Revenue Administrative Bulletin 2026-11

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 2026-11. The General Sales Tax Act imposes tax on retail sales of tangible personal property at a rate of 6% of the “sales price” of the property. MCL 205.52(1). The complimentary Use Tax Act imposes tax on the storage, use, or consumption of tangible personal property and certain enumerated services in Michigan at a rate of 6% of the “purchase price” of the property or taxable service. MCL 205.93(1). As a general rule the tax base, “sales price” or “purchase price,” includes the total amount of consideration for which tangible personal property or services are sold, leased, or rented, whether paid in the form of cash, credit, property, or services. MCL 205.51(1)(d) and 205.92(1)(f). For many types of transactions, though, this general rule is only the starting point in determining the tax base. The statute identifies specific inclusions (additions) into the tax base and exclusions (deductions) from the tax base. MCL 205.51(1)(d)(i)-(xiv) and MCL 205.92(1)(f) (i)-(xiv). This RAB addresses exclusions to this general rule for certain trade-ins. MCL 205.51(1)(d)(vi), (xi), (xii), (xiii), and (xiv) and MCL 205.92(1)(f)(vi), (xi), (xii), (xiii), and (xiv).

Those exclusions fall into two categories. First, the definitions of “sales price” and “purchase price” exclude certain amounts attributable to the agreed upon value of eligible motor vehicles, recreational vehicles, and titled watercraft used as partial payment for the purchase of similar property from a “dealer” (a term further addressed in Conclusions 3, 4, and 6) if the agreed upon value of the trade-in is separately stated on the invoice, bill of sale, or similar document given to the purchaser. Throughout the ensuing discussion, it is assumed that this condition is met: that the “agreed upon value of the trade-in is separately stated” on the appropriate document.

Second, credit for the “core charge” attributable to a recycling fee, deposit, or disposal fee for a motor vehicle or recreational vehicle part or battery is excluded from sales price and purchase price if separately stated on the invoice, bill of sale, or similar document given to the purchaser. MCL 205.51(1)(d)(xiii) and 205.92(1)(f)(xiii).

Over time, questions have arisen about the operation of these exclusions. This RAB addresses those questions.

Issues

1. What vehicle qualifies as a “motor vehicle” or “recreational vehicle” for purposes of the exclusion?

2. What qualifies as a “watercraft” for purposes of the exclusion?

3. What type of property must be exchanged as partial payment to qualify for the exclusion?

4. What amount may be excluded for the agreed upon value of traded-in motor vehicles, recreational vehicles, and titled watercraft?

5. Is more than one vehicle eligible for the exclusion in the same purchase transaction?

6. Is the exclusion applicable only when the selling party is a dealership?

7. Is a motor vehicle, recreational vehicle, or titled watercraft with negative equity eligible for the exclusion?

8. Does the exclusion apply to leases or rentals?

9. What is a “core charge” and how does it affect the tax base?

Conclusions

1. What vehicle qualifies as a “motor vehicle” or “recreational vehicle” for purposes of the exclusion?

Any new or used vehicle that meets the Michigan Vehicle Code’s (MVC) definition of “motor vehicle” is eligible for the exclusion under the General Sales Tax Act and Use Tax Act. For purposes of the exclusion, “new motor vehicle” means that term as defined in section 33a of the MVC, 1949 PA 300, MCL 257.33a, MCL 205.51(1)(k) and MCL 205.92(1)(r). The MVC defines “motor vehicle,” with some exceptions, as “every vehicle that is self-propelled…” MCL 257.33. Aside from automobiles in general, this definition also includes snowmobiles and off-road vehicles (ORVs), but excludes electric bicycles, personal mobility enhancing equipment, commercial quadracycles, electric carriages, and electric skateboards.

