Delivery and Installation Charges

Delivery charges are costs in a transaction associated with the preparation and transportation of tangible items or services. The seller sets this fee and the purchaser designates the destination. Treasury uses the terms “delivery charges” and “shipping” interchangeably. In fact, many terms are synonymous with delivery charges - including but not limited to - handling, postage, freight, crating, and packing.

Installation charges are costs associated with the service of placing or setting up tangible items for use. The seller of the service sets this fee and the purchaser directs the location of installation.

Public Acts 20 and 21 of 2023 changed the tax treatment of most delivery and installation charges in Michigan. Beginning April 26, 2023, most delivery and installation charges are not subject to sales and use taxes as long as the seller (i.e., the taxpayer):

• separately itemizes delivery and installation charges on an invoice to the customer.
  AND
• keeps books and records that show how the tax levied was calculated for these transactions.

Delivery and installation charges remain subject to sales and use taxes in Michigan if:

• not billed or recorded in a manner that satisfies both conditions above, the fees remain subject to sales and use taxes.
  OR
• if the transaction involves the sale of electricity, natural gas, or artificial gas by a utility. “Utility” is defined in MCL 205.92 (2)(1)(v).

For situation-specific taxability guidance, contact Treas-SUWTech@michigan.gov.

Prior to the passage of Public Acts 20 and 21 of 2023, delivery and installation charges were generally subject to sales and use taxes because these fees were incurred prior to the transfer of ownership. This was arguably a confusing test to determine whether tax applies to a transaction. In addition, the prior tax treatment may have created a competitive disadvantage to businesses that provide “all-in-one” service to their customers for both the sale as well as the delivery and/or installation of a product.

Under the statute (prior to Public Acts 20 and 21 of 2023), Treasury will not issue any new assessments on delivery or installation charges for tax periods before April 26, 2023. In addition, Treasury is actively identifying and cancelling all outstanding balances related to delivery and installation charges for tax periods before April 26, 2023. This review will be completed by July 25, 2023. Taxpayers with unpaid balances related to delivery or installation charges that have received Notices of Intent to Assess or Final Assessments (whether or not they are in an Informal conference or on appeal before a court) should contact Treasury at Treas-TCB-Technical@michigan.gov.

For tax periods prior to April 26, 2023, taxpayers are not entitled to a refund of tax remitted to Treasury on delivery or installation charges. Similarly, customers who paid tax on delivery or installation charges are not able to seek refunds from sellers or from Treasury for tax periods prior to April 26, 2023.  

A customer may request a refund from a seller for tax erroneously charged on delivery or installation fees. The outcome may be:

1. The seller declines. Sellers are not required by Michigan law to refund tax to their customer for tax collected on exempt delivery or installation charges. However, if the seller did collect the tax, they must remit it to Treasury.
2. The seller agrees. If the seller refunds the tax charged on delivery or installation charges to the customer, the seller may request a refund from Treasury. Treasury will only refund the seller on the amount of tax remitted in error and only after the customer is refunded.

For the 2023 tax year, exempt delivery or installation charges should be reported on the Sales, Use and Withholding Taxes returns as “other exemptions and/or deductions”. Beginning tax year 2024, a dedicated deduction line will be available for exempt delivery and installation charges.

Example 1

Facts: On May 1, 2023, your Michigan company sells a refrigerator for $3,000. Your company also provides delivery to the customer’s Michigan home for a $150 fee and installation for $100. You invoice the customer as follows:

Outcome: You correctly calculated the sales tax due. Because the delivery and installation charges were separately stated and your books/records reflect the accurate material and delivery/installation costs, the delivery and installation fees are exempt from tax.

Example 2

Facts: On May 1, 2023, your Michigan company sells a refrigerator for $3,000. Your company also provides delivery to the customer’s Michigan home for a $150 fee and installation for $100. You invoice the customer as follows:

Outcome: You correctly calculated the sales tax due. Because the delivery and installation charges were not separately stated, the delivery/installation fees are included in the sales price and are taxable.

Example 3

Facts: On May 1, 2023, your Michigan company sells a refrigerator for $3,000. Your company also provides delivery to the customer’s Michigan home for a $150 fee and installation for $100. The total cost before tax is $3,250. Your accounting records reflect the same. However, you invoice the customer as follows:

Outcome: You incorrectly calculated sales tax due. Despite separately itemizing delivery and installation fees, the item cost (refrigerator) and the delivery and installation charges do not match your accounting records. Because the item cost was understated and the delivery and installation charges were overstated, the seller loses the sales tax exemption on delivery and installation charges. Therefore, sales tax due is $195 ($3,250 x .06).  The seller owes an additional $75 to Treasury for this transaction.

Example 4

Facts: On May 1, 2023, your Michigan company sells a refrigerator for $3,000. Your company also provides delivery to the customer’s Michigan home for a $150 fee and installation for $100. You invoice the customer as follows:

Outcome: You incorrectly calculated the sales tax due because you included the separately stated delivery and installation charges in the tax calculation. These fees also qualify for exemption because you accurately recorded the material and delivery/installation costs of this transaction. Because you collected tax on the delivery and installation charges ($250 x 0.06 = $15.00) from the customer, it must be remitted to Treasury. If the customer requests a refund of the sales tax collected in error, you may issue a refund of $15.00 and then seek a refund from Treasury of the same amount. 

Notice Regarding Changes in the Taxability of Delivery and Installation Charges for Sales and Use Taxes

Revenue Administrative Bulletin 2023-16