Revenue Administrative Bulletin 1993-6

Approved: April 15, 1993

SALES AND USE TAXES - ROAD TREATMENTS

RAB-93-6. The purpose of this bulletin is to clarify the sales and use tax treatment of transactions involving the application of various substances, including liquid calcium chloride, to gravel roads.

Background

The Department is aware of some public confusion that concerns the tax status of transactions involving the application of liquid calcium chloride to road surfaces. The application of liquid calcium chloride helps to minimize dust dispersion on roadways.

Typically, the provider delivers liquid calcium chloride to a governmental entity (municipality or county road commission) in a tank truck. Upon delivery, or before, the governmental entity instructs the provider to spread the liquid calcium chloride on designated road surfaces. This situation poses the following question: is the transaction a sale of liquid calcium chloride and a sale of the spraying service, or is the transaction a service transaction wherein liquid calcium chloride is consumed by the service provider?

Authority

The General Sales Tax Act imposes sales tax upon a "sale at retail." The act defines "sale at retail" as:

"a transaction by which the ownership of tangible personal property is transferred for consideration, if the transfer is made in the ordinary course of the transferor's business and is made to the transferee for consumption or use, or for any purpose other than for resale, or for lease . . . ." [MCL 205.51(b); MSA 7.521(b)]

Michigan's Use Tax Act imposes use tax upon ". . . the privilege of using, storing, or consuming tangible personal property in this state . . . ." [MCL 205.93(l); MSA 7.555(3)] The Act defines "use" as:

"the exercise of a right or power over tangible personal property incident to the ownership of that property including a transfer of the property in a transaction where possession is given." [MCL 205.92(b); MSA 7.555(2)]

Position Statement

The Department views the previously described transaction and similar transactions as the rendition of a service in which the service provider consumes tangible personal property. The spreading of the chemicals does not constitute a sale at retail." The providers consume the chemicals while performing a service.

The service provider must pay use tax on chemicals and other materials consumed, unless sales tax was paid at the time these chemicals and materials were acquired. It is immaterial that an employee of the municipality or county road commission may board the vehicle and direct the spreading of the chemicals.

The chemical provider who only delivers these items into the purchaser's storage tank is making a "sale at retail." Sales tax is due, unless a valid claim for exemption is obtained from the purchaser. It does not matter whether the storage tank is stationary or whether it is mounted on a vehicle owned or leased by the purchaser.