RAB 2002-11. This Revenue Administrative Bulletin
(RAB) replaces RAB 1993-07. The discussion is limited to charges for
delivery directly by the seller or delivery by a contract carrier. Delivery
by common carrier or postal service is not discussed.
Background
The Michigan Sales Tax Act [MCL 205.52(l)] provides that
“there shall be collected from all persons engaged in the business of making
sales at retail . . . an annual tax for the privilege of engaging in that
business equal to 6% of the gross proceeds . . . .”
“Gross proceeds” is defined in MCL 205.51(l)(i) as “the
amount received in money, credits, subsidies, property, or other money's
worth in consideration of a sale at retail within this state, without a
deduction for the cost of the property sold, the cost of material used, the
cost of labor or service purchased . . . . or other expenses.”
Department of Treasury Sales and Use Tax Rule, 1979 AC, R
205.124, states:
“For the
purpose of computing the tax, no deduction is allowable on account of
freight, express, mail, cartage or other transportation or delivery charges
incurred or to be incurred on tangible personal property prior to completion
of transfer of ownership of such property from the seller to the purchaser
for use or consumption. It is immaterial whether such transportation charges
are billed separately or whether they are paid by the seller or the
purchaser.”
In Natural Aggregates Corp v Michigan Dep’t of
Treasury, 133 Mich App 441; 350 NW2d 272 (1984); lv den 419 Mich 949
(1984), the Michigan Court of Appeals held that certain delivery charges
were not taxable because the retailer was engaged simultaneously in a
non-taxable business (i.e., delivery). The court characterized the delivery
as a transaction separate from the sale, both conceptually and temporally.
The court noted that the purchase price of the tangible personal property
(i.e.., sand and gravel) was the same for all customers regardless of the
delivery method.
Customers who used the retailer's delivery service
negotiated and contracted separately for the service and paid a separate
price. The trucking charges were not a cost used to calculate the gross
price of the product. The delivery charge was not an incidental cost of the
purchase price, running between five and six times the amount of the
purchase price. Construing MCL 205.52(2); MSA 7.522, the court held that the
retailer's delivery service was “some other kind of business” not taxable
under the act.
In Margaret H James Ltd v Michigan Department
of Treasury, Court of Appeals unpublished Opinion No. 132896 (June 26,
1992), the Court of Appeals cited Natural Aggregates supra and
further explained the statute's definition of “some other kind of business.”
The court concluded that a delivery service is a separate business when
delivery charges are at the market rate and the records from this business
show a net profit. These facts indicated that the delivery service was
operating as a separate commercial endeavor.
Department of Treasury's Position
When determining the taxability of delivery charges, the
Department considers all of the facts and circumstances surrounding the
retailer's business activities.
A retailer will be deemed simultaneously engaged in a
separate delivery service business that is not taxable if all of the
following conditions are met:
- The customer has the option to either pick up or have
the merchandise delivered (thus, the delivery service is not always
necessary to complete the transfer of tangible personal property or the
performance of the transaction);
