Michigan’s Changes Taxability of Delivery and Installation Charges
As of September 11, 2023, the Michigan Department of Treasury has updated its guidance on the taxability of delivery and installation charges in Michigan. Previously, delivery and installation charges were usually taxable, but now an exemption may apply.
What are delivery and installation charges?
Delivery charges are the fees that a seller charges for preparing and delivering the property to the buyer’s location. They include transportation, shipping, postage, handling, crating, and packing costs.
Installation charges are the fees that a seller charges for setting up the property for use or service at the buyer’s location. For example, assembling and arranging furniture or appliances.
When are delivery and installation charges exempt from sales tax in Michigan?
Before April 26, 2023, delivery and installation charges were generally taxable under Michigan’s General Sales Tax Act (GSTA) and Use Tax Act (UTA), unless they were incurred after the transfer of ownership of the property or were separately contracted.
However, after April 26, 2023, the GSTA and the UTA were amended to exclude delivery and installation charges from the tax base if two conditions were met:
- The charges are separately stated on the invoice, bill of sale, or similar document given to the buyer.
- The seller maintains its books and records to show separately the transactions used to determine the tax.
This means that if a seller clearly shows the delivery and installation charges on the document given to the buyer and in its own records, those charges are not subject to sales or use tax.
Are there any exceptions to Michigan’s exemption for delivery and installation charges?
Yes, there are some exceptions to the general rule:
The first exception involves shipments that include a combination of taxable and exempt items. If a shipment contains both taxable and exempt items and the delivery charge is not separately stated, the tax base includes the part of the delivery charges that is attributable to the taxable items. To calculate this part of the delivery charges, there are two methods available: allocating by sales price and allocating by weight.
The second exception to Michigan’s exemption affects utility companies. Businesses that supply electricity, natural gas, or artificial gas must include delivery charges, such as transmission and distribution charges, in the tax base (and therefore tax them), regardless of how they are stated on the bills or in the records.
Michigan Provides Tax Relief for Past Assessments on Delivery and Installation Charges
The new tax laws offer some relief to taxpayers who have been assessed or audited by the Treasury for delivery and installation charges before the effective date. The Treasury must cancel any outstanding balances on notices of intent to assess or final assessments issued before April 26, 2023, and cannot issue any new assessments for periods before that date.
However, the new tax laws do not require the Treasury to issue refunds of tax paid for periods before the effective date, unless there is another legal basis for the refund.
How can I learn more?
If you have any questions or need more information about the new tax laws, you can visit the Michigan Treasury’s website or contact the Treasury’s Customer Contact Line at 517-636-6925. You can also read the Revenue Administrative Bulletin 2023-16, which provides more details and examples on the taxability of delivery and installation charges.