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REVENUE ADMINISTRATIVE BULLETIN 1990-32
Approved: October 11, 1990
SALES AND USE TAX EXEMPTIONS AND REQUIREMENTS
RAB-90-32. This bulletin illustrates the recommended sales and use tax exemption claim formats acceptable to the Michigan Department of Treasury.
Section 17 of the General Sales Tax Act, MCL 205.67; MSA 7.538, lists the information that must be included in a claim for exemption from sales tax:
If an exemption from sales tax is claimed by reason of the sale being for resale or for any of the other exemptions or deductions granted under this act, a record shall be kept of the name and address of the person to whom the sale is made, the date of the sale, the article purchased, the use to be made of the article, and the amount of the sale, and if that person has a sales tax license, that number shall also be included.
Section 14 of the Use Tax Act, MCL 205.104; MSA 7.555(14), and Department of Treasury Sales and Use Tax Rule, 1979 AC, R 205.23(5), reiterate these requirements.
Department of Treasury Sales and Use Tax Rule, 1979 AC, R 206.11(3), states:
The department will not attempt to prescribe the method the seller shall adopt, but he is required to justify deductions under the exemptions granted in the sales tax act. The seller may secure from the buyer a certificate or other evidence that the sales are entitled to exemption, but a certificate of sale shall not relieve the retailer from tax liability should it be established that the sales were taxable.
An exemption claim must be presented by the customer each time an exempt purchase is made. The exemption claim must contain the signature of an authorized purchaser. Exemption claims are to be maintained in the seller's records to be available if the seller is called upon to produce proof of the exemption.
The taxability of a purchased item depends upon its use. Characterization as an exempt sale is not, in itself, proof of exemption. A claim for exemption merely documents an exempt sale. Claim documentation can be disallowed as proof of exemption if it is determined that taxable usage occurred. A seller should exercise reasonable care that the purchaser is entitled to the exemption being claimed.
TAX EXEMPTION NUMBERS
The Michigan Department of Treasury does not issue "tax exemption numbers" for any type of organization. Sellers should not accept a "number" as the only evidence of exemption from sales and use taxes.
BLANKET EXEMPTION CLAIMS
Blanket exemption certificates are not accepted or recognized by the State of Michigan. The statutory language of MCL 205.67; MSA 7.538 requires that specific information be maintained for each sale thereby precluding the use of a blanket exemption certificate. See Letter Ruling 87-28.
A blanket exemption claim is a completed exemption certificate or other document, filed once and maintained in the seller's records, which states that all or a specific part of the purchases made by the presenter of the certificate are exempt from tax.
The department recognizes that a blanket exemption certificate may offer some value as an administrative guide for the seller.
When the seller relies on a blanket exemption claim, the department has the right to require claim verification of each individual sale. If the department determines that circumstances surrounding a particular sales arrangement do not indicate a need for such verification, the department may omit the additional verification requirement. Because the statute only provides for claims on individual sales and does not recognize blanket exemption claims, the more frequently blanket claims are renewed the less the likelihood that the claim will be challenged.
EXAMPLES OF BLANKET EXEMPTION CLAIM SITUATIONS AND SELLER'S EXPOSURE
The sale of electricity on a monthly basis to a customer is not considered to be a continuous sale but rather an individual retail sale. The sale each month of a specific amount of electricity is a retail sale subject to tax. A seller of electricity accepting blanket exemption certificates may not be required to update exemption claims for each individual sale monthly.
An exempt nonprofit hospital continually purchases supplies and equipment for its own use from a specific seller. If a seller chooses to rely on a blanket exemption claim from the hospital, the seller should be aware that purchases for resale by the hospital may not be covered under the prior exemption claim and may require additional verification.
A seller has chosen to rely on a blanket exemption claim provided by a school. However, school employees are making personal purchases for cash under the school name. These personal purchases are not covered by the blanket exemption claim and will not be exempt.
A seller has chosen to rely on a blanket exemption claim from a particular customer. On a subsequent sale, a purchase order is issued upon which the customer states that the purchase is taxable. The customer's statement will overrule the blanket exemption for that specific purchase, and the sale will be taxable.
A seller of bolts chooses to accept a blanket exemption claim from a manufacturer who purchases a large quantity of bolts on a weekly basis. The seller makes this decision based on his knowledge of the purchaser's business activity, the nature of the item and the specific quantity being purchased. Under these circumstances, the department may not find a need to require additional verification.
Note: These examples illustrate a seller's potential liability should the seller choose to use and accept blanket exemption claims from purchasers. The examples are not intended to be all-inclusive or restrictive in illustrating a seller's exposure, in total or for individual business types.
VARIOUS STATUTORY EXEMPTIONS
Exemptions allowed by the General Sales Tax Act and the Use Tax Act. together with the recommended format for substantiating each exemption, are listed below.
Sales for Resale
Section 2 of the General Sales Tax Act. MCL 205.52; MSA 7.522, imposes the sales tax only upon sales at retail. Thus. sales of property for resale are exempt. A signed exemption claim must be presented to the seller when tangible personal property is sold for resale. Retailers buying for resale should indicate on the purchase document or exemption certificate "for resale at retail." Retailers in Michigan are issued sales tax license numbers. The purchaser's sales tax license number must also be included.
Wholesalers are not licensed with the department and are not issued numbers. Wholesalers buying for resale should indicate on the purchase document or ex- emption certificate "for resale at wholesale."
