Sales and Use Tax Examples

Also refer to the University Standard Practice Guide Number 502.03 Michigan Sales and Use Tax.

U-M Departments use an online process for reporting sales and use tax collected to the Tax Department. A summary of the online process follows:

(1) Contact the Tax Department at taxreporting@umich.edu for access to the Sales Tax Portal
(2) Collect and deposit the sales or use tax. An appropriate chartfield should be used, which will be offset when the payment is made to the State of Michigan.
(3) At month end, report the sales tax through the Tax Department Sales Tax Portal, located within the Tax section on the Finance website (www.finance.umich.edu). The report must be submitted by the 10th of the month following the month in which the sale was made.
(4) The Tax Department consolidates the sales tax information across all the University units, calculates appropriate penalties and interest for late reports, and remits the sales tax to the State of Michigan.
(5) The tax will be "charged", or offset to the chartfield provided by your unit.

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How do sales and use taxes apply to the University?

Sales and use taxes apply to the University of Michigan in two ways:

(1) As a purchaser
(2) As a seller

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The University as a Purchaser

Is the University subject to sales tax on purchases?

The University of Michigan, as an instrumentality of the State of Michigan, generally is exempt from payment of Michigan sales and use tax on purchases of tangible property and rentals.

To be eligible for the sales tax exemption, the purchase must be:

(1) Made and paid for directly by the University (including a University purchasing card). Typically, if an individual pays for an item, either by cash or personal credit card, the purchase is not exempt from sales tax, even if the individual is later reimbursed by the University; and

(2) Used or consumed in carrying out the purposes of the University.

How does the University obtain sales tax exemption in Michigan?

If the purchase is delivered within Michigan, the vendor will need to be supplied with a Michigan Sales and Use Tax Certificate of Exemption. This document is available online at the Tax Department website. It is typically accompanied by documentation showing the University's tax exempt status, called an IRS determination letter, which is also available online.

Does the University have a tax exempt number?

The State of Michigan does not issue tax exempt numbers to the University. Appropriate exemption is obtained by supplying a certificate of exemption and copy of the IRS 501(c)(3) determination letter. The documents are available online at the Tax Department website.

How does the University obtain sales tax exemption in other states?

When delivery is outside Michigan, states may grant an exemption from sales and use tax on purchases made by the University of Michigan. States that provide exemptions can be identified on the Multistate Sales and Use Tax Exemption Status and Certification online at Tax Department website.

Examples:

A University employee attends a business conference in Florida. Florida exempts the University from sales and use tax. A Florida certificate must be provided to vendors such as the hotel or restaurant to obtain the exemption.

A University unit hosts a conference in Indiana. Indiana exempts the University from sales tax on goods and services only. Purchases of meals and lodging are subject to tax. An Indiana certificate must be provided to vendors to obtain the exemption.

Can I obtain a refund of sales tax if tax was paid in error?

If the University paid sales tax in error, the vendor should be contacted and supplied with the certificate of exemption and IRS 501(c)(3) determination letter.

Are student organizations exempt from sales tax?

Sponsored Student Organizations qualify for exemption from Michigan sales and use tax under the University umbrella. A University purchasing card or check must be used for the transaction.

Voluntary Student Organizations are not exempt from sales and use tax under the University of Michigan exemption. It is possible that the student organization established its own exempt status or is exempt under a parent's exempt status.

Are materials purchased for construction or improvement of a University building subject to sales tax?

Purchase of tangible personal property for construction or improvement of University buildings is subject to Michigan sales tax. There is a narrowly tailored exception for construction of qualified hospitals. Please contact the Tax Department to discuss the requirements and to obtain an exemption certificate for purchases that qualify under the exception.

Are purchases of alcohol subject to sales tax?

Purchases of alcohol for human consumption (beer, wine, liquor, etc.) are subject to sales tax.

Alcohol purchased to carry out the University's exempt purposes, such as medicinal and nonbeverage use (ethyl or industrial alcohol), is not subject to sales tax.

Is the University subject to city or county tax?

Various cities and counties in Michigan may impose taxes, such as excise tax, hotel tax, or convention facility tax. Applicability of the tax varies by municipality and must be reviewed on a case-by-case basis. Please contact the Tax Department to discuss the specific municipality and tax type in question to determine the University's tax status.

Is the University subject to the Michigan State Convention Facility Development (CFD) tax on room charges

Convention hotels and motels located in certain counties (i.e. Wayne, Oakland, and Macomb) levy a CFD tax on room charges. The University is subject to the CFD tax.

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The University as a Seller

Is the University required to charge sales tax on sales of goods or services?

Generally, sales tax applies to sales of tangible personal property to consumers within the State of Michigan. Use tax applies to leases and rentals. The State of Michigan allows an exemption from sales and use tax on certain transactions.

What is the difference between sales tax and use tax?

Sales tax applies to sale of tangible personal property to consumers in the State of Michigan.

Use tax applies to the rental (use) of tangible personal property in the State of Michigan. See Use Tax below for examples of transactions that may be subject to use tax.

What is the Michigan sales tax rate?

The sales and use tax rate in Michigan is 6%.

Do I need a sales tax license?

The University has a Michigan sales tax license that is maintained by the Tax Department and renewed annually. Please contact us in the event you need a copy.

What sales are exempt from tax?

Exempt transactions include the following. Units must secure properly executed certificates of exemption from the purchaser prior to the sale.