Any vehicle that meets the MVC’s definition of “recreational vehicle” qualifies for the exclusion. The MVC defines “recreational vehicle” as:

a new or used vehicle that has its own motive power or is towed by a motor vehicle; is primarily designed to provide temporary living quarters for recreational, camping, travel, or seasonal use; complies with all applicable federal vehicle regulations; and does not require a special highway movement permit under section 719a to be operated or towed on a street or highway. The term includes, but is not limited to, a motor home, travel trailer, park model trailer that does not require a special highway movement permit under section 719a (MCL 257.719a), or pickup camper. MCL 257.49a.

2. What qualifies as a “watercraft” for purposes of the exclusion?

Neither MCL 205.51 nor MCL 205.92 defines the term “watercraft.” However, the exclusion includes only “titled watercraft,” not just any “watercraft.” As a practical matter, any transaction involving a trade-in of watercraft titled with the Michigan Secretary of State triggers the exclusion, even if titling is voluntary rather than compulsory. Part 803 of the Natural Resources and Environmental Protection Act, 1994 PA 451, covers “Watercraft Transfer and Certificate of Title.” MCL 324.80304 provides:

Subject to section 80320(4), and except as provided in section 80306, a person shall not sell or otherwise dispose of a watercraft without delivering to the purchaser or transferee of the watercraft a certificate of title with such assignment on the certificate of title as is necessary to show title in the purchaser.

MCL 324.80301(c) defines “watercraft” as:

a contrivance used or designed for navigation on water, including a vessel, boat, motor vessel, steam vessel, vessel operated by machinery either permanently or temporarily affixed, scow, tugboat, or any marine equipment that is capable of carrying passengers, except a ferry.

However, MCL 324.80302(1) excepts the following from Part 803’s requirements:

(a) A boat from a jurisdiction other than this state temporarily using the waters of this state.

(b) A boat whose owner is the United States, a state, or political subdivision thereof.

(c) A ship's lifeboat.

(d) Watercraft less than 20 feet in length that do not have permanently affixed engines unless the owner, lessee, or operator voluntarily wishes to become subject to this part.

(e) Watercraft documented by an agency of the United States government.

For most transactions, it will be clear from the titling whether the trade-in qualifies for the exclusion of MCL 205.51(1)(d)(xi).

3. Which type of property must be exchanged as partial payment to qualify for the exclusion?

Titled watercraft. The exclusion for titled watercraft applies only to a titled watercraft used as partial payment for a new or used titled watercraft sold by a watercraft dealer. MCL 205.51(1)(d)(xi), 205.92(1)(f)(xi). A motor vehicle or recreational vehicle used as partial payment for a titled watercraft, and vice versa, does not qualify for the exclusion.

Motor vehicles. The exclusion for motor vehicles applies to a new or used motor vehicle used as partial payment in exchange for a new or used motor vehicle or recreational vehicle sold by a dealer as that term is defined in the Michigan Vehicle Code.

Recreational vehicles. For transactions occurring before January 1, 2019, the exclusion for recreational vehicles applies to a recreational vehicle used as partial payment in exchange for a new or used motor vehicle or recreational vehicle sold by a dealer as that term is defined in the Michigan Vehicle Code. For transactions occurring on or after January 1, 2019, the exclusion does not apply to a recreational vehicle used as partial payment in exchange for new or used motor vehicles; it applies only if a recreational vehicle is exchanged for another new or used recreational vehicle.

4. What amount may be excluded for the agreed upon value of traded-in motor vehicles, recreational vehicles, and titled watercraft?

Titled watercraft. There is no limit to the agreed upon value that may be excluded for a titled watercraft that is used as partial payment for the purchase of another titled watercraft. MCL 205.51(1)(d)(xi) and MCL 205.92(1)(f)(xi).

