I. Applicability
The tax applies to sales or rentals
of tangible personal property which take place in Michigan.
- Michigan State University as Purchaser
Michigan State University, as an instrumentality of the State of Michigan and
exempt from Federal income tax under Section 501(c)(3) of the Internal Revenue
Code, is exempt from the payment of sales and use taxes on purchases of tangible
property and applicable rentals. See exhibit
50-C or exhibit 50-D for a sample of the
Certificate of Exemption that MSU would complete when claiming exemption.
A copy of the completed certificate to be used for MSU exempt purchases can
be found at exhibit 50-E.
- Michigan State University as Seller
The University is liable for the collection and payment of tax on sales and
rental transactions to non-exempt individuals or organizations.
If the organization claims exemption, see Section VI
below for required documentation. If the entity cannot (or does not)
provide the required documents then the sale or rental is taxable. Sales or
rentals to agency accounts (account numbers 31-3500 through 31-4099) are to be
charged sales and use tax.
II. Collection
All departments of the University engaged in sales or rental transactions
which are subject to the Michigan sales or use tax must collect such
taxes, keep records of the transactions and report and submit
the tax collected when deposits are made or accounts receivable are billed. The
sales and use tax deposit account number is 21-3236, object code 995.
A copy of the deposit receipt must be sent to Office of the Controller,
305 Administration Building when use tax is collected. If the tax collected is a
combination of Sales and Use Tax, note the amount of Use Tax.
III. Sales Tax
Generally, the sales tax applies to
sales of tangible personal property to consumers in the State of Michigan.
The following would be included as sales subject to sales tax:
- Books, pamphlets, copied/printed materials (including copy machines).
- Meals, except to currently enrolled students. (Meals provided to elementary
and secondary school students enrolled in MSU summer camps are exempt.)
- Concession stand food items to be consumed at or near the premises.
- Optical wear.
- Sales to student organizations which cannot provide proof of exemption cited
below.
IV. Use Tax
This tax applies to the rental of tangible personal property to renters or
lessees and to rental charges for lodging or accommodations.
The following rental transactions would be included in rents subject to use tax:
- Films, audio and video tapes.
- Equipment (including sports or recreational equipment).
- Lodging and accommodations for less than 30 days duration.
- Telephone service.
- Room rentals when food is being served or in a building where overnight
accommodations are available.
V. Tax Exempt Numbers
The Michigan Department of Treasury
does not issue "tax exemption numbers" for any type of organization.
Sellers should not accept a "number" as evidence of exemption from sales
and use taxes. (However, a sales tax license number may
support a tax exemption
claim based on "for resale at retail" as described in Section VI.B.1.)
VI. Certificate of Exemption
- The Michigan Department of Treasury's prescribed "Certificate of
Exemption" is included as Exhibit
50-C. The Department will also accept any exemption certificate
contained in a Sales and Use Tax Administrative Rule (see
Exhibit 50-D for samples of
industry specific claim forms), the Uniform Sales and Use Tax Certificate
approved by the Multistate Tax commission and a purchase order issued by
the purchaser (must include all information contained on the "Certificate
of Exemption"). Collectively, these items are referred to as
"exemption claims", and represent the only acceptable formats.
- An exemption claim must be presented to MSU prior to or when tangible
personal property is sold or rented. The buyer must state a
valid reason for claiming
exemption and complete an appropriate "exemption claim"
document(s). The more common exemptions allowed by the General Sales
Tax Act and the Use Tax Act are listed below.
- Sales for Resale
Sales of property intended for resale are exempt. A
Certificate of Exemption should indicate the reason for claiming
exemption as "For resale at retail". Retailers in
Michigan are issued sales tax license numbers. The
retailer-purchaser's sales tax license number must be included on
the exemption form.
Wholesalers, that make no retail sales, are not licensed
with the Department and are not issued numbers. Wholesalers
buying for resale should indicate on the Certificate of
Exemption "For resale at wholesale".
- Sales to Agricultural Producers
A sale to a person for use or consumption in agricultural production
is exempt from tax, provided the items are used or consumed in connection
with the production of horticultural or agricultural products as a
business enterprise.
