Subscription Program

October 11, 2016

[Redacted Text]

Re: [Redacted Text] Subscription Program – Michigan Sales and Use Tax

Dear [Redacted Text]:

Thank you for your letter dated September 13, 2016, requesting a Letter Ruling regarding the applicability of Michigan sales and use tax to the [Redacted Text] Subscription Program (“[Redacted Text] Program”).

This letter is a Technical Advice Letter under RAB 2016-20 (formerly 1989-34) and is not intended to constitute either a “bulletin” or a “letter ruling” as those terms are defined in MCLA 205.6a and the RAB. A Technical Advice Letter may be relied upon only by the taxpayer requesting its issuance. However, conclusions in this letter are subject to subsequent legislation, regulations, court decisions, and bulletins. In addition, if the facts you provided are incomplete or change, you may not be able to rely on this letter.

You have provided the following facts with regard to your request [footnotes omitted]:

One of [Redacted Text] significant investments in [Redacted Text] is in a new [Redacted Text] program, evidenced by recently constructed [Redacted Text] in prominent geographical locations across Michigan. The program provides customers with a way to voluntarily support the development of [Redacted Text] in Michigan. Any [Redacted Text] customer of [Redacted Text] is eligible to subscribe to the [Redacted Text]. Eligible customers can subscribe to one or more [Redacted Text], pay the subscription fee, and in return receive [Redacted Text] credits.

These [Redacted Text] are constructed, owned, operated, and maintained by [Redacted Text]. The [Redacted Text] produced by the [Redacted Text] goes into the [Redacted Text] together with [Redacted Text]. [Redacted Text] makes no representation that program participants will receive [Redacted Text] from a [Redacted Text].

Participants may voluntarily cancel their subscription to the program at any time. However, they do not receive a monetary refund for uncredited portions of their contribution, unless the participant relocates outside of [Redacted Text].

The subscription fee and credit (described below) are reflected as separate line items on the participant's monthly [Redacted Text] bill that are in addition to the participant's normal monthly [Redacted Text] charges.

The amount of the credit is linked to the value of the [Redacted Text]. The actual [Redacted Text] has no impact on the amount of the [Redacted Text] subscription fee paid or the credit received, except that the subscription cannot exceed a [Redacted Text] (measured by the [Redacted Text] in the twelve months prior to the subscription).

Given the different subscription fees paid for the same subscription level and changing market prices for [Redacted Text], the credit received will not equal the subscription fee paid for many, if not all, of the participants. "Although the value of the [Redacted Text] may increase over the life of the [Redacted Text] program, there is no guarantee the value will be greater than the subscription payment and participants should not enroll in this program with any expectation of profit or financial gain." [Appendix A, emphasis in original.]

Specifically, you asked the following: “The issue is whether or not under Michigan's Sales Tax Act the [Redacted Text] subscription fee and credit should be included when calculating sales tax on monthly bills.”

Answer: Retail sales of tangible personal property, [Redacted Text], are subject to the Michigan General Sales Tax Act and the Michigan Use Tax Act. MCL 205.52(2)(a); MCL 205.93a(1)(e). Based on the facts provided, a customer should pay tax on the charge for [Redacted Text], before any reductions or additions due to participation in the [Redacted Text] Program. Participation in the [Redacted Text] Program, including the separately stated subscription fee and [Redacted Text] credits, is not subject to sales or use tax, although there may be income tax ramifications to the customer.

Please let me know if I can be of any further assistance.

Sincerely,

Michael A. Eschelbach, Director

Bureau of Tax Policy