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House Minority Leader Matt Hall speaks with reporters after Gov. Gretchen Whitmer’s State of the State address on Jan. 25. Hall helped to negotiate a deal under which the Legislature will exempt delivery and installation charges from the sales tax. House Minority Leader Matt Hall speaks with reporters after Gov. Gretchen Whitmer’s State of the State address on Jan. 25. Hall helped to negotiate a deal under which the Legislature will exempt delivery and installation charges from the sales tax. COURTESY OF MICHIGAN HOUSE REPUBLICANS

Michigan poised to exempt sales tax on delivery, installation services

BY David Eggert, Crain’s Detroit Business Tuesday, March 07, 2023 09:45am

LANSING — Michigan is poised to stop taxing delivery and installation services if they are separately stated on the invoice following a legislative deal to authorize $1.3 billion in new spending.

The agreement will benefit companies and customers that pay an estimated $60 million in sales and use taxes annually on delivery and installation if the fees are “incurred” before buyers take ownership of items.

Supporters say the bills would address confusion within the current tax code and stop what business groups contend are an increasing number of state Department of Treasury audits dinging unwitting furniture businesses and other companies for taxes they did not know were owed.

When delivery and installation charges are invoiced with a purchase, they are subject to the 6 percent tax. If the fees are invoiced separately or covered by a separate contract, they are not taxed, according to the Treasury Department’s 2015 guidance interpreting a 2004 law.

“We’re just trying to kind of settle this once and for all that in Michigan we don’t charge sales or use tax on services,” said Nate Henschel, director of government affairs for the Grand Rapids Area Chamber of Commerce. “From our perspective, it’s not really a (revenue) loss when we feel you really shouldn’t be collecting it in the first place.”

He said the issue has been “a mess for a lot of our members.” It began with the furniture industry, he said, but also has affected aggregates and restaurant-equipment businesses and left accountants and tax preparers seeking clarity.

Business organizations lobbied for similar legislation in the last two-year session to generally exclude delivery and installation fees from the definition of sales price and purchase price. The bipartisan measures were passed by what was then a Republican-controlled House but died in the Senate amid a breakdown in negotiations with Democratic Gov. Gretchen Whitmer in December.

Last week, Democrats who now control the Legislature agreed to advance the bills in exchange for some Republicans helping to pass the spending bill, which includes $630 million to prepare the site of Ford Motor Co.’s $3.5 billion, 2,500-job electric vehicle battery factory in Marshall. The deal also will extend a tax exemption for industrial processing to aggregates and expand the 11-member Michigan Strategic Fund Board to include two gubernatorial appointees nominated by the House and Senate minority leaders, said Jeremiah Ward, spokesperson for House Minority Leader Matt Hall, a Republican.

“We’re going to be taking up other bills as we go along,” Democratic House Speaker Joe Tate said when asked to confirm the agreement.

The Treasury Department, which says delivery has been taxable since at least 1979 and installation since 2004, opposed the legislation last term, primarily due to the budget impact. An official told the House Tax Policy Committee in 2021 that while services generally are not taxed, delivery and installation are not “taxable services because we don’t tax it as a standalone service. It only gets taxed when it is part of the sale of the property.”

“Sales and use tax on installation and delivery isn’t a new policy,” Treasury spokesperson Ron Leix said Monday. “It has been a part of state law for some time — and even upheld by the court system. We understand that there are some who would like to have installation and delivery exempted from taxes. As this topic goes through the legislative process, we look forward to thoughtful and deliberative discussions with our legislative and business partners.”

Michigan’s policy has been criticized as not making sense. Critics say it should not matter for tax purposes if someone requests delivery and installation at the point of sale or waits to add it later or hires a third-party installer.

“Treasury and stakeholders disagree on what statute allows,” said Leah Robinson, director of legislative affairs and leadership programming at the Michigan Chamber of Commerce.

She said businesses want to be in compliance and not circumvent the law if delivery and installation are subject to taxation, “but services should have never been taxed in general.”

A Whitmer spokesperson said she is open to changes.

“We will continue to find common ground with lawmakers on both sides of the aisle, and expect additional tax cuts to be an area where we get bipartisan support,” Bobby Leddy said.

From Crain’s Detroit Business.

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