Because Treasury has started issuing the expanded Michigan EITC supplemental check payments for tax year 2022, it is no longer necessary to view or manually update your address. If you moved between last year and now, please be sure your new address is on your 2023 individual income tax return filing.
Are materials purchased for the construction of a tax-exempt entity's building subject to tax?
The sales and use tax statues only provide an exemption for contractors purchasing material when those materials are to be affixed and made a structural part of:
Real estate for a nonprofit hospital. To qualify, the hospital must:
- Be a separately organized institution or establishment;
- Have, as its primary purpose, the provision of acute or intensive healthcare and nursing,
- And, provide these services to persons requiring them;
- Not be operated for profit and no benefit from the real estate enriches individual or private shareholders.
A Nonprofit Housing Entity qualified as exempt under the Sales and Use Tax Acts. Only private, qualified, nonprofit housing that has received an exemption certificate from the Michigan Housing Development Authority (MSHDA) qualifies for this exemption.
A Church Sanctuary.
- The building must be owned, occupied, and used by a religious organization qualified under section 501(c)(3) of the internal revenue code of 1986.
- The exemption is limited to building portions that are predominantly (50%) and regularly used for worship service.
- Total material purchases for multiple use areas (such as roofs and foundations) and where a single piece of equipment (such as a furnace) is supplying qualified sanctuary areas as well as other non-exempt areas, an apportionment formula is used to derive a taxable percentage:
Sanctuary Square Footage divided by the Total Building Square Footage
Air or Water Pollution Facility for which a tax exemption certificate has been issued by the State Tax Commission.
- A completed Form 3520, Michigan Sales and Use Tax Contractor Eligibility Statement, must be obtained by the contactor from the qualified entity.
- Form 3520, and Form 3372, Michigan Sales and Use Tax Certificate of Exemption, are required for the contractor to make tax exempt purchases.
For further information, refer to Revenue Administrative Bulletin (RAB) 2016-18.
What Sales or Use Tax liability does a contractor have when in the business of constructing, altering, repairing or improving real estate?
In Michigan, a contractor directly engaged in the business of constructing, altering, repairing or improving real estate is considered the consumer of the materials used by them.
All sales to or purchases by contractors of tangible personal property are subject to tax. Contractors must pay tax on all materials, equipment and supplies used to fulfill the contract. Contractors would not charge sales tax to their customers. There is nothing to preclude a contractor from billing a customer for all costs involved in the contract, including the tax. However, the contractor may not break out the tax as though tax was being billed to their customer. The tax is merely a cost of doing business. For additional information, please refer to Revenue Administrative Bulletin (RAB) 2016-18.
Do contractors charge sales tax to their customers?
The contractor may not break out the tax as though sales tax was being billed to their customer. The tax is merely a cost of doing business and it part of the price of the materials.
Are there any exemptions that flow through to the contractor? If so, what documentation is required?
The only exemption(s) provided under the Sales and Use Tax Acts for contractors purchasing materials is for materials that are affixed and made a structural part of real estate for a qualified nonprofit hospital or a nonprofit housing entity qualified as exempt under the Sales and Use Tax Acts, made a structural part of a sanctuary for a church, or is a component part of an air or water pollution facility for which a tax exemption certificate has been issued by the State Tax Commission. Please refer to Revenue Administrative Bulletin 2016-18, which explains the exemption from Michigan sales and use tax as it relates to the construction industry and Form 3520, Michigan Sales and Use Tax Contractor Eligibility Statement for Qualified Nonprofit Hospitals, Nonprofit Housing, Church Sanctuaries, and Pollution Control Facilities Exemptions, in addition to Form 3372 to the vendor.
Can I accept an exemption certificate for materials purchased for construction of a church?
A contractor is allowed to claim an exemption from tax on tangible personal property "if the property is to be affixed to or made a structural part of a sanctuary." "Sanctuary" means only that portion of a building that is owned and occupied by a regularly organized church or house of religious worship that is used predominantly and regularly for public worship. Sanctuary includes a sanctuary to be constructed that will be owned and occupied by a regularly organized church or house of religious worship and that will be used predominantly and regularly for public worship.
What form do I need when my customer is claiming I should not include Michigan Sales Tax?
Form 3520, Michigan Sales and Use Tax Contractor Eligibility Statement and Form 3372, Michigan Sales and Use Tax Certificate of Exemption are required to be completed for the retailer selling the materials to the contractor.
How do I claim exemption from a supplier when my customer provided Form 3520 Michigan Sales and Use Tax Contractor Eligibility Statement?
If you receive Form 3520, Michigan Sales and Use Tax Contractor Eligibility Statement from your customer, you will need to make a copy. To claim exemption from Michigan sales or use tax, that contractor must provide a completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption and provide a copy of Form 3520 that you received from your customer. Both of these documents are required to be completed for the retailer selling the materials to the contractor to keep in their files.
A landscaper in Michigan is considered to be a contractor. All sales to or purchases by a landscaper are subject to tax. Landscapers must pay tax on all materials, equipment and supplies used to fulfill the contract. The landscaper would not charge sales tax to their customers; however, there is nothing to preclude you from including tax as part of cost.