Most purchases made by the University are exempt from sales tax. However, taxable property and taxable services sold by the University are subject to sales tax unless the purchaser is exempt from sales tax. This means that University departments must charge sales tax when making sales of taxable items.
Many people have the misconception that because the University is a tax-exempt organization, they do not have to be concerned about sales tax. However, since we must charge sales tax on sales, we need to be aware of what items are taxable and the appropriate tax rate that applies to the sales.
Because the University sells tangible personal property to final consumers, it is required to remit a 6% sales tax on taxable retail sales. The tax is paid to the State of Michigan since state law prohibits city or local units from imposing sales or use taxes.
State law requires the collection of a 6% use tax when property is rented to non-exempt entities and sales tax was not paid at the time of acquisition. Renters and lessors who did not pay sales tax on property at the time of acquisition must collect and report use tax on rental receipts received from individuals or organizations not otherwise exempt from tax. In these instances, departments must collect and report use tax on rental receipts each time property is rented or leased to non-exempt entities.