Delivery or installation charges can now be exempt from Michigan sales and use tax

Michigan’s legislature took a taxpayer-friendly step this past year by amending the state’s sales and use tax rules to exclude what amounted to a Michigan delivery and installation tax. Sellers throughout the state who have grown accustomed to charging Michigan’s 6% sales tax on the full invoice price of certain products (e.g., a refrigerator delivered to a customer) can now save their customers money by following two simple requirements in the law.

Michigan 6% sales tax won’t apply to delivery and installation if seller takes these two steps

As of April 26, 2023, sellers who deliver and/or install goods and materials subject to tax to their customers can save their buyers the 6% sales tax if they follow these two steps:

• First, any delivery fee or installation charge must be separately itemized on the invoice provided to the customer.
• Second, the seller must maintain books and records that detail how the tax was levied and calculated on these transactions.

Sellers who deliver and/or install goods and materials subject to tax to their customers can save their buyers the 6% sales tax if they follow these two steps.

In effect, this creates a relatively low bar to clear in order to save clients money, as most sellers would already break out these costs on client invoices and track them separately.

However, it should be noted that sales of electricity, natural gas, or other “utility” are excluded from this change, so the corresponding delivery or installation charges are still subject to tax.

Law includes relief for assessed sales and use tax on delivery and installation fees

Michigan’s Treasury was instructed by legislators to cancel any outstanding sales and use tax balances on delivery and installation charges. Treasury must cancel charges for these services on current notices of intent to assess or on outstanding final assessment notices, even if those assessments were made prior to the April 26, 2023 effective date. The regulators were directed to cancel these outstanding balances no later than July 25, 2023, (90 days after the effective date of the amendments), so any sellers still seeing these charges on an assessment should contact Treasury.

Refunds and retroactive relief for Michigan sales and use tax

No refunds will be provided to sellers or their customers for tax periods prior to April 26, 2023. Going forward, customers do have a right to request that their sellers issue refunds of any sales and use tax charged on separately stated delivery and installation fees on or after April 26, 2023. Michigan law gives the seller the following two options in response to such a request:

1. The seller is allowed to decline the request. As long as the seller remitted the collected tax to the Treasury under the state’s rules, the law doesn’t require them to issue a refund to the customer.
2. The seller can agree to refund the tax on delivery and installation charges to the customer and request a corresponding refund from the Treasury. According to guidance from the agency, “Treasury will only refund the seller on the amount of tax remitted in error after the customer is refunded.”

For 2023, Michigan states that “exempt delivery or installation charges should be reported on Sales, Use, and Withholding Taxes returns as ‘other exemptions and/or deductions.’” Beginning in 2024, the form is expected to be revised to include a dedicated deduction line for exempt delivery and installation charges.

Contact your advisor for help

Some sellers may need assistance revising their billing and accounting practices in order to help their customers benefit from this reduction in the sales tax. Consult your tax advisor to check that your billing and recordkeeping process complies with the state requirements.