Motor vehicles and recreational vehicles purchased before January 1, 2019. Note: two important factors aid in understanding this discussion: 1) Per MCL 205.51(d)(xii)(C) and MCL 205.92(1)(f)(xii)(C), after 2019 there is no exclusion for a recreational vehicle traded in exchange for a motor vehicle; and 2) for 2018, the exclusion involving a recreational vehicle traded in exchange for a recreational vehicle is uncapped. This means that for one overlap year, 2018, a recreational vehicle traded in exchange for a recreational vehicle yields an uncapped exclusion, whereas the same recreational vehicle traded in exchange for a motor vehicle will yield a $4,000 exclusion.

The exclusion limit for the agreed upon value of a motor vehicle or recreational vehicle used as partial payment for a new or used motor vehicle or recreational vehicle for transactions occurring before January 1, 2019, is the lesser of the agreed upon value or:

• For transactions occurring January 1, 2016, through December 31, 2016: $3,000
• For transactions occurring January 1, 2017, through December 31, 2017: $3,500
• For transactions occurring January 1, 2018, through December 31, 2018: $4,000

MCL 205.51(1)(d)(xii) and MCL 205.92(1)(f)(xi).

Motor vehicles purchased on and after January 1, 2019. The exclusion limit for the agreed upon value of a motor vehicle used as partial payment for a new or used motor vehicle for transactions occurring on or after January 1, 2019, is the lesser of the agreed upon value or:

• For transactions occurring January 1, 2019, through December 31, 2019: $5,000
• For transactions occurring January 1, 2020, through December 31, 2020: $6,000
• For transactions occurring January 1, 2021, through December 31, 2021: $7,000
• For transactions occurring January 1, 2022, through December 31, 2022: $8,000
• For transactions occurring January 1, 2023, through December 31, 2023: $9,000
• For transactions occurring January 1, 2024, through December 31, 2024: $10,000
• For transactions occurring January 1, 2025, through December 31, 2025: $11,000
• For transactions occurring January 1, 2026, through December 31, 2026: $12,000
• For transactions occurring January 1, 2027, through December 31, 2027: $13,000
• For transactions occurring January 1, 2028, through December 31, 2028: $14,000
• For transactions occurring January 1, 2029, and later: No limit to the agreed upon value

Recreational vehicles purchased on and after January 1, 2018. Beginning January 1, 2018, there is no limit to the agreed upon value that may be deducted for a recreational vehicle that is used as partial payment for the purchase of another recreational vehicle. MCL 205.51(1)(d)(xiv) and MCL 205.92(1)(f)(xiv). Moreover, the year 2018 is the last year that a recreational vehicle will yield an exclusion if used as partial payment for the purchase of a motor vehicle. The value of this exclusion is the lesser of the agreed upon value or $4,000.

5. Is more than one motor vehicle eligible for the exclusion in the same purchase transaction?

No. The language of the statute limits the exclusion to the value of a single trade-in. Although it is arguable that each vehicle in a multiple-vehicle trade-in is “a motor vehicle or recreational vehicle used as part payment of the purchase price,” MCL 205.51(1)(d)(xii), the language – a titled watercraft, a motor vehicle or recreational vehicle -- is drafted in the singular.

6. Is the exclusion applicable only when the selling party is a dealership?

Yes. The exclusion for motor vehicles and recreational vehicles is available only if a “dealer,” as defined by MCL 257.11 of the Michigan Vehicle Code, is the seller. MCL 205.51(1)(m) and MCL 205.92(1)(r). The exclusion for titled watercraft is available only if the seller is a watercraft dealer.

7. Is a motor vehicle, recreational vehicle, or titled watercraft with negative equity eligible for the exclusion?

Yes. When a dealer accepts a trade-in vehicle or watercraft with negative equity, it may pay off the customer’s loan on the trade-in and then finance the difference between the loan amount it paid off and the amount of the trade-in, in addition to financing the new vehicle or watercraft. When a dealer accepts a trade-in motor vehicle or recreational vehicle with negative equity, the dealer may claim the exclusion up to the lesser of the agreed upon value of the trade-in vehicle or, if applicable, the capped amount discussed above in Conclusion 4.  When a dealer accepts a titled watercraft trade-in with negative equity, the dealer may claim the exclusion up to the agreed-upon value of the trade-in watercraft. The invoice, bill of sale, or other similar document must clearly state the amount representing the agreed upon value of the trade-in vehicle or watercraft. The dealer may not claim the exclusion for any amounts that are not attributed to the value of the trade-in vehicle or watercraft.

