Michigan Sales Tax Guide
Chapter 8: Understanding Michigan sales tax rules for shipping & handling
Businesses in Michigan are required to charge a 6 percent sales tax on all purchases made in the state. Since online shopping has become more popular, more of the state’s purchases must now be shipped or delivered, adding to sales tax complications.
In some states, shipping and handling can be charged tax-free as long as the cost is itemized. However, in Michigan, shipping is subject to sales tax in many instances.Is Shipping Taxable in Michigan?
When a Michigan business ships items to customers via a common carrier or the post office, delivery charges are not subject to sales tax as long as ownership of the property has already been transferred to the customer. If the purchase is already made at the time of delivery, the seller must pay sales tax on the delivery charges. The state makes no concessions for tax-exempt items being shipped.
Michigan businesses that deliver items themselves are required to pay sales tax on shipping and handling charges, but this has one major exception. If a business is engaged in a separate delivery business, delivery charges are tax exempt under Michigan state law. This came about as a result of a lawsuit in which a delivery business was ruled as exempt from sales tax on deliveries because it was involved in tax-exempt delivery services for other businesses.Handling and Out-of-State Sales
In Michigan, handling charges are taxable and should be included in the sales price. Only the cost to deliver the goods to the customer can be exempted from sales tax. The shipping charge must be separated out from handling, as well as the cost of the goods, to be exempt. If they’re combined with the cost of the items being purchased, sales tax must be paid on the entire amount.
Starting on October 1, 2015, any out-of-state business that has nexus in Michigan is now required to pay sales tax on purchases made in the state in accordance with existing laws. This means any business with a warehouse, distribution center, independent agents, office, or other relevant presence in the state must register with the Department of Treasury and begin remitting taxes on all purchases made.Things To Look Out For
According to Michigan Department of Treasury staff, the most common question is whether shipping charges are taxable. Taxpayers also want to know why shipping is taxable, since it isn’t a service. The department’s response to that question is that businesses that specialize in delivery aren’t taxed, since they are providing a service. However, when a business issues a shipping charge in connection with selling a product to a customer, those charges are generally subject to sales tax.
“Delivery charges are defined in Sec. 1a(e) (MCL 205.51a) to mean charges by the seller for preparation and delivery to a location designated by the purchaser of tangible personal property,” the department states. “Delivery charges include, but are not limited to, transportation, shipping, postage, handling, crating, and packing. Therefore, when a Michigan retailer bills a customer for the merchandise plus the shipping or freight costs, the total amount is subject to Michigan tax.”
If a business is delivering an item itself, the delivery charge will likely be subject to Michigan sales tax. However, if a third-party carrier delivers the item, the delivery itself is seen as a service and sales tax need not be paid on that part of the transaction.