Revenue Administrative Bulletin 2023-24

Sales and Use Tax Refund Procedures

Approved: December 19, 2023

Note: A taxpayer may rely on this Revenue Administrative Bulletin (RAB) until it is revoked by Treasury or until a law on which this RAB is based is altered by legislation or by binding judicial precedent. See MCL 205.6a and RAB 2016-20.

RAB 2023-24.  This Revenue Administrative Bulletin (“RAB”) details general procedures for taxpayers to follow in seeking a refund of sales or use tax.  It is broken down into procedures for sellers and procedures for purchasers.  Other RABs address refund procedures in narrower contexts.  RAB 2019-19 explains refund procedures for motor vehicle dealers and others who pay sales tax to the Secretary of State.  RAB 2020-24 explains the period of limitations for refund claims, the amount refundable, notice of claim requirements, offsets, dates, and rates of interest accruals.  This RAB does not address those subjects and does not affect the continuing validity of those RABs.

Introduction

The General Sales Tax Act, Act 137 of 1933, MCL 205.51 et seq., imposes a tax at the rate of 6% of gross proceeds on all persons engaged in the business of making sales at retail by which ownership of tangible personal property is transferred for consideration.  MCL 205.52(1).  The Use Tax Act, Act 94 of 1937, MCL 205.91 et seq., imposes a tax at the rate of 6% of the purchase price of tangible personal property for the privilege of using, storing, or consuming tangible personal property in Michigan.  MCL 205.93(1).  Occasionally, sellers and purchasers make mistakes and pay tax that is not owed. 

Although the seller might collect and remit sales tax in error, a refund might still be impermissible.  The General Sales Tax Act contains an unjust enrichment provision. Specifically, MCL 205.73 provides that “[a] person other than this state may not enrich himself or herself or gain any benefit from the collection or payment of the tax.”  In other words, sales tax collected in error by a seller must be either refunded to the purchaser or remitted to Treasury.  As a result, sellers may not seek a refund from Treasury without first refunding purchasers; furthermore, sellers are not required to refund purchasers so long as any tax collected in error was paid to Treasury. 

This RAB explains how sellers and purchasers may request refunds.

Issues

Issue I: How may a seller obtain a refund of sales or use tax?

Issue II: How may a purchaser obtain a refund of sales or use tax?

Analysis and Discussion

Issue I. Procedures for Sellers’ Refund Claims

Seller Refund Claims, Generally

If a seller did not owe sales tax but paid it anyway, either by mistake or because a purchaser provided an exemption claim after the transaction was completed, the seller may request a refund from Treasury, but must demonstrate that it either did not collect the tax from its purchaser or that it refunded purchaser.  If the seller is unable to do so, a refund will not be issued.

There is no specific form for a seller to fill out to request a refund of sales tax.  However, the claim must include the following elements:

• Taxpayer (seller) identifying information (name, address, contact name, phone number, email address)
• Account number
• Tax type
• Printed name and contact information of person filing the claim.
• The transactions for which a refund is claimed, including date and return on which the tax was reported and paid.
• Proof that the purchaser has been refunded the tax it paid (if applicable) or that no tax was collected from the purchaser.

The seller must file the claim within four years of the date set for filing of the original tax return covering the period within which it paid the tax in error.

Seller-collected Use Tax

There are limited circumstances under which the seller collects use tax on a transaction and remits it to Treasury (for example, see RAB 2021-21 regarding “seller’s use tax” and RAB 2023-13 regarding the use tax lessor election).  A refund claim for seller-collected use tax must document the same elements set forth in the list above.  Notably, this requirement involves collecting the tax from the customer.  MCL 205.95(1).  Thus, sellers/lessors requesting refunds of use tax must always first demonstrate that they have refunded their customers.

Sellers are not required to seek refunds on behalf of their purchasers.

A seller meets its responsibilities under the Sales and Use Tax Acts by reporting and remitting the tax to Treasury.  The seller is under no obligation to seek a refund on behalf of the purchaser.  Moreover, the seller is not required to refund erroneous collections so long as it paid the tax to Treasury.  Where a purchaser did not seek an exemption claim at the point of sale and later wishes to pursue one, redress is available as discussed below.

Issue II. Procedures for Purchasers’ Refund Claims

Assuming that a purchaser did not owe sales or use tax on a purchase but ended up paying it to the seller or directly to Treasury, the purchaser may be entitled to a refund.  There are three scenarios in which refunds may be available.

