On April 26, 2023, the Michigan Sales and Use Tax Acts were amended to make separately stated delivery and installation costs exempt from sales and use tax. Prior to the passage of Public Acts 20 and 21 of 2023, delivery and installation charges were subject to sales and use taxes if this incurred prior to the transfer of ownership. This was a confusing test for many taxpayers to determine whether tax applies to a transaction. 

What Are Delivery and Installation Charges?

Delivery charges are costs in a transaction associated with the preparation and transportation of tangible items or services.  The Michigan Department of Treasury (the Treasury) uses the terms “delivery charges” and “shipping” interchangeably. In fact, many terms are synonymous with delivery charges – including but 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.  

Taxable Versus Nontaxable

Beginning April 26, 2023, most delivery and installation charges are not subject to sales and use taxes, as long as the seller (i.e., the taxpayer) meets both criteria: 

  • Separately itemizes delivery and installation charges on an invoice to the customer 
  • Keeps books and records that show how the tax levied was calculated for these transactions 

Delivery and installation charges remain subject to sales and use taxes in Michigan if one of following occurs: 

  • It is not billed or recorded in a manner that satisfies both conditions above 
  • The transaction involves the sale of electricity, natural gas or artificial gas by a utility 

Although the exemption is generally not applied retroactively, the Treasury is reviewing open tax assessments and will be cancelling any balances related to tax due, specifically on delivery and installation charges. The Treasury anticipates its review to be completed by July 25, 2023. Taxpayers with unpaid balances related to delivery and installation charges, who have received Notices of Intent to Assess, or have Final Assessments, should contact the Treasury to ensure their account will be included in the review, even if such balances are in an Informal Conference or before a court. 

Moving Forward

With these tax law changes in mind, a customer may request a refund from a seller for tax erroneously charged on delivery or installation fees. The outcome may be: 

  1. The seller declines. Sellers are not required by Michigan law to refund tax to their customer for tax collected on exempt delivery or installation charges. However, if the seller did collect the tax, they must remit it to the Treasury. 
  2. The seller agrees. If the seller refunds the tax charged on delivery or installation charges to the customer, the seller may request a refund from the Treasury. The Treasury will only refund tax remitted if it was in error and if it has been refunded to the customer. 

For the 2023 tax year, exempt delivery or installation charges should be reported on the Sales, Use and Withholding Taxes returns as “other exemptions and/or deductions.” Beginning in tax year 2024, a dedicated deduction line will be available for exempt delivery and installation charges. 

Have questions about the impacts of the change to taxability of delivery and installation charges on your business? Doeren Mayhew’s tax experts are here to assist you – contact us today.