Telecom Sales and Use Tax Exemption Update 2018

The General Sales Tax Act and the Use Tax Act were created in the 1930’s with the purpose to make all tangible personal property taxable in the state of Michigan, regardless if they were acquired in or out of state lines. The tax rate in Michigan for both of these Acts is 6% of the total price of the tangible personal property.

However, in 1999 two amendatory acts were created (205.54v and 205.94q) to provide exemptions from the General Sales Tax Act and the Use Tax Act for central office equipment and wireless equipment. These exemptions state any purchase of tangible personal property located on the premises of the subscriber and to central office equipment or wireless equipment, directly used or consumed in transmitting, receiving, or switching, or in the monitoring of switching of a 2-way interactive communication are exempt 90% of the total use. This 90% exemption was in effect from April 1, 1999 through April 1, 2006, and they had a requirement to review the exemption every 7 years after 2006.

In 2006, the House passed two bills (6277 & 6278) to remove the requirement of reviewing the amendatory acts (205.54v and 205.94q) every seven years. This means the amendatory acts are still in place as of 2018 and will not be reviewed again until further notice.

In summary, as of 2018, telecommunication companies are only required to pay 10% of the sales and use tax 6% rate on the purchase of any machinery and equipment purchased or used for the purpose of transmitting, receiving, switching, or monitoring the switching of a 2-way interactive communication. That is 0.6% of the total price of the tangible personal property.

Please contact Maner Costerisan with any questions related to sales and use tax requirement or exemptions.