Michigan Use Tax Liability for Individuals’ Purchases Made Outside of the State
SALT Tax Alert, December 29, 2005

Several taxpayers have recently received use tax assessments issued by the Michigan Department of Treasury (the "Treasury") on purchases made outside the state of Michigan, particularly for purchases of furniture in North Carolina and purchases in foreign countries reported to U.S. Customs.

Individuals owe a 6 percent use tax on purchases of tangible personal property stored, used, or consumed in the state of Michigan. This typically includes purchases by mail order and over the internet, as well as purchases while traveling in foreign countries and in other states. Purchases made from individual sellers, in or outside Michigan (i.e., flea markets, garage sales, estate sales, classified ads) or on Ebay are also subject to use tax.

Individuals do not have to pay Michigan use tax if:

• Michigan sales or use tax was paid to the seller
• The seller charged another state’s sales tax (including local sales taxes) of at least 6 percent on purchases (this credit is not allowed for tax paid on purchases in a foreign country)
• Purchases from out-of-state vendors were shipped directly to another state or country (however, other jurisdiction sales taxes may apply)

Michigan use tax must be paid on the total price, including shipping and handling charges.

Some common taxable items that may be purchased mail order/Internet or purchased in another state and shipped to Michigan include art and antiques, beer and wine, books, clothing, compact discs, canned software (whether on disc or downloaded electronically), computers, contact lenses, and furniture.

Items that are not taxable include food, most newspaper and magazine subscriptions, eyeglasses pursuant to a prescription, gift cards, and downloaded music. 

Individuals may pay Michigan use tax on Michigan Form MI-1040. For single purchases under $1,000, individuals can compute the actual use tax liability as 6 percent of the exact amount of total purchases, or they can estimate the use tax liability based on the adjusted gross income table provided in the MI-1040 instructions. For single purchases that exceed $1,000, individuals are required to pay the use tax based on the exact amount of the purchase.

Use of the table to estimate use tax liability does not preclude the Treasury from auditing an individual’s actual purchases and resulting liability. It is also not a "state tax based on income," so it is not deductible as such for federal income tax purposes. The statute of limitations for assessment is generally four years. If the use tax line is left blank (i.e., no use tax amount entered and the "no use tax due" box is unchecked), it is the Treasury’s position that this is a failure to file and, therefore, there is no statute of limitations for collection of the tax.

Plante & Moran can assist you in determining what level of use tax reporting is appropriate. Please contact us if you have questions and for more information.

Disclaimer: The information provided in this memorandum is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.