Preliminary information for the Wholesale Marihuana Tax is now available.
You are a Michigan nonprofit corporation operating as a tax-exempt organization that plans to transfer tangible personal property to two other tax-exempt organizations. You possess a 1990 Treasury issued exemption letter (“Exemption Letter”), as described in MCL 205.54q(1)(a), which “serves as notice to a seller that your organization qualifies to buy goods and services without paying Michigan sales or use tax.” In addition to explaining certain transactions that are not covered by the Exemption Letter, the Exemption Letter also cautions that Treasury “may review your exempt status at any time to verify your eligibility. If the Internal Revenue Service revokes your exempt status, . . . if a Treasury audit discovers non-exempt status, or if for any other reason your organization no longer qualifies for exemption, then your organization is subject immediately to sales or use tax on its purchases.” A copy of the Exemption Letter was enclosed with your letter seeking a letter ruling from Treasury.
According to your letter, you are to be dissolved, and your assets and functions transferred to two other tax-exempt organizations under certain sections of the Internal Revenue Code (“IRC”). Neither of these two organizations are of the type of exempt organizations described in MCL 205.54q(1)(b)-(c). The proposed transfer will be made “without consideration and at carrying value, consistent with the common control among the entities.” The members of your Board of Directors will be the same individuals as the directors of the transferee organizations. Those organizations will take over the joint activities previously managed by you, ensuring continuity in the relevant activities and programs. The two new organizations will not assume any of your liabilities.
You have asked:
The Michigan General Sales Tax Act (“GSTA”) and the Michigan Use Tax Act (“UTA”) are complementary tax statutes that generally levy a 6% tax on the sale or use of tangible personal property in Michigan. The GSTA imposes a 6% sales tax on the gross proceeds of “all persons engaged in the business of making sales at retail, by which ownership of tangible personal property is transferred for consideration…” unless an exemption applies. MCL 205.52(1). The UTA levies a use tax upon (and to be collected from) “every person in this state … for the privilege of using, storing, or consuming tangible personal property in this state at a total combined rate equal to 6% of the price of the property …” unless otherwise exempt. MCL 205.93(1). The use tax and sales tax are “complementary” and “supplementary” such that absent an exception, tangible personal property sold and used in Michigan “is subject to both use and sales tax.” Andrie Inc v Dep’t of Treasury, 496 Mich 161, 167-168 (2014).
As you note in your letter, the GSTA provides an exemption from sales tax for an isolated transaction by a person not licensed or required to be licensed under the GSTA, in which tangible personal property is offered for sale, sold, or transferred and delivered by the owner MCL 205.54d(j). Similarly, R 205.13(1) provides that sales at retail “must not include an isolated transaction ….” Under the represented facts, Treasury agrees that you are not liable for sales tax on the proposed one-time transfer of tangible personal property to the two new tax-exempt organizations because the transfer qualifies for exemption as an isolated transaction.
Even though you are not liable for sales tax on the proposed transfer of tangible personal property under the isolated transaction exemption, because you also assert that the Treasury Exemption Letter issued to you “should remain applicable” and that it “may be relied upon by the new organizations for purposes of the Michigan Sales Tax Act,” the applicability of the Exemption Letter to a sale or transfer made by you is addressed below. The legal responsibility for the sales tax falls on the retail seller, with the tax being levied for the privilege of making sales at retail. See Andrie Inc v Treasury Dept, 496 Mich at 169. The Exemption Letter expressly states that it “serves as notice to a seller” that your organization “qualifies to buy goods and services” exempt from sales or use tax. Accordingly, the Exemption Letter applies to tangible personal property that you buy, not tangible personal property that you sell or transfer. This limitation is consistent with MCL 205.54q(1) which provides, a “sale of tangible personal property not for resale to the following … is exempt from the tax under this act: ….” (Emphasis added). This understanding is reflected in RAB 2020-25 which explains that “[r]etail sales to qualified nonprofit entities for their own use, storage, or consumption are generally exempt from sales and use tax …. Conversely, retail sales made by qualified nonprofit entities are generally subject to sales tax.” Accordingly, the Exemption Letter is not applicable to the proposed transfer of tangible personal property from you to the new organizations for sales tax purposes.
The purchase or acquisition of tangible personal property by the new organizations resulting from the proposed transfer is subject to use tax unless an exemption applies. Regarding a transfer of tangible personal property other than a vehicle, even if the transfer was not exempt, the tax base under the represented facts would be $0.00 such that there would be no use tax liability on the part of the new organizations for their acquisition of such property since the use tax would be calculated as 6% x $0.00 = $0.00.
