The Michigan Supreme Court recently sided with the Michigan Department of Treasury with a sales and use tax ruling that will have far-reaching implications for the everyday consumer and for all business-to-business transactions.
The Courts’ ruling now allows the Department of Treasury to collect both the 6% sales tax and the 6% use tax on the same Michigan-based transaction, unless the consumer (the purchaser) can prove that the sales tax was paid by the seller!
The burden of proof falls squarely on the shoulders of the consumer who must now keep every receipt and/or an affidavit from the seller to prove that the sales tax was paid. If under an audit the consumer cannot prove this, they will be forced to pay the 6% use tax even if they rightly assumed the 6% sales tax was included in their total purchase price.
As consumers (purchasers) of materials, supplies, and goods via Michigan-based transactions, all MITA members are advised to now be very diligent in making sure to either obtain receipts that explicitly show a line item for sales tax or ask the seller for an affidavit so you can prove later under an audit that the tax was paid to the State of Michigan by the seller on the purchase.
This bulletin will also serve as MITA’s annual reminder to our contractor members of the issue of tax liability on construction materials that are being incorporated in projects of tax-exempt owners. Contractors performing work for public agencies, churches and schools are often faced with this precarious issue.
Many of these owners believe that their tax-exempt status allows them to purchase the materials that will be incorporated in their construction projects tax free, thus saving money for those represented by that owner. However, unless those owners are performing the work of installing the materials on the project themselves, this belief is misguided and completely false.
As a contractor installing these “owner perceived tax free” materials, you will bear the full responsibility of the use and sales tax that is due once the project is completed. A contractor need not purchase or own the materials being incorporated in a project to incur a use tax liability. Use tax is due in situations where the contractor receives the materials from its customer when the customer has purchased the materials without the payment of sales or use tax. So beware, because this issue often doesn’t arise until after you have closed out the job and final payment has been made.
In order to avoid any confusion or financial hardship, please do not hesitate to share this bulletin with owners that seem to believe otherwise on this issue. Contractors should convey the fact that their quantity discount is likely a better buy than any single purchase price that an owner could ever hope to get.
If you have any questions or comments about either of the matters in this bulletin, please contact Glenn Bukoski or Doug Needham via email or call them at the MITA office at 517-347-8336.
