Michigan’s use tax is one of the least known taxes in the state and for that matter, in most states. Often called a “remote sales tax,” it is a tax that must be paid on purchases of tangible personal property for which sales tax has not been paid. Generally, these will be on-line purchases made from out-of-state retailers. Use tax applies to both individuals and businesses.
Tax Rate
The Michigan use tax rate is 6%, the same as the sales tax rate. The use tax is computed on the total price (including shipping and handling) of all taxable items brought into Michigan, purchased online, or purchased in foreign countries. If items are purchased in states with a sales tax rate that is lower than 6%, the difference is owed to the State of Michigan.
What to know when filing your returns
Michigan makes it easy for individual taxpayers to pay use tax when filing their annual income tax return. Line 23 of the individual return and the accompanying instruction booklet contain information about calculating the amount of use tax due. For purchases of less than $1,000, a table is available to compute the amount of use tax to be paid. Purchases that exceed $1,000 are separately computed. Be advised that if the Department of Treasury audits a return and determines that use tax is due, the taxpayer may be subject to penalty and interest.
Businesses that are registered for sales or withholding taxes may remit use tax with those returns. It is important to track purchases of tangible personal property from out-of-state vendors for which sales tax of less than 6% has been paid. Commonly purchased items that should be examined are office supplies; machinery, equipment, and furniture expenditures; shipping materials, and advertising items such as coffee cups and pens. Credit card receipts for out-of-state purchases should be carefully reviewed.
Companies or individuals in the business of renting or leasing tangible personal property have two options. The first alternative is to pay sales tax on the items to be rented or leased at the time of purchase. The second method is to not pay sales tax, but charge 6% use tax on the total amount of the rental receipts. The method chosen may not be changed for the entire life of the item.
Use tax on lodging facilities has surprised more than one taxpayer renting his lakeside cottage during the beautiful Michigan summer. Use tax is due on rooms or lodging facilities furnished by hotels and motels, and other persons furnishing accommodations that are available to the public on the basis of a commercial and business enterprise. No tax is due if the lodging is rented for a continuous period of more than one month to the same tenant. Individuals renting cottages or homes would need to register for use tax with the State of Michigan.
Another aspect of use tax with which we are more familiar is the tax due on vehicles, ORVs, mobile homes, aircraft, snowmobiles, and watercraft purchased or transferred by an individual or business from anyone who is not a licensed dealer or retailer. These taxes are paid directly to the Secretary of State (or the Department of Treasury in the case of aircraft.) There is an exemption to the assessment of use tax on transfers of these items to family members.
Please contact one of our Mierendorf specialists at 616-784-4445 if you have questions about the applicability of these use tax regulations to your situation.
