Understanding use tax exemption on the transfer of vehicles between relatives and others

  • March 21, 2018
  • David Shindel

Michigan exempts from use tax a transaction or portion of a transaction for the transfer or purchase of any taxable property between certain relatives. Resale and other exemptions available under the use tax act also apply to the equalization tax.

What vehicles are included?

  • Vehicles
  • Off-Road Vehicles (ORVs)
  • Manufactured homes subject to use tax
  • Aircraft
  • Snowmobiles
  • Watercraft

What relatives are exempt?

  • Spouse
  • Parent
  • Sibling
  • Child
  • Grandparent
  • Grandchild
  • Legal ward
  • Legally appointed guardian with certified letter of guardianship
  • Stepparent
  • Stepchild
  • Stepsibling.

Transfers of eligible property made on or after January 1, 2014, to any of the following relations are exempt:

  • Parent-in-law
  • Sibling-in-law
  • Child-in-law
  • Grandparent-in-law.

Examples of nonexempt relationships include transfers to a:

  • Niece or nephew
  • Aunt or uncle
  • Cousin
  • Great-grandparent
  • Great-grandchild
  • Stepgrandparent
  • Stepgrandchild
  • Grandchild-in-law

How do I claim the exemption?

When claiming an exemption from tax on a vehicle, ORV, manufactured home subject to tax, snowmobile, or watercraft transferred between related persons, a transferee is not required to bring supporting documentation to the Secretary of State office. The same is true for transfers of aircraft (for which payments on taxable transactions are made directly to the Department of Treasury). No exemption form or application is necessary. Instead, a party to the transaction may be required to provide documentation in support of an exempt relationship or the value used to compute the tax, if later requested by the Department.

Persons claiming an exempt relationship when registering or titling a vehicle may receive a letter from the Department requesting proof of the exempt relationship. When proof is requested, documentation must be provided or the transaction may be taxed. 16 The types of documents accepted include marriage licenses, birth certificates, and certified letters of guardianship issued by a court.

For more information on this topic, contact a ShindelRock tax professional today.