For example, if the agreed-upon value of a vehicle trade-in is $1,000, but the dealer also agrees to pay off a loan balance of $5,000, the dealer may only claim the exclusion for $1,000. Likewise, if there is positive equity, the agreed-upon value of the trade-in is eligible for the exclusion. Contrarily, if the agreed-upon value of a vehicle trade-in is $1,000, but the dealer agrees to pay off a loan balance of $900, the dealer may claim the exclusion of $1,000 and is not limited to an exclusion of $100 for the positive equity in the vehicle.

8. Does the exclusion apply to leases or rentals?

No, the exclusion does not apply to leases or rentals. MCL 205.51(1)(d)(xi), (xii) and (xiv) and 205.92(1)(f)(xi), (xii) and (xiv).

9. What is a “core charge” and how does it affect the tax base?

MCL 205.51(1)(d)(xiii) and 205.92(1)(f)(xiii) exclude from the sales price (General Sales Tax Act) and purchase price (Use Tax Act) certain core charges as follows:

credit for the core charge attributable to a recycling fee, deposit, or disposal fee for a motor vehicle or recreational vehicle part or battery if the recycling fee, deposit, or disposal fee is separately stated on the invoice, bill of sale, or similar document given to the purchaser.

The word “credit” refers to a charge that is subtracted from the total sales price or purchase price. Moreover, to be eligible for exclusion, the charge must be separately stated on an invoice, bill of sale, or other similar document provided to the purchaser. Typical examples of cores are engine blocks, crankshafts, cylinder heads, alternators, starters, turbochargers, power steering pumps, fuel injectors and transmissions. Although credits for core charges are excluded from the sales tax base and use tax base, charges for the initial deposit on a core charge are subject to tax.

Example 1: John Smith, a capable do-it-yourself car owner, purchases a new battery to replace an old, failing unit. The store charges him $100 for the new battery, however, the battery is subject to a $25 core charge in the form of a “deposit.” John provides his old battery to the store at the time of purchase and is credited the $25 core charge. John pays the remaining $100 with cash. The credit for the returned core is separately stated and identified on the receipt that the store provides John. The credit for the returned core is excluded from the tax base; therefore the base is $100 and the applicable sales tax is $6.

Example 2: Our do-it-yourself car owner, John Smith, purchases a new battery to replace an old, failing unit. The store charges him $100 for the new battery, however, the battery is subject to a $25 core charge in the form of a “deposit” separately stated on the receipt. Therefore, the tax base is $125 and John pays $125 plus $7.50 in sales tax for a total price of $132.50. Days after this initial purchase, John walks into the store, presents his old battery and buys a flashlight priced at $50. The store charges him $25 in cash and credits the $25 deposit toward the purchase of the flashlight. The $25 credit for the core charge is not subject to tax; therefore, John pays $25 plus $1.50 in sales tax for a total of $26.50. The store’s gross receipts from the two separate transactions are $150.

Applicable only to earthmoving equipment, a person who has “paid sales tax on a core charge attributable to a recycling fee, deposit, or disposal fee for a component, part, or battery for heavy earthmoving equipment may calculate a credit and seek a refund. . .” from Treasury of the sales tax paid. MCL 205.184a.

Example 3: A road building contractor needs a new bucket for an excavator. An employee in the contractor’s purchasing department visits a repair shop and purchases a new bucket that fits the excavator. The new bucket costs $3,000, the repair shop charges a $200 disposal fee to the contractor to accept the old bucket and then charges sales tax of $192 on a tax base of $3,200. The contractor may seek a refund of the $12 sales tax attributable to the $200 disposal fee.