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STATE OF MICHIGAN
JOHN ENGLER DEPARTMENT OF TREASURY DOUGLAS B. ROBERTS
GOVERNOR LANSING STATE REASURERT

REVENUE ADMINISTRATIVE BULLETIN 2002-15

Approved: June 10, 2002

SALES AND USE TAX EXEMPTIONS AND REQUIREMENTS

(Replaces Revenue Administrative Bulletin 1996-6 for Periods On or After June 29, 2000)

RAB 2002-15. This Revenue Administrative Bulletin (RAB) describes sales and use tax
exemption claim procedures and formats including the amendments to the General Sales Tax Act
of Public Act 242 of 2000. This RAB addresses exemption claims based on the status of the
purchaser (e.g., exempt entities) and exemption claims based on the use of the acquired property
or specified service (e.g., industrial processing). This RAB does not cover exemption claims that
are based solely on the type of product being sold (e.g., non-prepared food or prescription drugs
for human use).

This RAB replaces RAB 1996-6 in its entirety for periods on or after June 29, 2000. This RAB
reflects the new definition of “good faith” and the change from three years to four for the
maximum length of time for which a properly executed blanket exemption is valid.

ISSUES

I. How are exemptions claimed?

II. What is a valid form of exemption certificate?

III. What documents or tax exemption numbers must a seller obtain to adequately document
an exempt sale?

IV. Under what conditions may purchase orders be used as a substitute for a Certificate of
Exemption?

V. What good faith standard must a seller meet in making an exempt sale?

VI. How long must a taxpayer retain a Certificate of Exemption and supporting
documentation?

VII. What are some of the most common status-based or use-based claims for exemption?

TREASURY BUILDING 430?WEST ALLEGAN STREET LANSING,?MICHIGAN 48922
www.michigan.gov/treasury (517)?373-3200

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RAB 2002-15
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CONCLUSIONS

I. Beginning June 29, 2000, a purchaser shall claim a single purchase exemption by
delivering to the seller a completed Certificate of Exemption as described in Section II of
this RAB. For a multiple purchase exemption, the purchaser shall deliver a completed
blanket Certificate of Exemption described in Section II of this RAB. A blanket
Certificate of Exemption remains in effect for the following four-year period unless the
buyer and seller indicate on the certificate or otherwise in writing that a period of less
than four years will apply. For rules governing periods prior to June 29, 2000, refer to
RAB 1996-6.

II. The Department’s prescribed form for the Certificate of Exemption is included in this
RAB. The purchaser shall complete all four sections of the exemption certificate to
establish a valid exemption claim. In lieu of the Certificate of Exemption, the purchaser
shall use: 1) any exemption certificate format contained in a current Sales and Use Tax
Administrative rule; 2) the Uniform Sales and Use Tax Certificate approved by the
Multistate Tax Commission; or, 3) a purchase order issued by the purchaser meeting all
of the requirements set forth in Paragraph IV of this RAB as set forth below; 4) an
exemption form approved by the Department that contains the same information found in
all sections of the Department’s Certificate of Exemption. Only these items constitute a
valid “Certificate of Exemption.”

III. The Department issues sales tax license numbers to retail sellers which document a
purchaser’s ability to purchase items exempt under a claim of “for resale at retail.” The
Department also issues use tax registration numbers to lessors who elect to pay use tax on
rental receipts rather than sales tax on the price of the property acquired for rental. When
a purchaser claims an exemption based on an election to pay use tax on rental receipts or
claims that the purchase is for “resale at retail,” the seller is required to obtain the
purchaser’s sales or use tax number. In all other instances, sellers need not require a
number as evidence of a purchaser’s ability to claim exemption from sales and use taxes.

Some entitlements for statutory sales and use tax exemptions are evidenced by specified
documents such as an Internal Revenue Service letter in the case of a nonprofit tax-
exempt entity. In these cases, the seller shall obtain the specified document and retain it
to substantiate the claim of exemption.

IV. A purchase order that contains all of the information and attachments described in
Section II of this RAB is a valid exemption certificate for single purchases. Purchase
orders intended to serve as a blanket Certificate of Exemption for multiple purchases
must expressly state that intention on the purchase order. Purchase orders do not
terminate a previously issued blanket Certificate of Exemption unless the purchase order
makes specific reference to the date of the blanket Certificate of Exemption and states
what was covered in the certificate it intends to terminate.

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RAB 2002-15
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V. A seller must meet a “good faith” standard required by law. Effective June 29, 2000,
“good faith” means that the seller received a completed and signed Certificate of
Exemption from the purchaser. Exemptions will not be recognized without a properly
completed Certificate of Exemption. For rules governing periods prior to June 29, 2000,
refer to RAB 1996-6.

VI. Sellers shall retain exemption certificates for a period of not less than four years from the
date of the last sale the exemption certificate applies to. Do not send the exemption
certificates to the Department unless requested by the Department in writing .

VII. The more common exemptions are listed on the Certificate of Exemption and are briefly
discussed in this Section. Exemptions not listed on the Certificate of Exemption shall be
entered on the line titled “Other (explain).”

