RAB 2002-10. This Revenue Administrative Bulletin
(RAB) replaces RAB 1988-34. The Michigan Department of Treasury has
established the following guidelines for the taxability of drop shipments as
defined in Acts 41 and 42 of the Public Acts of 1986, being MCL 205.54k and
205.94i of the Sales and Use Tax Acts, respectively. These guidelines are
effective March 17, 1986.
A
drop shipment (or third party sale) is a transaction where a retailer seller
accepts an order from an end purchaser/consumer, places this order with a
third party, and directs the third party to ship the tangible personal
property directly to the end purchaser/consumer.
The following examples illustrate the applicability of sales and use taxes
to various drop shipment transactions.
Example 1:
Company A = Michigan Company
Company B = Out-of-state seller
Person C = Michigan purchaser/consumer
Company B takes the order, collects the money and has Company A drop-ship to
Person C. If Company B has a Michigan sales tax license, the tax is
collected and remitted by B on that order from C. [Sales Tax Act, MCL
205.52(l)]
If
Company B is not registered with the Michigan Department of Treasury due to
lack of nexus, Person C shall be liable for the 6% use tax on the purchase
as if it were any other purchase from out-of-state. [Use Tax Act, MCL
205.97]
If
Company B is not required to be licensed to collect sales tax in Michigan,
and it presents Company A with a valid sale for resale exemption
certificate, Company A may be relieved of responsibility for the tax on that
transaction, provided the following requirements are met:
-
Company A retains this certificate for their records [MCL 205.67, Section
17], and
-
Company A supplies the Department of Treasury with an annual information
list or computer tapes containing the following:
-
The name, address and, if readily available, the federal
taxpayer identification number of the out-of-state seller.
-
The name, address and, if readily available, the federal
taxpayer identification number of the person to whom the tangible
personal property is shipped in Michigan.
Example 2:
Company A = Michigan Company
Company B = Michigan Seller
Person C = Out-of-state consumer
This is a sale in
interstate commerce. No tax is due to Michigan if the Michigan company ships
to the out-of-state consumer. [Specific Sales and Use Tax Rules, 1979 AC, R
205.91]
Example 3:
Company A = Out-of-state company
Company B = Out-of-state seller
Person C = Michigan purchaser/consumer
If
Company B is not registered in Michigan for sales and use tax collection,
and no Michigan tax is charged on the transaction, Person C shall be liable
for the 6% use tax on the purchase. [Sales Tax Act, MCL 205.52(l); Use Tax
Act, MCL 205.97]
Example 4:
Company A = Out-of-state company
Company B = Michigan seller
Person C = Michigan purchaser/consumer
If
Company B is responsible for the billing and collecting of the purchase
price, it is responsible for the collection and remittance of sales tax.
Beitzel v Dep’t of Treasury, 2 Mich App 311 (1966).
If
Company B takes the order for Company A, and Company A handles the billings
and collections, it is considered a sale in interstate commerce. If Company
A is not registered to collect and remit sales tax to Michigan, the 6% use
tax shall be due from Person C. If Company B is acting as an authorized
agent for Company A, then Company A shall be determined to have nexus in
Michigan and shall be registered for sales and use tax collection and
remittance. [E C Cords v
Dep’t of Revenue, SBTA Docket No. 573; W E Phillips v Dep’t
of Revenue, SBTA Docket No. 381]
