Taxing Deliveries and Installations in Michigan
- Sales Tax News
- Oct 6, 2015 | Gail Cole
It can be tricky to determine how sales tax applies to installation and delivery charges. Some states tend to tax both, some tend to exempt both, and in some states taxability varies depending on the circumstances. For example, deliveries made by common carrier are subject to Missouri sales tax provided the delivery is an expected part of the transaction. And in Colorado, taxability of food delivery services depends on the customer’s free will.
The Michigan Department of Treasury has recently updated a bulletin on the sales tax treatment of delivery and installation services provided by retailers. It reminds that under the General Sales Tax Act, delivery charges are defined as “charges by the seller for preparation and delivery to a location designated by the purchaser of tangible personal property or services.”
“Delivery charges include, but are not limited to, transportation, shipping, postage, handling, crating, and packing. Delivery charges do not include the charges for delivery of direct mail if the charges are separately stated on an invoice or similar billing document given to the purchaser.”
The bulletin also explains which factors are used to determine the taxability of delivery and installation charges, and how tax applies to single deliveries containing both taxable and exempt goods.
What factors will be considered to determine if delivery or installation charges are taxable?
In Michigan, sales tax applies to delivery and installation charges applied before the transfer of ownership occurs. When delivery and installation occurs after ownership has transferred to the buyer, delivery and installation charges are exempt.
However, it is not always easy to determine exactly when the transfer of ownership takes place. When there is doubt, the department considers all aspects of the sale, including but not limited to the following:
- Does the customer have the option to pick up the property or have it delivered (à la Colorado question of free will)?
- Are delivery or installation charges separately negotiated and “contracted for on a competitive basis?”
- Are delivery or installation charges separately invoiced?
- Do the seller’s records “separately identify the transactions used to determine the tax on the sale at retail?”
- Are delivery and installation services a separate commercial endeavor (not related to the retail business and subject to its own profits)?
- When does the risk of loss transfer to the buyer?
- When does the title of the property pass to the buyer?
What is the tax treatment of single deliveries containing both taxable and exempt goods?
Michigan does not tax the delivery or installation of tax-exempt goods. When a single delivery contains both taxable and exempt goods, taxability is determined by the following:
- A percentage based on the total sales price of the taxable property compared to the total sales price of all property in the delivery.
- A percentage based on the total weight of the taxable property compared to the total weight of all property in the delivery.
The Michigan Department of Treasury bulletin provides numerous examples to further illustrate how sales tax applies to deliveries and installation services.
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