Understanding “use tax” in Michigan

Credit_Card_Blog_GraphicBusinesses and individuals are probably aware that most retail purchases are subject to sales taxes in states that have a sales tax. But did you know that if the seller did not charge sales tax, you may still be liable to pay it?

Here in Michigan, if you purchase tangible personal property for use in Michigan, you have to either pay sales tax to the seller or pay what’s called a “use tax” to the state.  Most states have similar rules.  The underlying concept is that if you bought the product to be used in Michigan, then you should pay a use tax to Michigan (currently 6%) if a sales tax wasn’t collected from you.  So, if you buy something from the internet and no sales tax is charged, or from a state that doesn’t have a sales tax, and you bring that item into Michigan, then you are responsible for paying use tax to Michigan.  For Michigan residents, the use tax is reported and paid on the annual Michigan income tax return (MI-1040).  For businesses, it is done on the same form as sales tax and payroll withholding taxes.

To add another twist to the issue, businesses that reimburse employees for certain business related expenses are responsible for the use tax if the employee did not pay sales tax and the property is subject to sales tax.  For example, if an employee buys a training guide from Amazon and no sales tax was charged, and then the employer reimburses the employee for that book, the employer is responsible to pay Use Tax to Michigan for that purchase.  This is an area that Michigan state auditors have been examining in their audits.

If you’re an individual or business with specific questions on this issue, contact a ShindelRock tax professional today.