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Revenue Administrative Bulletin 1994-5
Approved: March 31, 1994
SALES TAX TO BE APPLIED BASED UPON DELIVERY DATE
RAB-94-5. This bulletin explains the appropriate treatment of sales transactions pursuant to Public Act 325 of 1993 where there is a timing difference between the date the item is ordered and the date the item is delivered. This bulletin pertains to and is limited in its application to the May 1, 1994 increase of the sales tax rate from 4% to 6%. The sales tax rate in effect at the time of delivery is charged unless the limited statutory exclusions contained in section 4m [MCL 205.54m; MSA 7.525(13)] apply.
Michigan's sales tax is imposed on ". . . all persons engaged in the business of making sales at retail, as defined in section 1, . . ." [MCL 205.52(1); MSA 7.522(1)]. Section 1 provides the following definition:
" 'Sale at retail' means a transaction by which the ownership of tangible personal property is transferred for consideration, . . ." [MCL 205.51(1)(b); MSA 7.521(1)(b)]
The Department of Treasury has always considered and will continue to consider the time and place of actual delivery as being prima facie evidence of the transfer of ownership. Accordingly, the date of delivery will determine the appropriate tax rate applicable to the transaction. If delivery is made before May 1, 1994, the applicable tax rate is 4%. If delivery is made on or after May 1, 1994, the applicable tax rate is 6%.
Exceptions to this "transfer of ownership at delivery" rule require advance approval by the Department. Requests for approval should be well documented, and include agreements by the parties as to who bears the risk of loss to the item being purchased should it be destroyed. A caution is issued here because other legal considerations must also be given due consideration when determining if transfer of ownership has taken place at a point other than at delivery. Mere statements made in a contract or shipping terms are not in themselves conclusive.
Public Act 325 of 1993 added section 4m to the General Sales Tax Act. The amendment provided relief from the 2% additional sales tax rate for specific real property contracts and certain sales agreements. The amendment also provided that the tax imposed at the additional rate of 2% approved by the electors on March 15, 1994 does not apply to bona fide sales agreements made before March 15, 1994 if the agreement cannot be withdrawn or altered, or contains a fixed price not subject to change or modification of greater than 15%.
These specific statutory provisions override any of the previously discussed interpretations. If a sales agreement is entered into prior to March 15, 1994, and it meets either of the criteria, it would be subject to the 4% tax rate. If it cannot be withdrawn or altered, it would also be subject to the 4% tax rate. Additionally, if the sales agreement contains a fixed price not subject to change or modification of greater than 15%, it would be subject to the 4% tax rate. (See Revenue Administrative Bulletin 1994-3.)
FOR ADDITIONAL INFORMATION
Questions can be addressed by calling (517) 373-3190, or writing:
Sales, Use and Withholding Taxes Division
Michigan Department of Treasury
Lansing, Michigan 48922
All pertinent facts must accompany any request for a ruling.