Sales to Agricultural Producers
A sale to a person for use or consumption in agricultural production is exempt from tax. provided the purchaser signs an exemption claim containing the wording shown below. [MCL 205.54a(f); MSA 7.525(f) and MCL 205.94(f); MSA 7.656(4)(f), and Department of Treasury Sales and Use Tax Rule, 1979 AC. R 205.51)]
CERTIFICATE UNDER AGRICULTURAL
The undersigned hereby certifies that all items, except as indicated hereon, are purchased for use or consumption in connection with the production of horticultural or agricultural products as a business enterprise, and agrees to reimburse the seller the sales tax if used or consumed otherwise.
DATE SIGNED (Purchaser)
Sales to Industrial Processors (Manufacturers)
The sale of property to a manufacturer or industrial processor for use or consumption in industrial processing is exempt from sales tax. [MCL 205.54a(g); MSA 7.525(g) and MCL 205.94(g); MSA 7.555(4)(g)] A manufacturer or industrial processor should make the claim for exemption when purchasing property for use in industrial processing by including a statement on the purchase documents to the effect that the tangible personal property will be "used or consumed in industrial processing." There is no prescribed form for claiming this exemption.
Sales to Commercial Radio or Television Stations
Sales of tangible personal property to operators of licensed commercial radio or television stations are exempt from tax when the property is used in the origination or integration of the various sources of program material for commercial radio or television transmission. [MCL 205.54a(i); MSA 7.525(i), MCL 205.94(o); MSA 7.555(4)(o), and Department of Treasury Sales and Use Tax Rule, 1979 AC, R 205.134] To claim exemption, the commercial radio or television station should include a statement on the purchase documents to the effect that the tangible personal property will be "used in the origination or integration of the various sources of program material for commercial radio or television transmission." There is no prescribed form for claiming this exemption.
Sales to Telephone Companies
Sales to telephone companies of necessary exchange equipment and tangible personal property for installation on the premises of the subscriber are exempt from tax to the extent that they are used to provide taxable telecommunications services. [MCL 205.54a(1); MSA 7.525(1), MCL 205.94(t); MSA 7.555(4)(t) and Department of Treasury Sales and Use Tax Rule, 1979 AC, R 205.110] To claim exemption, the telephone company should include a statement on the purchase documents describing the use of the tangible personal property.
Sales to Persons for Installation as a Component Part of a Water Pollution Control Facility or an Air Pollution Control Facility
Sales to persons of tangible personal property which will be installed as a component part of a water pollution control facility or an air pollution control facility are exempt from sales and use taxes. [MCL 205.54a(p); MSA 7.525(p) and MCL 205.94(v); MSA 7.555(4)(v) respectively] To claim exemption, the buyer should present the tax exemption certificate issued by the State Tax Commission to qualified pollution control facilities.
Sales to Governmental Entities
Section 4 of the General Sales Tax Act, MCL 205.54(5); MSA 7.524(5), and Michigan Sales and Use Tax Rule, 1979 AC, R 205.79, provide that sales to the United States government, the State of Michigan, and their political subdivisions, departments and institutions are not taxable when ordered on a purchase order and paid for by warrant on government funds. In the alternative, the government may claim exemption at the time of purchase by providing the seller with a signed statement to the effect that the purchaser is a governmental entity. A sample of such a statement appears below.
CERTIFICATE TO BE EXECUTED WHEN TAX EXEMPT SALE
IS MADE TO A GOVERNMENTAL ENTITY
The undersigned hereby certifies that the tangible personal property being purchased is not for resale and is to be used in connection with the operation of the governmental entity named in the space below. The consideration for this purchase moves from the funds of the governmental entity. In the event this claim is disallowed, the purchaser promises to reimburse the seller for the amount of tax involved.
Name of Governmental Entity
Signature and Title of Claimant
Sales Not for Resale to Nonprofit Schools, Nonprofit Hospitals and Churches
The sale of tangible personal property to a nonprofit school, nonprofit hospital, or regularly organized church or house of religious worship is exempt. [MCL 205.54a(a),(b); MSA 7.525(a),(b)] To claim the exemption, the exempt entity must sign a statement that the property will be used or consumed in connection with the operation of the institution or agency and that the institution or agency qualifies as an exempt entity under the law. [Department of Treasury Sales and Use Tax Rules, 1979 AC, R 205.74, R 205.87, and R 205.65] A sample of the statement is provided below.
CERTIFICATE TO BE EXECUTED WHEN TAX-EXEMPT SALE
IS MADE TO AN EXEMPT INSTITUTION OR AGENCY
The undersigned hereby certifies that the item or items being purchased are to be used or consumed in connection with the operation of the exempt institution or agency named in the space provided below, and that the consideration for this purchase moves from the funds of the designated institution or agency. In the event this claim is disallowed, the transferee promises to reimburse the seller for the amount of tax involved.
Name of Exempt Institution or Agency
Signature and Title of Claimant
Sales Not for Resale to Nonprofit Organizations
Nonprofit organizations (other than schools, churches or houses of religious worship, nonprofit hospitals or government agencies) must be certified by the Michigan Department of Treasury as tax exempt. [Department of Treasury Sales and Use Tax Rule, 1979 AC, R 205.140) Purchases of tangible personal property for use by these organizations are exempt from tax provided the exempt organization presents an "exemption ruling letter," signed by the administrator of the Sales, Use and Withholding Taxes Division, and completes the exemption certificate at the bottom of the letter. Sales not supported by such a letter and completed certificate will be considered taxable.