The more common exemptions are as follows:

a) Sales for Resale. Section 2 of the General Sales Tax Act [MCL 205.52] imposes
sales tax only upon sales at retail. Sales of property intended for resale are not sales
at retail and are exempt.

Claims for exemption by retailers acquiring property for subsequent sale at retail shall
state the claim for exemption as “for resale at retail.” Retailers in Michigan are issued
sales tax license numbers that must be included on the exemption form . If a retailer is
not required to have a Michigan sales tax license number, it may include its home
state’s or country’s sales tax license number on the exemption form in lieu of the
Michigan sales tax license number.

Wholesalers that make no retail sales are not licensed with the Department and are
not issued sales tax license numbers. Wholesalers buying for resale should indicate
“for resale at wholesale” on the Certificate of Exemption.

b) Sales to Agricultural Producers. Section 4a(1)(e) of the General Sales Tax Act [MCL
205.54a(1)(e)] and Section 4(1)(f) of the Use Tax Act [MCL 205.94(1)(f)] provide
exemption for the sale of tangible personal property to the extent that the property is
used or consumed in connection with the production of qualified agricultural or
horticultural pursuits as a business enterprise. No sales tax number is required to
support this exemption claim but the exemption certificate shall contain a brief
statement of the intended use of the purchased item(s).

c) Sales to Industrial Processors. Section 4t of the General Sales Tax Act [MCL
205.54t] and Section 4(g) of the Use Tax Act [MCL 205.94(o)] exempt sales of
tangible personal property for use or consumption in “industrial processing” to the
extent the purchased items are used for such purpose. Industrial processing means the
activity of converting or conditioning tangible personal property by changing the
form, composition, quality, combination, or character of the property for ultimate sale

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                                                                            RAB 2002-15
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   at retail or for use in the manufacturing of a product to be ultimately sold at retail.  In
   addition, specifically enumerated activities and property are also listed as exempt in
   the statute.   No sales tax license number is required to support an industrial
   processing claim. For a more complete discussion of industrial processing see the
   RAB titled, “Sales and Use Tax – Industrial Processing.”

d) Sales to Governmental Entities.    Section 4 of the General Sales Tax Act [MCL
   205.54(7)] and Section 4 of the Use Tax Act [MCL 205.94(1)(g)] provide that sales
   of tangible personal property and selected services to (i) the United States
   government and certain of its agencies and instrumentalities, (ii) the State of
   Michigan and its political subdivisions, departments and institutions, and (iii) the
   American Red Cross and its chapters and branches are not taxable. The seller shall
   document these sales by obtaining a governmental purchase order and the
   governmental entity shall indicate on the Certificate of Exemption that payment is
   from funds of the governmental entity.  Sales to other states or their departments are
   subject to tax.

e) Sales Not for Resale to Nonprofit Schools, Nonprofit Hospitals, and Churches.
   Section 4a(1)(a) and (b) of the General Sales Tax Act [MCL 205.54a(1)(a) and (b)]
   and Section 4(1)(h) and (i) of the Use Tax Act [MCL 205.94(1)(h) and (i)] provide
   that certain sales of tangible personal property and selected services to certain
   nonprofit schools, parent cooperative preschools, nonprofit hospitals, or regularly
   organized churches or houses of religious worship are exempt. The exempt entity
   shall indicate that the entity and not a named employee is the purchaser.  Payment for
   the purchase shall be made with the entity’s funds. For a more complete discussion
   of nonprofit entities see the RAB, titled, “Nonprofit Entities.”

f) Sales Not for Resale to Other Nonprofit Organizations. Section 4q of the General
   Sales Tax Act [MCL 205.54q] and Section 4(1)(y) of the Use Tax Act [MCL
   205.94(1)(y)] provide that certain sales of tangible personal property and selected
   services to organizations described in these sections are exempt from tax to the extent
   that the tangible personal property purchased is used or consumed primarily in
   carrying out the purposes of the institution or agency as stated in the bylaws or
   articles of incorporation of the exempt entity. Exemptions for such sales shall be
   documented as follows:

   1. Health, welfare, educational, cultural arts, charitable, or benevolent
            organizations previously certified as exempt shall complete a Certificate of
            Exemption and shall present to the seller a copy of the “exemption ruling
            letter,” signed by the Administrator of the Sales, Use and Withholding Taxes
            Division of the Department, reissued after June 12, 1994 (sample copy
            attached). The entity and not a named employee shall be indicated as the
            purchaser on the Certificate of Exemption.  Payment for the purchase shall be
            made with entity’s funds.

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                                                                          RAB 2002-15
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2.                 Organizations not previously certified as exempt shall:
                   a) Present a completed Certificate of Exemption indicating “for
                      nonprofit organization exempt from Federal income tax under
                      section 501(c)(3) or 501(c)(4) of the Internal Revenue Code,
                      and
                   b) Include a copy of their Federal exemption letter.  (A two-sided,
                      one page document could be utilized, with one side the
                      exemption certificate, and the other a reproduction of the
                      Federal ruling or determination letter recognizing tax-exempt
                      status), and
                   c) Indicate the entity and not a named employee as the purchaser,
                      and
                   d) Make payment for the purchase with the entity’s funds.

