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Legal Services

by Richard D. Weber, J.D.
MDA Legal Counsel
Published in the June 1994 issue of the Journal

Question: Now that the Michigan sales tax has been increased from four percent to six percent, effective May 1, 1994, it has become a greater portion of my overhead expense. What purchases should I be paying sales tax on?

Answer: The sales tax is a privilege tax imposed on anyone engaged in the business of making "sales at retail" of tangible personal property within the state of Michigan, unless the sale is exempt by statute. Sales exempt by statute include sales of goods intended for resale, sales to the federal or state government, sales to nonprofit entities, sales of food (except prepared food for immediate consumption), sales of newspapers and periodicals, sales of artificial limbs and eyes, and prescription drugs. There is no general exemption for dental supplies or equipment.

A "sale at retail" is generally defined as "a transaction by which the ownership of tangible personal property is transferred for consideration, if the transfer is made in the ordinary course of the transferor's business and is made to the transferee for consumption or use, or for any purpose other than for resale." MCLA 205.51(1)(b).

Rule 61 of the Michigan Administrative Code, and Revenue Administrative Bulletin 93-3 state specifically with respect to dentists:

  • Sales of drugs, other than prescription drugs, instruments, equipment and other tangible personal property to dentists for use in rendering professional services or in connection with their office, laboratory or other similar quarters are taxable;
  • Sales by dental supply houses and others to dentists or dental laboratories of materials, supplies and equipment used in the rendition of their services are taxable;
  • Sales by a dental laboratory of tangible personal property in its original form upon which no professional services are performed, such as cement, gold, cleaning preparations, etc., are subject to the sales tax.

However, the Michigan sales tax is imposed only on sellers located in Michigan, and on sales taking place in Michigan. Out-of-state sellers of dental supplies and equipment are, therefore, not subject to the Michigan sales tax if the out-of-state seller does not have any contacts within the state of Michigan. Therefore, you should expect to be invoiced for the Michigan sales tax by all Michigan sellers of dental supplies and equipment, other than prescription drugs.

Certain out-of-state sellers with sufficient contacts to Michigan will also invoice for the Michigan sales tax. You can always ask an out-of-state seller for his/her/its Michigan sales tax license number if you have doubts as to whether the tax should be collected by the seller. Buyers of goods from out-of-state sellers are required by statute to pay the use tax, which is equal to the sales tax. The use tax is discussed in response to the following question.

Question: When will I be liable for the Michigan use tax?

Answer: The use tax is an excise tax imposed on the consumer for the privilege of using, storing or consuming tangible personal property in Michigan. The exemptions to the sales tax listed above also apply to the use tax. In addition, property previously subject to the Michigan sales tax, or another state's sales or use tax, is exempt from Michigan's use tax.

The following persons are required to register their business activities, file use tax returns and collect the use tax from consumers:

  • A person engaged in the business of selling tangible personal property for storage, use, or consumption in Michigan unless he has obtained a sales tax license;
  • An out-of state seller, not registered as a retailer under the General Sales Tax Act, actively soliciting sales of tangible personal property in Michigan;
  • A Michigan consumer buying tangible personal property from non-registered sellers;
  • A lessor of tangible personal property when rental receipts are taxable under the Use Tax Act;
  • A seller of intrastate communication services; or
  • A seller of rental accommodations to the public.

Dentists will be liable for the use tax when purchasing goods in transactions which are not exempt by statute, and when they purchase goods from sellers who are not registered and collecting the sales tax. Typically, these sellers will be located out of state and will not have sufficient contacts with Michigan to register and obtain a sales tax license.


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