MCL 205.54r,
- Rolling stock means a qualified truck, a trailer designed to be drawn behind a qualified truck, and parts affixed to either a qualified truck or a trailer designed to be drawn behind a qualified truck.
- Interstate motor carrier means a person engaged in the business of carrying persons or property, other than themselves, their employees, or their own property, for hire across state lines, whose fleet mileage was driven at least 10% outside of this state in the immediately preceding tax year.
- Qualified truck means a commercial motor vehicle power unit that has 2 axles and a gross vehicle weight rating in excess of 10,000 pounds or a commercial motor vehicle power unit that has 3 or more axles.
Motor carriers who qualify may claim exemption from sales or use tax by providing the seller or lessor with the prescribed Form 3372, Michigan Sales and Use Tax Certificate of Exemption. The buyer or lessee would check the box “Rolling Stock purchased by an Interstate Motor Carrier”.
Is a vehicle purchased by a church tax exempt?
ONLY vans or buses may be purchased exempt if the manufacturer’s rated seating capacity is 10 or more and it is used primarily for transportation of persons for religious purposes.
I am a 501(c)(3)/501(c)(4) Organization, how do I claim exemption from Michigan Sales and Use Tax?
Organizations exempted by statute, organizations granted exemption from federal income tax under Internal Revenue Code Section 501(c)(3) or 501(c)(4), or organizations that had received an exemption letter from the Michigan Department of Treasury prior to June 1994 are entitled to sales and use tax exemption in the State of Michigan.
Please refer to Revenue Administrative Bulletin (RAB) 1995-3 for more information on the exemption from Michigan sales and use tax as it relates to nonprofit entities.
In order to claim exemption, the nonprofit organization must provide the seller with both:
- A completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption
- Evidence of nonprofit eligibility:
- Either the letter issued by the Department of Treasury (prior to June 1994),or
- Your federal determination as a 501(c)(3) or 501(c)(4) organization.
How do I obtain a tax exempt number to claim an exemption from Sales or Use Tax?
The Michigan Department of Treasury does not issue “tax exempt numbers”.
Form 3372, Michigan Sales and Use Tax Certificate of Exemption, is used to claim exemption from Michigan Sales and Use Tax. The buyer must present the seller with a completed form at the time of purchase. For more information on exemption requirements and the procedures to claim an exemption see Revenue Administrative Bulletin 2002-15.
A customer is providing me with their tax exempt number as proof that they do not have to pay sales tax on their purchase; is this correct/valid?
The Department of Treasury does not issue or accept tax exempt numbers. Sellers should not accept a tax exempt number as evidence of exemption from sales and use tax.
To claim exemption for purchases, the buyer must present the seller with a completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption. The seller will retain the certificate in their records.
I am a retailer, how do I claim a resale exemption with my supplier?
To claim exemption, a retailer must provide the supplier with a completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption, indicating that the purchase is for “Resale at Retail”. Their sales tax license number must be included in the space provided.
NOTE: A seller should not accept a FEIN as evidence of exemption from sales and use taxes without Form 3372.