The Michigan Department of Treasury has amended the sales and use tax laws as they relate to the taxability of “delivery and installation” charges, making most delivery and installation charges tax-exempt. Beginning April 26, 2023, delivery and installation charges are not to be included in the “sales price” for sales tax purposes or “purchase price” for use tax purposes, if both the following conditions are met:
- The charges are separately stated on the invoice; and
- The seller (taxpayer) maintains its books and records to distinguish the transactions used to determine the sales tax or use tax, as applicable.
Delivery and installation charges remain taxable if:
- The charges are associated with the sales of electricity, natural gas, or artificial gas by a utility or,
- If the charges are billed in a way that does not satisfy the two requirements above.
Delivery charges are defined as costs in a transaction associated with the preparation and transportation of tangible personal items or services. The seller sets this fee, and the purchaser designates the destination. The Department of Treasury uses the terms “delivery charges” and “shipping charges” interchangeably. Delivery charges include but are not limited to handling, postage, freight, crating, and packing.
Installation charges are costs associated with the service of placing or setting up tangible items for use. The seller of the service sets this fee, and the purchaser directs the location of installation.
For tax periods prior to April 26, 2023, taxpayers are not entitled to a refund of tax remitted to Treasury on delivery or installation charges. Similarly, customers who paid tax on delivery or installation charges are not able to seek refunds from sellers or from Treasury for tax periods prior to April 26, 2023.
Moreover, under the statute, Treasury will not issue any new assessments on delivery or installation charges for tax periods before April 26, 2023. In addition, Treasury is identifying and cancelling all outstanding balances related to delivery and installation charges for tax periods before April 26, 2023. This review is scheduled to be completed by July 25, 2023. Taxpayers with unpaid balances related to delivery or installation charges, including those that have received Notices of Intent to Assess or Final Assessments or are in an Informal Conference or on appeal before a court, are encouraged to contact Treasury at Treas-TCB-Technical@michigan.gov.
Treasury will issue a Revenue Administrative Bulletin (RAB) to replace RAB 2015-17 to further address the taxability of delivery and installation charges.
The new statute is in effect immediately, and you should contact your state and local tax specialist at UHY and discuss updating your delivery and installation pricing accordingly to avoid unnecessary taxation.
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