Exemptions FAQ

Can a customer instruct a seller not to charge sales or use tax because they will pay it directly to Michigan?

Generally no, however, if the customer is authorized by Treasury and has a "direct pay permit" that covers the property purchased or leased, the customer can instruct a seller not to charge sales or use tax because they will pay it directly to Michigan. 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 2022-19. 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.

Note: A seller is authorized (but not required) under MCL 205.73(1) to reimburse itself for the sales that is due from the seller by collecting the sales tax from the customer.

Does Michigan issue tax exempt numbers? If not, how do I claim an exemption from sales or use tax?

Treasury does not issue tax exempt numbers. Sellers should not accept a tax exempt number as evidence of exemption from sales and use tax. 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. For further information on exemption claim procedures and formats, refer to Revenue Administrative Bulletin 2022-19.

Common Exemptions

501(c)(3) and 501(c)(4) Organizations

501(c)(3) and 501(c)(4) organizations must provide proof that they are exempt under these codes by the Internal Revenue Service. In addition to this they must provide a certificate of exemption stating that the property will be used or consumed in carrying out the operations of the organization. Revenue Administrative Bulletins 2020-25 and 2022-19 have more information on this topic.

Churches

Sales to organized churches or houses of religious worship are exempt from sales tax. These exempt sales must not involve property used in commercial enterprises. 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. Churches may not purchase any other type of vehicle exempt. Anyone who is directly engaged in the business of constructing, altering, repairing, or improving real estate for a church or a house of religious worship is generally liable for the sales tax on the inventory value of the materials affixed to the property, even if the church purchases the materials. Construction materials used in the construction of the sanctuary part of the church is exempt. Revenue Administrative Bulletins 2019-15, 2020-25 and 2022-19 have more information on this topic.

Government

Sales to the United States government, the State of Michigan and its political subdivisions, departments and institutions are not subject to tax, if the sales are ordered on the government form or purchase order and are paid for directly to the seller by warrant on government funds. Sales to the American Red Cross, and its chapters and branches are exempt. All sales to other states or countries are subject to Michigan sales tax. Sales to employees of the government for their own use are subject to tax.

Hospitals

Sales to hospitals are exempt from sales tax when the organization is not operated for profit. The income or benefit from the operation must not inure to any individual or private shareholder, directly or indirectly. In addition, tangible personal property sold to a person engaged in the business of constructing, altering, repairing, or improving real estate for others that is to be affixed to and made a structural part of a "nonprofit hospital" is exempt from sales tax and use tax under MCL 205.54w and MCL 205.94s. Revenue Administrative Bulletins 2019-15, 2020-25 and 2022-19 have more information on this topic.

Schools

Sales to schools and parent cooperative preschools are exempt from sales tax when the organization is not operated for profit. The income or benefit from the operation must not inure to any individual or private shareholder, directly or indirectly. PTA, PTO, and all other groups and organizations must qualify separately for exemption when making purchases for their organizations. Sales to teachers are subject to tax. Revenue Administrative Bulletins 2019-15, 2020-25 and 2022-19 have more information on this topic.

Industrial Processors

A person that is an industrial processor or that acts on behalf of an industrial processor may claim an industrial processing exemption for property that performs one of the statutorily enumerated activities or which is used or consumed in transforming, altering, or modifying tangible personal property by changing the form, composition, or character of the property for ultimate sale at retail, for use in the manufacturing of a product to be ultimately sold at retail or to be affixed to and made a structural part of real estate located in another state, or for the exempt purposes described in the statute related to aggregates. In general, the industrial processing exemption begins when tangible personal property begins movement from raw materials storage to begin industrial processing and ends when finished goods first come to rest in finished goods inventory storage. The industrial processing exemption does not generally include property which is or becomes affixed to and made a structural part of real estate, and does not include office supplies, administrative office equipment, or vehicles licensed for public highway use, except when the vehicle is used to mix and agitate materials added at the plant or job site in the concrete manufacturing process. Industrial processing also does not include the receipt or storage of raw materials extracted by the user or consumer or the preparation of food or beverages by a retailer for retail sale. See MCL 205.54t; MCL 205.94o. The exemption is subject to apportionment based on the percentage of exempt use to total use determined by a reasonable formula or method approved by Treasury.

Sales "for Resale"

Retailers may purchase tangible personal property exempt from sales and use tax if purchasing for "resale at retail." Likewise, wholesalers may purchase tangible personal property exempt from sales and use tax if purchasing for "resale at wholesale."

Rolling Stock

Exemption is allowed 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. "Rolling stock" refers to certain "qualified trucks," trailers designed to be drawn behind a qualified truck, and parts or other tangible personal property affixed or to be affixed to and directly used in the operation of either a qualified truck or trailer designed to be drawn behind a qualified truck. An "interstate motor carrier" is 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. To qualify as an "interstate motor carrier," the primary purpose of the business must be to transport persons or property for hire across state lines. The fact that a business hauls its own property or employees, in addition to the property of others or persons that are not its employees, does not disqualify it as an interstate motor carrier so long as its primary purpose is to transport persons or property for hire across state lines and it meets the other requirements of the definition. For more information regarding this exemption, please refer to Revenue Administrative Bulletin 2023-12.

Agricultural Production

Michigan provides an exemption from sales and use tax on tangible personal property used directly or indirectly in tilling, planting, caring for, maintaining, or harvesting things of the soil, and in the breeding, raising, or caring of livestock poultry or horticultural products. The exemption does not generally include tangible personal property affixed to and becoming a structural part of real estate. In general, the agricultural production exemption is available only for tangible personal property that is sold to a person engaged in a business enterprise that uses and consumes the property for the above-referenced agricultural production activities. The agricultural production exemption extends to servicers who use their equipment for any of the exempt agricultural production activities. The exemption is subject to apportionment based on the percentage of exempt use to total use determined by a reasonable formula or method approved by Treasury. For more information regarding this exemption, please refer to Revenue Administrative Bulletin 2023-9.

Additional Exemptions and Deductions

Third-Party Lenders - Bad Debt Deductions

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 or could be eligible to be claimed if the taxpayer kept accounts on an accrual basis, as a deduction under Section 166 of the Internal Revenue Code, 26 USC 166.

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. Please refer to RAB 2019-3 for more information.

Use Tax Exemption on Vehicle Title Transfers

Michigan grants an exemption from use tax when the buyer and seller have a qualifying family relationship. For more information please refer to Revenue Administrative Bulletin 2018-5.

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