How to Get a Sales and Use Tax Certificate of Exemption in Michigan

If you have recently launched or are planning to launch a business that will sell products or services in Michigan, you’ll want to get a sales and use tax certificate of exemption, or several of them, before you start doing business, as this can save you a lot of time and money. 

This document is known as a resale certificate in most other states and attaining one is a relatively simple process, as detailed in this step-by-step guide. 

What Is a Sales and Use Tax Certificate of Exemption?

If your business has a valid sales and use tax certificate of exemption, you can buy goods from a wholesaler without paying Michigan sales tax, though you may pay a use tax. Depending on the size of your business, this can save you tens of thousands of dollars each year. 

The catch is that whenever you do use a sales and use tax certificate of exemption to purchase goods, you are legally bound to resell those items and collect sales tax when you do so. If you do not resell those items, or fail to collect sales tax, the punishment could be liability for sales tax on the goods as well as penalties and interest. 

Keep in mind, each sales and use tax certificate of exemption, also known as a resale license, applies to a single vendor. This means you’ll need a sales and use tax certificate of exemption for each one of your vendors. 

You cannot use a sales and use tax certificate of exemption to buy items you do not intend to resell, such as a new computer for your business. This would be tax fraud, a felony offense. You are only able to buy items tax-exempt if you are going to collect sales tax on them later.

Not all wholesalers will accept sales and use tax certificates of exemption, nor do they have to. They may choose not to because of the risk of expired or false certificates, which would put the wholesaler on the hook for the sales tax.

How to Apply for a Sales and Use Tax Certificate of Exemption  in Michigan

You’ll need to obtain a sales and use tax certificate of exemption form from the Michigan Department of Treasury. The certificate is not filed with the state. You simply save it in your files and then present it to your vendor. 

In a few states, a seller’s permit, or sales tax permit, also serves as a sales and use tax certificate of exemption that applies to all vendors. But in most states, including Michigan, you’ll need a seller’s permit as well as sales and use tax certificates of exemption for each of your vendors. 

The seller’s permit identifies you with your state as a collector of sales tax. If you sell tangible personal property or goods you are required to have a sales tax permit. In some states, even a service provider like a lawyer is required to have a sales tax permit and collect state sales tax.

The sales and use tax certificate of exemption applies to items that you buy for resale, or for parts that you buy to manufacture something for sale. 

How to Fill out the Michigan Sales and Use Tax Certificate of Exemption

In Michigan, the treasury department handles the issuance of sales and use tax certificates of exemption. Start by visiting the website, then follow these simple steps:

1. The link provided will take you directly to the form.
2. Select whether the certificate is for a one-time purchase or a blanket certificate for a recurring business relationship or a blanket certificate with an expiration date that can be no more than four years.

3. Fill in the seller’s name and address.

4. Select the boxes that apply for the reason for exemption.

5. Certify the form by filling in your business information and signing the form.

Again, the form is not filed with the state. You’ll simply present it to your vendor and keep a copy for your records. 

Does a Sales and Use Tax Certificate of Exemption Expire?

If you chose a blanket certificate with an expiration date, that date applies (maximum four years). A blanket certificate with an expiration should be used when there may be a period of more than 12 months between sales transactions. This option is best when purchaser and seller anticipate more than one exempt transaction before the expiration date but do not have or may not maintain a recurring business relationship

If you chose a blanket certificate for a recurring business relationship, meaning when a period of not more than 12 months elapses between sales transactions between the seller and purchaser, parties do not need to renew this blanket exemption claim as long as the recurring business relationship exists.

It’s best to create calendar reminders so you’re aware when expirations are coming up to ensure you’re able to apply for renewal in time and run your business without interruption. 

Conclusion 

Sales and use tax certificates of exemption can be a bit of a hassle, but in Michigan, they are an absolute necessity. So take the time to get certificates for each of your vendors to ensure full compliance with your state’s tax regulations.