Scenario A – Purchaser pays the tax either directly to Treasury or through another department of the State of Michigan.

If a purchaser pays tax directly to Treasury or another State of Michigan department, the purchaser can seek a refund directly from Treasury.  For example, in a private vehicle sale, the seller may not be in the business of making retail sales and would not collect sales tax and pay it to Treasury; rather, the purchaser would pay tax to the Secretary of State upon registration.  MCL 205.52(1); Mich Admin Code, R 205.13(2).  If the purchaser pays tax through the Secretary of State and later learns that no tax was due, the purchaser may seek a refund from Treasury.  Another example would be an out-of-state purchase of any tangible personal property upon which the purchaser pays use tax directly to Treasury.  If the purchaser later learns that the transaction was not taxable, then the purchaser may seek the refund from Treasury. 

If payment of the tax is made through another State of Michigan department, the purchaser must provide Treasury official documentation received from that department as well as supplemental information reflecting:

• Taxpayer identifying information (name, address, contact name, phone number, email address (if available), account number)
• Proof that the purchaser made the claim within four years of the due date of the original return covering the erroneous payment of tax
• Identification of the item purchased by VIN, serial number or other unique identifier (if applicable)
• Proof of purchase price
• Proof of the tax paid
• The basis for the exemption claim
• Printed name and title (if any) of person filing claim.

If tax was not paid through another department of the State of Michigan, the purchaser must still document these elements, but the documentation need not include official, departmental documentation.

Scenario B – Seller collects and pays the tax to Treasury because the purchaser did not present a claim of exemption at the time of the purchase.

Prior to January 1, 2019, a purchaser could not seek a refund from Treasury of sales or use tax that was collected by its seller and remitted to Treasury; instead, the purchaser was required to seek the refund directly from the seller.  However, under 2018 PAs 167 and 168, effective January 1, 2019, purchasers may seek a refund directly from Treasury in certain instances by using Form 5633, Purchaser Refund Request for a Sales or Use Tax Exemption. MCL 205.62(11) and 205.104b(10). 

2018 PAs 167 and 168 have specific requirements that must be met before a refund will be granted, each of which is incorporated into Form 5633, Purchaser Refund Request for Sales or Use Tax Exemption:

• The purchaser must make the claim within four years of the date of purchase.
• The purchaser must submit an accurate record of the purchase including, but not limited to, a paper, electronic or digital receipt, invoice or purchase order reflecting the terms of the purchase, and specifically reflecting the date of the purchase and the tax the purchaser paid that it seeks to recover.
• The purchaser must obtain the signed acknowledgment of the seller that the seller charged the purchaser sales or use tax, paid the tax and has not and will not claim a refund of the tax.
• The purchaser must submit a proper exemption claim to Treasury.  This requirement may be met in several different ways as long as all of the required data elements are present (i.e., the identifying information of the purchaser, the reason for claiming the exemption, and any other information that a specific exemption may require).  These data elements may be provided by any of the following means:

See RAB 2022-19, “Sales and Use Tax Exemption Claim Procedures and Formats” for more information regarding proper exemption claim formats.

• The purchaser must submit any other information Treasury requires relative to the refund claim.
• If the purchase was for a vehicle where tax was remitted to the Secretary of State, the purchaser must also provide a copy of a validated Form RD-108 (sales tax) or a Form TR-11L (use tax).

However, this procedure (use of Form 5633) only applies to refund claims based on a failure to assert an exemption at the time of purchase.  It does not apply to refund claims related to returns of taxable property, retroactive changes in law or any reason other than the failure to claim an exemption at the time of purchase.  So, especially for products that are exempt from tax by their very nature (e.g., food, feminine hygiene products and other items for which the exemption is product-based), no claim is required to effectuate the exemption, and a purchaser never “fails” to claim an exemption at the time of purchase.  Accordingly, when tax is collected and remitted mistakenly in instances where the purchaser does not need to present a claim of exemption to make an exempt purchase, only the seller, not the purchaser, may seek a refund from Treasury. 

Scenario C – Purchaser seeks a refund directly from the seller.

If a purchaser believes that a seller wrongfully charged tax, the purchaser may make a direct request of the seller for return of the tax.  Treasury does not regulate or administer these claims.  As discussed in the Introduction, the seller is not required to honor these claims. 

Conclusion

Refund requests described in this RAB should be mailed to: Michigan Department of Treasury, Attn: Tax Technical Services, PO Box 30698, Lansing, MI  48909.  Adherence to the procedures set forth in this RAB will streamline requests.