This article was originally featured in Crains Detroit Business
You’d think it would be hard to miss a long-fought-for tax exemption that’s projected to save Michigan companies and customers $60 million a year. But I’m seeing too many business owners and consumers overlook the state legislature’s decision to spare delivery and installation charges from sales and use taxes, thus losing and opportunity for savings..
Blame the seemingly random date the exemption started — April 26, 2023 — or that it shared the legislative limelight with a $630 million spend for Ford Motor Co.’s EV battery factory in Marshall, but if you buy or sell just about any product in Michigan that has a delivery or installation charge attached, Public Acts 20 and 21 of 2023 deserve your attention: Neither charge is subject to sales and use taxes any longer if certain conditions are met. However, the exemption doesn’t apply to transactions involving electricity, natural gas, or artificial gas sold by a utility.
That means the six percent sales and use tax should not be applied to most of the items you purchase, whether it’s a turbine for your factory, a walk-in refrigerator for your restaurant, or a sofa for your home.
Likewise, if you sell an item that requires shipping, delivery, or installation, the same rule applies. But to take advantage of it and stay competitive — and enable your customers to take advantage of it — you must do two things: 1) separately itemize the delivery and installation charges on your customer’s invoice and 2) keep a record that shows how the tax levied was calculated.
If you, the seller, fail to fulfill both requirements, the delivery and installation fees remain subject to sales and use taxes. That will cost your customer more than they should be required to pay and forfeit your business’ advantage over competitors who not only know about the new benefit but also bill and record the tax calculations correctly (i.e., in the same way the invoice did) in their books.
Maybe you aren’t aware of the change. Understandable. Since Gov. Whitmer signed the larger legislative package it was part of last spring, the changes have received very little attention.
However, if you’re a business owner, and your accountant or bookkeeper hasn’t instructed you to invoice your customers in accordance with the new rules, remedy that soon. The same goes if your accounts payable department isn’t ensuring that you’re not paying sales and use taxes on the delivery or installation charges of items purchased from in- or out-of-state vendors.
As part of the remedy, consider that some retroactive relief is available. Treasury has actively been identifying and canceling all outstanding balances related to delivery or installation charges for tax periods before April 26, 2023, in an effort to complete the review by the end of July. If you, the taxpayer, received a Notice of Intent or Final Assessment for unpaid balances related to delivery or installation charges but have not yet received notice of cancellation, reach out to your tax advisor or Treasury ([email protected]) to confirm that the assessment has been canceled. Unfortunately, if you already remitted to Treasury payment for unpaid taxes on delivery or installation charges before April 26, 2023, you are not entitled to a refund.
If you simply don’t think a six percent savings on delivery and installation charges is worth the trouble of itemizing those charges separately from the purchase price and recording it that way in your records and books, please, rethink that now.
I urge you to examine how those savings add up overall. Would you turn down the opportunity to add six percent to your margin on every product you sell, to your revenue, or to your year-end profit? Would you turn down the opportunity to save six percent on every single product you buy for your home or business?
Even on small-ticket items, six percent savings on delivery and use charges is valuable; over time, it adds up.
And even if you don’t see that as a seller (i.e., taxpayer), those savings are meaningful to your customers. It’s a key reason the Manufacturers Association of Michigan, the restaurant and furniture industry and others fought for nearly a decade to make this exemption clear and applicable for all businesses in the state. Don’t let the opportunity to seize a well-deserved competitive advantage pass you by.
Lisa Pohl, JD, is Rehmann’s director of state and local tax. She specializes in identifying tax savings and resolving multi-state tax issues for domestic and international clients. You can reach her at [email protected].