On April 26, 2023, Governor Whitmer signed Public Acts 20 and 21 of 2023 which alters the way businesses charge sales and use tax. Beginning on April 26, 2023, most delivery and installation charges are not subject to sales and use tax if the seller (taxpayer):
- Separately itemizes delivery and installation charges on an invoice to the customer.
AND
- Keeps books and records that show how the tax levied was calculated for these transactions.
Delivery and installation charges remain subject to sales and use taxes in Michigan if they are not billed or recorded in the manner that satisfies both conditions above or if the transactions involve the sale of electricity, natural gas, or artificial gas by a utility.
The state has provided a few detailed examples here:
https://www.michigan.gov/taxes/business-taxes/delivery-and-installation-charges
There is some relief for assessments on outstanding balances that existed before April 26, 2023 that are impacted by this change.
An example of how this could apply is as follows… A business owner owed $10,000 in sales taxes due to an audit that taxed them on this issue. The state will then review current assessments and see if this issue was part of it. If it is, the state will correct and reduce the assessment by the impact of this law change. We encourage clients that may have sales tax assessments outstanding to review and reach out to see if they may qualify for a reduction.
What Steps Can Businesses Take to Uncover if They Qualify for Potential Sales and Use Tax Relief?
Our team of tax experts recommend taking the following actions to determine if business qualify for relief under the new Act.
- Start by reviewing any outstanding assessments that existed before April 26, 2023.
- Reach out to our team to help so we can contact the state and verify the issue on your behalf.
- Lastly, we encourage a full review of how businesses work up their invoices. There may be flexibility to itemize out the delivery and installation charges or combine them together with the cost of the product.
How Should Businesses Process Invoices to Take Advantage of the New Tax Relief?
We encourage all clients to review their invoicing practices and procedures to potentially help create some tax savings. The combination of costs will create taxability with the proof of internal records that will need to be shown how the product arrived at the installation and delivery costs.
The tax savings will be the sales/use tax rate (currently 6%) times the fees normally charged for installation and delivery over every transaction.
For example:
$5,000 worth of sales transactions over the course of one year, with each transaction charge of $100 for delivery and installation, would equate to a $30,000 savings (5,000 x $100 x 6%). Which in turn would potentially create lower prices for customers.
Or, if there is $1,000 worth of sales transactions, then it would be a $6,000 in savings (1,000 x 100 x 6%).
Get the Answers You Need Around Michigan’s New Sales and Use Tax Act
Maner Costerisan’s tax team is here to help you understand and investigate if your business qualifies for any relief. We can also aid in organizing new invoicing processes with this new Act.
Please reach out to
Matt Latham, CPA, Principal at
mlatham@manercpa.com or
maner@manercpa.com.
