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Revenue Administrative Bulletin 1991-5


Approved: April 8, 1991

RAB-91-5 The bulletin explains the sales tax refund procedure to be followed by motor vehicle dealers and others who pay sales tax to the Secretary of State. This procedure applies to situations where the customer returns the vehicle for full refund of the purchase price, where the sale transaction was improperly calculated, and other situations in which refund of the sales tax is proper.

This procedure also applies to certain refunds under manufacturer buy-back agreements mandated by the “lemon law,” MCL 257.1401 et seq.; MSA 9.2705(1) et seq. Consequently, this bulletin announces the revocation of Letter Ruling 89-22 which set out the prior "lemon law” refund procedure.

The procedure described in this bulletin is effective May 1, 1991.


In the past, the Department of Treasury refunded sales tax paid on motor vehicles, mobile homes, and watercraft returned to dealers for full refund or credit. Refunds have also been issued when the sales tax was improperly computed or properly charged. Some dealers refunded the sales tax to the customer before requesting the refund, and other refunded the tax to the customer after receiving the refund.

Refunds have also been issued under the manufacturer buy-back agreement mandated by the “lemon law.” In the past, refunds of sales tax for repurchases made by a manufacturer had been issued even when the manufacturer did not issue a full exchange, refund, or credit to the customer.


Michigan Sales and Use Tax Rule, 1979 AC, R 205.16, provides:

Credits or refunds for returned goods, the sales of which have been subject to tax, may be deducted only if the goods are voluntarily returned for full exchange, an entire refund of purchase price, or full credit. When the property is returned within a reasonable time after the date of sale, and the purchase [sic] is made whole, a credit may be had on the tax paid on the rescinded sale.

The rule clearly states that a sale is rescinded only if the goods are voluntarily returned by the customer for full exchange, refund, or credit. A partial refund or credit, or an exchange for less than the original purchase price, is not a rescission and sales tax paid on the original purchase will not be refunded.

Application of the Law

The trade=in of a vehicle on another purchase is not a rescinded sale unless the customer returns the vehicle to the original selling dealer and the credit is equal to the full price of the original purchase.

A refund to the customer where a deduction is made from the original purchase price for the customer’s use, appraised damage beyond normal use, or mileage is not a rescinded sale due to the lack of a full refund or credit.

A manufacturer buy-back is a rescinded sale and will qualify for a sales tax refund only if a full and complete exchange, refund, or credit of the original purchase price is given to the original purchaser. Where an arbitrator in a “lemon law” dispute grants financing costs as part of an award which is greater than the original purchase price, the sale is rescinded only if the buy-back price (excluding financing and other similar costs awarded by the arbitrator) is equal to the original purchase price and is separately stated in the arbitration decision.


To obtain more timely refunds of the sales tax, dealers and manufacturers should claim a credit on the sales, use, and withholding tax return worksheet. The worksheet can be found in the General and Line-by-Line Instructions for Sales Tax, Use Tax, Withholding Tax, Single Business Tax, form C-3091.

The new procedure requires the dealer or manufacturer to deduct the amount of the rescinded sale or improperly taxed sale on line 6i (Other. Identify; ____), column C, of the return worksheet. When deducting only a portion of the tax paid (because the tax was improperly calculated) multiply the amount of tax incorrectly charged by twenty-five (25) to arrive at the amount to be entered on line 6i, column C. Do not include sales tax in the amount on line 6i unless it is also included on line 6j (Tax included in gross sales).

The amount entered on line 6i, column C, under this procedure with reduce the taxable balance on line 7, column C, of the worksheet by the amount of the deductions. This, in turn, will reduce the sales tax due on line 11, column C, of the worksheet. This reduction may result in a negative sales tax liability. Any negative sales tax liability should be used to reduce the use tax liability on line 11, column A or B, or the withholding liability on line 21. Enter the net amount of tax due on the return.

Do not enter a credit figure on the return itself as this may cause an assessment. If the credit is more than the tax due for the period, file a return indicating no tax due and carry the credit forward on the on the worksheet until the credit is depleted.

A dealer claiming a sales tax refund under this procedure must return all documentation regarding the credit for audit purposes, including proof that a full exchange, refund, or credit was given to the purchaser.

Revocation of Letter Ruling 89-22: Sales Tax Refunds Under the Lemon Law

In Letter Ruling 89-22 the Michigan Department of Treasury outline a procedure for refunding sales tax on sales rescinded pursuant to a manufacturer buy-back agreement mandated by the “lemon law.” Letter Ruling 89-22 is revoked as of the effective date of this bulletin. (May 1, 1991), and the procedures described below must be followed to obtain a refund.

Manufacturers who file Michigan sales, use, and withholding tax returns must follow the new procedure described in this bulletin to obtain refunds of sales tax on sales rescinded pursuant to a manufacturer buy-back agreement.

For out-of-state manufacturers who do not file Michigan sales, use, and withholding tax returns, a refund of Michigan tax paid on the returned vehicle may be requested by either the manufacturer or the customer. To request a refund, all of the following documents must be submitted to the Michigan Department of Treasury; Sales, Use, and Withholding Taxes Division; Lansing, Michigan 48922:

  1. Copy of title application (forms RD-108 or TR-11C) of original purchase showing validation as proof of Michigan sales or use tax period.


  2. Copy of the manufacturer's buy-back agreement or arbitration decision with original purchaser stating the buy-back dollar figure.


  3. Statement from the selling dealer (if the dealer is located in Michigan) that credit for the returned vehicle will not be taken on the dealer’s worksheet.


  4. Customer’s social security number, if the refund will be issued directly to the customer.