- Sales to Industrial Processors (Manufacturers)
Industrial processing is the act of transforming, altering, or
modifying tangible personal property by changing the form,
composition, or character of the property for ultimate sale
at retail, or sale to another industrial processor for further
processing and ultimate sale at retail. The sale of property
to a manufacturer or industrial processor for use or consumption
in industrial processing is exempt from sales tax.
- Sales to Governmental Entities
Sales to the United States Government, the State of Michigan,
and their political subdivisions, departments and institutions,
and the American Red Cross and its chapters and branches are not
taxable when ordered on a governmental purchase order and paid for by
warrant on government funds. At the time of purchase, the
governmental entity should indicate on the Certificate of Exemption
that payment is from funds of the governmental entity. Sales
to other States or their departments are subject to tax.
(see Exhibit 50-D)
- Sales Not for Resale to Nonprofit Schools, Nonprofit Hospitals,
and Churches
The sale of tangible personal property to a nonprofit school,
parent cooperative preschool, nonprofit hospital, or regularly
organized church or house of religious worship is exempt, provided
the property will be used or consumed in connection with the operation
of the institution or agency, and that the institution or agency
qualifies as an exempt entity under law. (see
Exhibit 50-D)
- Sales Not for Resale to other Nonprofit Organizations
In order to qualify for this exemption, the tangible personal
property purchased must be used or consumed primarily in carrying
out the purposes of the institution or agency, as stated in the
bylaws or articles of incorporation of the exempt entity.
Sales of tangible personal property to qualified nonprofit
organizations for use in qualified activities (not for resale)
are exempt from tax provided:
- Organizations previously certified as exempt present the
"exemption ruling letter," reissued after
June 12, 1994, by the Department of Treasury (for example
see exhibit 50-B).
These organizations should present to MSU a copy of their
"exemption ruling letter."
or
Organizations not previously certified as exempt must give
MSU the following information:
A Certificate of Exemption (see
exhibit 50-C; this
certificate may be duplicated). This form may indicate in the
"valid reason" section, "For use or consumption
in connection with the operation of a nonprofit organization
exempt from Federal income tax under section 501(c)(3) or
501(c)(4) of the IRC";
and
A copy of the Federal exemption letter indicating
501(c)(3) or 501(c)(4) exempt status received from the
Internal Revenue Service. (A two-sided, one-page document
could be used: one side the Certificate of Exemption and
the other side a reproduction of the page of the federal
ruling or determination letter that states recognition
of tax-exempt status.)
- Sales or use tax exemption applies only when the funds for the purchase come
entirely from the designated institution or agency. Therefore, for any purchase
where participants are involved, such as in a conference, luncheon, dinner, etc.,
it is extremely important that the agency claiming exemption is fully aware
that they are certifying that the proceeds used for purchase have not been
collected from participants. If the otherwise exempt agency has collected
funds from the participants for purchase of the meal, etc., the
purchase becomes taxable.
- The exemption ruling letter or the certificate of exemption and the
Federal exemption letter should be retained with the sales records and may be
subject to audit.
VII. Blanket Exemption Claims
Blanket exemption certificates are accepted by the State of Michigan.
The statutory language of the General Sales Tax Act
requires that the
blanket exemption certificate cover a three year period, unless the buyer and
the seller mutually agree upon a shorter period.
A blanket exemption claim is filed once and maintained in the seller's
records, which states that all of the defined purchases made by
the presenter of the certificate are exempt from tax.
The seller must exercise reasonable care and effort to determine
that the purchaser is entitled to the exemption. If the seller
becomes aware that an item will be used in a taxable manner rather
than the exempt use stated on the certificate, the items purchased must be taxed.
VIII. Assessment of Tax
- The rate of tax to be assessed on sale or rental transactions
is 6% of the sale price or rental charge.
- Departments that include the sales or use tax in their advertised
price should use the denominator of 17.67 to determine the tax collected.
EXAMPLE: Sale price of $1.00 includes $1.00/17.67 or 6 cents (5.66 cents) tax.
IX. Questions
Questions regarding the taxability of certain transactions or regarding
exemption claims, etc. can be directed to the Controller's Office,
305 Administration Building, 353-9175.