Michigan State University
Controller's Office

Administration Bldg
426 Auditorium Rd, Rm 305
East Lansing, MI 48824
517 355-5020

SECTION 50: Sales and Use Tax

Last updated: April 2016

I. Applicability

The tax applies to sales or rentals of tangible personal property which take place in Michigan.

  1. 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.

    1. Direct Purchases by MSU – The Michigan Sales Tax Certificate of Exemption should be completed and submitted to the vendor only when the payment is being made directly by MSU. It cannot be used when the employee makes the purchase with personal funds and then seeks reimbursement from MSU.
    2. Online Purchases – The Michigan Sales Tax Certificate of Exemption may only be used for online purchases when using an MSU issued PCard. In those cases when a PCard is being used to make authorized purchases (see Section 271 for PCard policy), it must be the only card on the account or a separate business account (if available) must be set up to ensure that only the MSU purchases are receiving the exemption.

      Example – Amazon
      An Amazon.com business account may be set up as stand-alone account or as an account section within a regular/personal Amazon account. To set up the account, log in to your Amazon account. Go to “Your Account”, “Settings”, and click on “Register for a Business Account”.

      1. Employees may use the same Amazon account for both personal credit card (personal purchases) and PCard (MSU business purchases) provided an Amazon business account is created within the regular/personal Amazon account. MSU’s tax exemption may then be set up on the business account section only.
      2. Employees may open an entirely separate Amazon account for only MSU business. Under this account, MSU’s tax exemption may be set up.
      3. No matter the option selected, the MSU PCard may be included as a payment option ONLY under a stand-alone Amazon business account or under the business account section held within an Amazon regular/personal account.
      4. MSU’s tax exemption may not be present on any Amazon account that is not a business account as described in options 1 and 2.
  2. 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 MSU Agency accounts (sub-fund groups with leading 2 digits of AM, AR and AS) 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 AD023236, object code 4069 for sales tax, and object code 4070 for use tax collected. Prior to EBS implementation a copy of the deposit receipt needed to be sent to Office of the Controller, Hannah Administration Building, 426 Auditorium Road Rm. 305 when use tax was collected. In the new Finance System when the object code of 4070 is used designating use tax collection, sending a copy of the receipt is no longer necessary.

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:

  1. Books, pamphlets, copied/printed materials (including copy machines).
  2. Meals, except to currently enrolled students. (Meals provided to elementary and secondary school students enrolled in MSU summer camps are exempt.)
  3. Concession stand food items to be consumed at or near the premises.
  4. Optical wear.
  5. 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:

  1. Films, audio and video tapes.
  2. Equipment (including sports or recreational equipment).
  3. Lodging and accommodations for 30 days or less in duration.
  4. Telephone service.
  5. Room rentals 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

  1. 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.
  2. 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.
    1. 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".
    2. 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.

    3. 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.

    4. 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).

    5. 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).

    6. 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:

      1. 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
      2. 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.)
  3. 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.
  4. 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

  1. The rate of tax to be assessed on sale or rental transactions is 6% of the sale price or rental charge.
  2. 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. Sales Tax in Other States

  1. Michigan State University as Seller.
    1. Michigan is the only state that Michigan State University is licensed to collect and remit sales tax in.
    2. Sales tax collection and remittance for other states should be evaluated on a case by case basis.
    3. If your department will be physically conducting sales of tangible personal property outside of Michigan (see example below) please contact the University Tax Manager (884-4279). Please allow adequate time, minimum of four weeks, to research the state rules/laws for sales tax before the sales event will occur.

    Example – An MSU department sends an employee to a conference in Seattle, WA where they will be selling MSU t-shirts at the conference. Both the collection of money and exchange of tangible personal property will occur in Seattle, WA.

  2. Michigan State University as Purchaser.

    Whether Michigan State University is exempt from sales tax varies from state to state. Please reference Exhibit 50–F for a breakdown of exemption by state.

X. Questions

Questions regarding the taxability of certain transactions or regarding exemption claims, etc. can be directed to the Office of Financial and Cost Analysis, Hannah Administration Building, 426 Auditorium Road Rm. 394, ph. 355-5029.

XI. Exhibits/Forms