Revenue Administrative Bulletin 1989-66

USE TAX – TRANSFERS OF VEHICLES AMONG RELATIVES

Approved: October 5, 1989

RAB-89-66      The purpose of this Bulletin is to announce the Departments interpretation and strict enforcement of the vehicle exempt transfer provisions of the Use Tax Act (Act 94 of 1937, as amended). This Bulletin focuses on vehicle transfers occurring to or from grandparents, “step-relationships”, in-laws, legal guardians, and aunts and uncles.

Historical Note

The exemptions for vehicle transfers in the Michigan Use Tax Act are found at MCL 205.93(3). This section provides, in pertinent part:

“(3) No use tax shall be payable in cases of transfer or purchase: 

1. When the transferee or purchases is the spouse, mother, father, brother, sister, or child of the transferor.”

In the past persons not specifically exempt under the statute transferred vehicles exempt from use tax if an exemption could have been effected through two transfers. For example, brothers and sisters may transfer vehicles between themselves tax-free. Likewise, spouses may transfer vehicles between themselves tax-free. Previously an exemption was allowed when a person transferred a vehicle to the spouse’s brother or sister (i.e., a direct transfer to a brother-in-law or a sister-in-law).

Problems

The Department has found the following problems associated with allowing an exemption for transfers not specifically provided under the Act:

1. These exemption claims are difficult to administer by the Department of State and the Department of Treasury.
2. There is widespread abuse of these exemption claims.

Law

Beginning January 1, 1990, the Department will exempt only those transfers occurring between persons as specifically enumerated in the Use Tax Act, MCL 205.93(3)(a). The Department will not allow exemption on direct transfers between persons who are no related as provided in the Act. (See also 1979 AC, R 205.135.)

The courts of this state have held on a number of occasions that exemptions from taxation are to be strictly construed against the person claiming them, and that, in order for an exemption to be effective, it must be clearly stated by the legislature. [See Evanston YMCA v State Tax Commission, 369 Mich 1; 118 NW2d 818 (1963).] When an exemption is claimed on a vehicle transfer, the burden of proving the exemption is on the person claiming it.

Examples of Taxable Transfers

The following list illustrates the types of vehicle transfers between “related” individuals that do not qualify for exemption. This list is not intended to be all inclusive.

1. Transfers of vehicles between step-relatives (step-mother, step-father, step-brother, step-sister, etc.) are taxable.
2. Transfers of vehicles between in-laws (mother-in-law, father-in-law, brother-in-law, or sister-in-law, etc.) are taxable.
3. Transfers of vehicles to or from a legal guardian are taxable.
4. Transfers of vehicles to or from grandparents are taxable.
5. Transfers of vehicles to or from aunts, uncles, or cousins, are taxable.