(1) Sales for resale.
(2) Sales or rentals for industrial processing or agricultural production.
(3) Sales or rentals outside the State of Michigan.
(4) Sales or rentals to the federal or state governments, including their agencies.
(5) Sales or rentals to qualified non-profit health, welfare, education, charitable and benevolent institutions. Payment for the purchase must move from the funds of the purchasing institution. For example, if an individual makes a purchase on behalf of a non-profit entity, the purchase may not be paid for by a personal check or personal credit card.
(6) Sales of food for human consumption, except for food prepared for immediate consumption. Alcohol beverages are subject to sales tax.
(7) Sales of prescription drugs.
(8) Sales of food to bona fide, enrolled students (by an educational institution not operated for profit).
(9) Sales performed in a non-commercial manner. This exemption is very narrowly tailored. Please contact the Tax Department for assistance in determining if your sales meet this exception. Example: Library photocopy sales made to students that are priced to break even are not taxable.
(10) Sales of bottled water.

How long does the Seller need to retain the Certificate of Exemption from the Purchaser?

Units must secure and retain all properly executed exemption certificates from the purchaser, as required by the sales and use tax law, to support any sales tax exemption. The documents should be retained for six years.

What sales are subject to sales tax?

The following transactions are subject to Michigan sales tax if the sale does not qualify under one of the above exemptions, and the delivery is made within Michigan:

(1) Alcohol - Sale of alcohol is subject to tax.
(2) Accommodations - Rental of rooms for overnight stay is subject to tax unless the following limitations apply:
Room rental is to bona fide, enrolled student
Room rental is to a patient at the University Hospital under medical supervision
Room rental is not open to the general public
Room rental is for a continuous period of more than 1 month
Room rental is not engaged in for purpose of a gain to the University.
(3) Admission to student events - admission to annual student performances are not subject to tax as long as nothing other than the performance is provided (i.e. no food or beverage is provided).
(4) Airline tickets - The University is not exempt from paying U.S. Government Tax and Segment Tax on airline tickets.
(5) Auction items - Auctioned items are subject to sales tax. The fair market value (FMV) of the item is used to compute the tax. Generally, the FMV is the gross proceeds. If a lesser FMV can be ascertained, any excess amount paid may be deemed as a charitable contribution.
(6) Audio Visual - Sale and rental of audio and video recordings are subject to sales or use tax.
(7) Books, magazines and publications - Generally, the sale of books, magazines, newspapers and publications are subject to sales tax. The narrowly tailored exceptions include the following:
Newspapers or periodicals admitted under federal postal laws as second-class mail or as a controlled circulation publication
Newspapers or periodicals of general circulation, established not less than two years and published not less than once a week
(8) Catered meals - Sales of prepared food and drink by a caterer for immediate consumption are subject to tax. (Sales to bona fide, enrolled students and patients of the Hospital are exempt from taxation.)
(9) Clothing - Sale of clothing such as t-shirts and sweatshirts are subject to sales tax.
(10) Employee sales - Sales to employees are taxable.
(11) Food - Generally, food intended for immediate consumption is subject to sales tax. Including the sale of coffee, beverages other than bottled water, doughnuts, and snack items. The sale of food is exempt from taxation in the following situations:
Patients - Meals furnished to patients of the University Hospital are exempt from sales tax. (Meals sold to visitors and employees are subject to taxation.)
Students - Meals sold to bona fide, enrolled students from University facilities are exempt from sales tax if a valid student ID is provided.
(12) Fundraisers - If a fundraiser involves the sale of tangible personal property, the sale is subject to sales tax.
(13) Gift shop sales - Items sold by gift shops are subject to sales tax.
(14) Lodging - See discussion under ‘Accommodations'
(15) Meals - See discussion under ‘Food'
(16) Medical Supplies - Michigan sales tax is applicable to sale of medical supplies. The only exception is for prescription sales.
(17) Medicine -
Nonprescription medications are taxable.
Prescription medications and prescription eyeglasses are not taxable.
(18) Merchandise - Sale of merchandise such as calendars, plants, jewelry, blankets, and CD's are subject to tax.
(19) Online Sales - Sales delivered within Michigan are subject to Michigan sales tax.
(20) Out-of-State Sales -
When a sale is transacted within Michigan, sales shipped from Michigan to out-of-state purchasers are not subject to Michigan sales tax.
When a sale is transacted out of state, the sale may be subject to sales tax. Please contact Tax Resources for further guidance.
(21) Photocopies - Photocopies are not subject to taxation as long as the service is performed in a non-commercial manner.
(22) Photographs, Prints and Enlargements - Sales are subject to taxation.
(23) Shipping, handling and delivery charges - Shipping, handling and delivery charges that are billed to the customer on sales within Michigan are subject to Michigan sales tax when they are incurred prior to transfer of ownership.
(24) Student Organizations -
Sales to Sponsored Student Organizations (SSO) are not taxable.
Sales to Voluntary Student Organizations (VSO) are subject to sales tax.
(25) Surplus property - Sale of surplus property, such as items sold through property disposition, are subject to sales tax.

What is Use Tax?

Use tax applies to rental of tangible personal property (i.e. tent rental, golf cart rental).

Use tax applies to overnight lodging (if available to the general public).

Use tax does not apply to rental of meeting rooms, classrooms, and other facilities unless overnight accommodations are also offered.

Use tax is not applicable to rentals to non-profit entities.

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Sales and Use Tax Examples