By Dan Schulte, J.D.
MDA Legal Counsel
From the May 2013 issue of the Journal
Question: A couple of years ago I began purchasing all my dental supplies online. I was also able to find a dental lab that could receive electronic copies of work orders and dental records and prepare crowns, bridge work, etc. Well, the state of Michigan has just assessed thousands of dollars in use taxes against my practice. Was I supposed to pay this tax on my online purchases? Why wasn’t sales tax paid by the supply house and dental lab? Can I get the use tax back from them?
Answer: You are very likely liable for payment of the use taxes on these online purchases. Generally, purchasers of tangible personal property in Michigan are required to pay either a sales tax or a use tax on all non-exempt purchases of tangible personal property. Michigan’s sales tax is imposed on the sale of non-exempt personal property and is required to be collected by sellers located in Michigan. Sales tax is usually added to the purchase price paid by the purchaser, collected by the seller, and remitted to the state of Michigan with a sales tax return.
Michigan’s use tax is a companion tax to the sales tax. The use tax is imposed on Michigan purchasers (not sellers) for the privilege of using, storing or consuming tangible personal property (the same items that are subject to sales tax) in Michigan and is the same rate as the sales tax — 6 percent. The exemptions available to the payment of use tax are also the same as those for the sales tax.
The following are specifically subject to sales and use tax:
- 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;
- sales by dental supply houses and others to dentists or dental laboratories of materials, supplies and equipment used in the rendition of their services;
- 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.
Michigan requires a use tax return to be filed and use tax to be paid by purchasers (not sellers) of tangible personal property (which includes the above items when purchased by dentists) when the purchase is made from an out-of-state seller who has not registered under Michigan’s General Sales Tax Act.
This could be the reason you are now being assessed use tax on your online purchases. The Michigan Department of Treasury (similar to what is going on in other states) has been monitoring the advertising of online sellers of tangible personal property subject to use tax. Significant online sales activity without sales or use tax returns being on file from either a seller or any purchaser of the non-exempt tangible personal property leads to investigation. The state of Michigan likely obtained the sales records with the cooperation of the home state of your online seller.
Unfortunately, you alone are liable for payment of the use tax if your seller is out of state without any location or sufficient other physical presence in Michigan. To protect yourself in the future you should ask your seller for a Michigan sales tax license number when making your purchases online. If the seller does not have a number then you know that you must pay a use tax and file a use tax return. In the end, if paid as required it costs you nothing extra because the use tax and sales tax are the same rate. Online purchases will only cost you extra if you have to pay the penalties and interest that will be assessed because you paid use taxes late or not at all.