Information on Michigan's Sales and Use Tax

Yeo & Yeo
November 7, 2007

In early October 2007, the Michigan legislature passed an expansion of the state’s sales and use tax, extending the imposition of the 6.0% tax to selected “discretionary” services effective December 1, 2007. The law references industry definitions from the North American Industry Classification System (NAICS) of 2002 as produced by the United States Office of Management and Budget. A service is subject to the new tax based on the description of that service in the applicable NAICS code, not on the classification of the establishment providing the service.

The Michigan Department of Treasury is charged with and is currently working to define what is and what is not taxable

⎯until this guidance is provided, many questions will remain. In the meantime, a complete listing of the services subject to the new tax can be found on the back side of this summary or at www.michcpa.org. While there is much to clarify about this new law, and many interests are still attempting to repeal or amend it, action may still need to be taken before it becomes effective on December 1, 2007. Listed below are several issues that may not have been addressed by the businesses impacted by the new sales tax along with the answers we have been able to obtain from the law, the Department of Treasury and others.

Q: How do I know if I now have to start collecting Michigan sales or use tax?

A: The Michigan Department of Treasury states that it will update its Web site as more information becomes available, clarifying what services are subject to the tax. We recommend that you do not wait to take action. Visit the Web site referenced above to see if your services are among those “ selected.”

Q: Do I need to update my information with the State of Michigan if I now need to collect sales or use tax for the first time?

A: Yes, you need to update and file Form 518 – Registration for Michigan Taxes adding the new or changed items. You do not need to include items that have not changed.

Q: Can I use the online system on the State of Michigan Web site to update my Form 518?

A: Yes, the online system typically takes significantly less time and you should receive your sales/use tax license in eight to ten business days. Access the start of the registration area at http://www.michigan.gov/taxes (then Business Tax Information) and click on the Online New Business Registration Process link.

Q: While using the online system, how do I tell the State that I am already enrolled for Michigan withholding but now need to collect sales or use tax?

A: You must complete the entire form, adding the new items. To do so, answer “yes” to all new items (i.e., sales or use tax) and “ no” to all other items that you are already registered for (i.e., unemployment or withholding) or that are not applicable.

Q: Does the online e-Registration for Michigan taxes require a signature like the Form 518?

A: The online Form 518 does not require a signature. Just enter the correct information and submit.

Q: Can my accountant file the Form 518 online for me?

A: Yes. Your accountant will need to have all of your relevant business information to complete the form.

Q: How do I report and pay the sales tax collected or use tax incurred?

A: On Michigan Form 160 – Combined Return for Michigan Taxes. This form is used to remit sales tax, use tax, Michigan withholding tax, SBT estimated tax payments and probably the new MBT estimated tax payments.

Q: I have been enrolled for Michigan withholding and have been using a payroll service company. Now that I have to collect sales tax, do I need to do anything differently?

A: If you are going to continue to utilize a separate payroll service provider to process payroll and report your payroll taxes, then you will need to file Form 3683 – Payroll Service Provider Combined Power of Attorney Authorization and Corporate Officer Liability (COL) Certificate for Business. The State of Michigan will issue two “ME” numbers which allow the payroll company to report the withholding on one “ ME” number and for you to use the other “ME” number to report sales, use, and other estimated taxes. One alternative is to allow Yeo & Yeo to assist you with your payroll and accounting needs and manage your Michigan sales, use, withholding and estimated tax payments all on one Form 160.

Q: Is there a place I can go to find out more about Michigan sales and use tax?

A: Yes. General “Sales and Use Tax FAQs” on the State of Michigan Web site http://www.michigan.gov/taxes/0,1607, 7-238-43529-154427--,00.html. Be aware that these FAQs do not address the new sales and use tax on services.

Following is a complete list of the services impacted as (taken from www.michcpa.org ):

• Carpet and upholstery cleaning services, as described in NAICS industry code 56174
• Business service center services, as described in NAICS industry code 56143
• Consulting services, as described in NAICS subsector code 5416
• Investigation, guard and armored car services, as described in NAICS industry code 56161
• Investment advice services, as described in NAICS industry code 52393
• Janitorial services, as described in NAICS industry code 56172
• Landscaping services, as described in NAICS industry code 56173
• Office administration services, as described in NAICS subsector code 5611
• Astrology services
• Baby shoe bronzing services
• Bail bonding services
• Balloon-o-gram services
• Coin-operated blood pressure testing machine services
• Bondsperson services
• Check room services
• Coin-operated personal service machine services
• Comfort station operation services
• Concierge services
• Consumer buying services
• Credit card notification services
• Dating services
• Discount buying services
• Social escort services
• Fortune-telling services
• Genealogical investigation services
• House sitting services
• Social introduction services
• Coin-operated rental locker services
• Numerology services
• Palm reading services
• Party planning services
• Pay telephone services
• Personal fitness trainer services
• Personal shopping services
• Coin-operated photographic machine services
• Phrenology services
• Porter services
• Psychic services
• Rest room operation services
• Shoeshine services
• Singing telegram services
• Wedding chapel services, but not churches
• Wedding planning services
• Other travel and reservation services, as described in NAICS industry code 56159
• Scenic transportation services, as described in NAICS subsector code 487
• Skiing services, as described in NAICS industry code 71392
• Tour operator services, as described in NAICS industry code 56152
• Warehousing and storage services, as described in NAICS subsector code 4931
• Packaging and labeling services, as described in NAICS industry code 56191
• Specialized design services, as described in NAICS industry group code 5414
• Transit and ground passenger transport services, as described in NAICS industry group code 4853
• Courier and messenger services, as described in NAICS subsector code 492
• Personal care services, as described in NAICS industry group code 8121, except hair care services
• Service contract services in which the seller, in exchange for the buyer’s single payment, agrees to provide repair, maintenance, or replacement of one or more items of tangible personal property during a specific period of time, which services the buyer is not required to buy in connection with the purchase of tangible personal property
• Security system services, as described in NAICS industry code 56162
• Document preparation services, as described in NAICS industry code 56141
• Mini-warehouse services and self-storage unit services, as described in NAICS industry code 53113

Related Links: Visit Yeo & Yeo's Website for Updates on this issue