For any vehicle acquired by the new organizations from you under the proposed transfer, the equalization tax imposed by section 9 of the Streamlined Sales and Use Tax Revenue Equalization Act, 2004 PA 175, generally applies. See MCL 205.179, MCL 205.93(2) and RAB 2020-20. In fact, R 205.13(2) declares that “[v]ehicles … acquired in an isolated transaction from a person that is not a retailer are subject to equalization tax” and the “equalization tax on the transaction is imposed at a rate of 6% of the retail dollar value of the item at the time of acquisition.” R 205.13(5) explains that the “tax base under … MCL 205.179, is the retail dollar value of the property as listed in an industry accepted pricing guide applicable to the property.” As a properly promulgated rule, R 205.13 has the “force of law” as it is consistent with MCL 205.179. See Danse Corp v Madison Hts, 466 Mich 175, 181(2002). MCL 205.179(1) provides that “there is levied upon and there shall be collected from every person in this state a specific tax on the privilege of storing, registering, or transferring ownership of any vehicle other than a vehicle stored, registered, or transferred by a new or used vehicle dealer licensed by the department of state, … in this state at a rate of 6% of the retail dollar value at the time of acquisition as determined by the department of treasury.”
Notably, both MCL 205.179(2) and R 205.13(2) provide that all use tax exemptions also apply to the equalization tax imposed under 2004 PA 175. See also RAB 2020-20. In your letter, you argue that the proposed transfer of vehicles is exempt under MCL 205.93(3)(c) and, alternatively, that the new organizations may rely on the Exemption Letter for use tax purposes.
Regarding the application of the exemption under MCL 205.93(3)(c), as explained in RAB 2020-20, to qualify for the exemption, the vehicle(s) must satisfy the following 3-prong test:
Your letter explains that you acquired the vehicles “for use in [your] exempt functions and were not subject to sales or use tax at the time of acquisition.” Therefore, the first prong of the test is met. Regarding the second prong, your letter explains that vehicle(s) are to be transferred directly in connection with your dissolution and the organization of the new entities. Thus, the second prong of the test is satisfied. Your letter further explains that the new organizations will “continue the same … functions previously administered by [you]” and that the transferred vehicle(s) will “continue to be used for the benefit of the same class of beneficiaries” and will “remain under the control of entities jointly administered” by the parties similar to the arrangement under which the parties previously operated. This satisfies the third and final prong of the test. Accordingly, the exemption under MCL 205.93(3)(c) applies to the vehicle(s) such that the acquisition of the vehicle(s) by the new organizations will not be subject to (or will be exempt from) the equalization tax imposed under MCL 205.179.
Concerning your argument that the Exemption Letter “remains applicable and extends to the new organizations for purposes of both sales and use tax under Michigan law[,]” Treasury does not agree. Upon your dissolution, the Exemption Letter will no longer be valid. The exemptions under MCL 205.54q(1) and MCL 205.94(1)(w) generally provide for an exemption only for nonprofit organizations that are “exempt from federal tax income tax under section 501(c)(3) or 501(c)(4) of the internal revenue code, 26 USC 501 … [or] section 501(c)(19) of the internal revenue code, 26 USC 501.” See MCL 205.54q(1)(b)-(c) and MCL 205.94(1)(w). An exception was made, in the form of a grandfather provision under MCL 205.54q(1)(a) and MCL 205.94(1)(w), for a “health, welfare, educational, cultural arts, charitable, or benevolent organization not operated for profit that has been issued an exemption ruling letter to purchase items exempt from tax before July 17, 1998 [for sales tax or June 13, 1994 for use tax] signed by the administrator of the sales, use, and withholding taxes division of [Treasury].” (Emphasis added). MCL 205.94(1)(w) further provides that Treasury shall reissue an exemption letter after June 13, 1994 to each of those organizations that had an exemption letter that remains in effect unless the organization fails to meet the requirements that originally entitled it to this exemption.” (Emphasis added).
The Exemption Letter was written for a single organization (e.g., your organization) – “This letter serves as notice to a seller that your organization qualifies to buy goods and services without paying Michigan sales or use tax” – and with no (express or implied) application to any other organization including successors or assigns. This is further evidenced by the Exemption Letter’s certification signed by your authorized representative. That certification states that the “institution or agency named above” will use or consume the property in connection with its exempt purpose and that consideration for this purchase “moves the funds of the designated institution or agency.” (Emphasis added).
Long-standing principles of statutory construction under Michigan law direct that “[e]very word of a statute should be given meaning and no word should be treated as surplusage or rendered nugatory if at all possible.” GMAC LLC v Dep’t of Treasury, 286 Mich App 365, 373 (2009). Furthermore, an exemption must not be enlarged by construction, “since the reasonable presumption is that the State has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the statute the favor would be extended beyond what was meant.” General Motors Corp v Dep’t of Treasury, 290 Mich App 355, 370 (2010). Applying these principles, the narrow application of the Exemption Letter to your organization, and no other entity, is consistent with the express terms in MCL 205.54q(1) and MCL 205.94(1)(w). In addition, this exemption provision is to be read as a whole and in context to understand its scope and meaning. TOMRA of N America, Inc v Dep’t of Treasury, 505 Mich 333, (2020). The statutory context makes clear that the exemption, going forward, is to be limited to only nonprofit IRC 501(c)(3), (4) and (19) organizations.
Therefore, upon your dissolution, it would contradict the intent of these exemption provisions to allow the new entities to utilize the Exemption Letter since they are not organized under IRC 501(c)(3), (4), or (9); and at least one of the organizations is organized under a different IRC provision than your organization.
December 9, 2025
LR 2025-2
Dave Matelski
Director, Bureau of Tax Policy
