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Overview of Use Tax for Sellers of Services

What Is Use Tax?

In Michigan, certain goods are subject to the 6% sales tax while certain services are subject to a 6% use tax that is imposed on the purchaser or consumer of services for the privilege of using that service in this State. A simultaneous obligation is imposed on the seller of the service to collect the 6% use tax from the purchaser and remit it to the State of Michigan. The purchaser/consumer is not relieved of responsibility for the tax until it has been paid to the State.

In some situations, a seller located outside Michigan may be excused by federal law from collecting Michigan's 6% use tax, but that does not relieve the Michigan purchaser/consumer of their tax obligation. These situations often involve sales of services made or delivered over the Internet or by phone and catalog.

Are All Transactions Subject to Use Tax?

Michigan's 6% use tax is applied to the purchase/sales price of a transaction in which taxable services are acquired. In some instances taxable and exempt property and/or services are combined into a single mixed transaction. When that situation occurs, the predominate nature of the transaction must be determined. The transaction will be either fully taxable or fully exempt: an all or nothing tax result.

For some services, certain uses are exempt from the tax. Exemptions also exist for some purchasers, such as certain governmental units and certain schools. When Michigan sales tax, or another state's sales or use tax has been paid a full credit for the amount paid is applied to reduce the Michigan use tax obligation.

Where Is Use Tax Due?

Use tax is due in Michigan if the service is received by the purchaser in Michigan. For services, "received" generally means where the purchaser makes first use of the service. However when tax is not paid in another state, a purchaser may have a Michigan use tax obligation even when first use of the service occurs outside Michigan but a subsequent use of the service occurs in Michigan.

What Services Are Subject To Use Tax?

Most telecommunications, hotel/motel type accommodations, and industrial laundry services have been subject to Michigan use tax for many years. These services continue to be subject to the tax.

Effective April 1, 2009 use tax applies to the use or consumption of medical services provided by Medicaid managed care organizations.

What Must a Seller Do?
  • A seller must register for use tax with the Department of Treasury. On-line registration is available. If you are already registered for sales or withholding taxes you only need to complete and submit a Notice of Change or Discontinuance form (Form 163) to add use tax to your registration.
     
  • A seller must collect Michigan 6% use tax from Michigan purchaser/consumers calculated on the selling price of taxable services.
     
  • A seller must remit Michigan 6% use tax collected to the State of Michigan. Blank forms are available on our Web site. Once you are registered you will receive pre-identified returns. To avoid delays in properly crediting your account you should complete and submit the pre-identified returns with payment of the tax collected.
What Must a Purchaser/Consumer Do?

Michigan's use tax law requires a seller to separately itemize the tax on invoices. A purchaser should review invoices for purchases of taxable services purchases to determine if use tax was charged by the seller. If Michigan use tax was not charged by the seller, a purchaser/consumer must remit 6% use tax directly to the Department.

Business purchaser/consumers must report and remit Michigan use tax by completing the use tax on purchases portion of the combined sales, use and withholding taxes worksheet and transferring the result to the combined sales, use and withholding taxes return (Form 160). Form 160 is then submitted in the normal fashion with payment of the combined liability.

Individuals can report and remit their use tax obligation on their Michigan personal income tax return (Form MI 1040). The return includes instructions to calculate the use tax due and a line to report it on the form.

Questions?

Answers to many questions may be found on the Services added to Use Tax Frequently Asked Questions page. The site will be updated continually with new FAQs and other material. You may also contact the Department concerning the status of your business account at http://www.michigan.gov/bustax or by telephoning (517)636-4730.

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