For a complete discussion on nonprofit entities, see the RAB titled “Nonprofit
Entities.”

LAW AND ANALYSIS

Exemptions are strictly construed in favor of the taxing authority and the burden of proving
entitlement to an exemption rests on the party asserting it.  Elias Bros Restaurants Inc v Dep’t of
Treasury, 452 Mich 144, 150 (1996).

Section 17 of the General Sales Tax Act [MCL 205.67] and Section 14 of the Use Tax Act [MCL
205.104] require that taxpayers maintain accurate and complete inventory records as well as all
pertinent documents in a form the Department requires. These sections also provide that if an
exemption from tax is claimed a record shall be kept of the name and address of the person to
whom the sale is made, the date of the sale, the article purchased, the type of exemption claimed,
the amount of the sale, and, if that person has a sales tax license, the sales tax license number.  If
a taxpayer fails to maintain or preserve the records as required, the statute authorizes the
Department to assess the tax due based on the best information available. Such an assessment
shall be deemed correct and the burden to demonstrate that a lesser amount of tax is properly due
is on the taxpayer.

Section 17 of the General Sales Tax Act expressly provides for the use of exemption certificates
to establish claims for exempt sales.

If a taxpayer maintains the records required under this section, and accepts an exemption
certificate from the buyer in good faith on a form prescribed by the Department, the taxpayer is
not liable for collection of the unpaid tax after a finding that the sale did not qualify for
exemption under this act.  Effective June 29, 2000, “good faith” means that the taxpayer received
a completed and signed exemption certificate from the buyer. MCL 205.67. Under prior law,
good faith required that the taxpayer “exercised reasonable care and effort to determine that the
purchaser was entitled to the exemption being claimed.”

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RAB 2002-15
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Generally accurate exemption records shall be generated or on file with the vendor at the time of
sale. The Department administratively allows sellers a reasonable opportunity to supply missing
or misplaced exemption certificates.

Some exemption statutes require the purchaser to receive a specific exemption certificate prior
to purchase. For example,

1. Sales to Water or Air Pollution Control Facilities. "Installed as a component part of a
water [air] pollution control facility for which a tax exemption certificate is issued pursuant
to part 37 [59] of the natural resources and environmental protection act…." [MCL
205.54a(1)(l)].

2. Sales to High Technology Business. "The department has issued a certificate to the
business certifying that the eligible property is used for a high technology activity and the
other requirements of this section are met." [MCL 205.54(l)].

Unlike Section 17 of the General Sales Tax Act, Section 14 of the Use Tax Act does not
expressly provide for the use of an exemption certificate. Section 14 does, however, provide for
retention of “all pertinent documents in a form the department may require.” This statutory
language supports the use of exemption certificates, and where a taxpayer meets the “good faith”
requirement by receiving a completed and signed exemption certificate, the taxpayer is not liable
if the transaction is subsequently determined to be taxable.

OBTAINING ADDITIONAL INFORMATION

For questions related to this RAB, please call Customer Contact Division, Sales and Use Tax
Unit at (517) 636-4730.

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                                                                                                                                                         CLEAR FORM

Michigan Department of Treasury, SUW                                                                                                                     Reset Form
3372 (Rev. 11-01)

Michigan Sales and Use Tax Certificate of Exemption

TO BE RETAINED IN THE SELLER’S RECORDS - DO NOT SEND TO TREASURY.
This certificate is invalid unless all four sections are completed by the purchaser.

SECTION 1 - CHECK ONE OF THE FOLLOWING

One time purchase                                        Blanket certificate (Note: A blanket certificate is valid for four years from
                                                         the date of signature unless an earlier expiration date is listed below)
                                                         Expiration date, if less                    than four years: ____________________________.

The purchaser hereby claims exemption on the purchase of tangible personal property and selected services made under

this certificate from ___________________________________________________________________________ and certifies
                                                         (Vendor’s Name)
that this claim is based upon the purchaser’s proposed use of the items or services, or the status of the purchaser.

SECTION 2:  ITEMS COVERED BY THIS CERTIFICATE

All items purchased
Limited to the following items: _________________________________________________________________

SECTION 3:  BASIS FOR EXEMPTION CLAIM

For Resale at Retail - Sales Tax Registration Number: __________________________________
For Resale at Wholesale - No Number Required
For Lease - Use Tax Registration Number: ____________________________________________
Agricultural Production - No Number Required (Describe) _______________________________________________
Industrial Processing - No Number Required
Government Entity,  Nonprofit School,  Nonprofit Hospital,  and Church   (Circle type of organization.)
Nonprofit Internal Revenue Code Section 501(c)(3) and 501(c)(4) Exempt Organizations (Attach copy of IRS
letter ruling).
Nonprofit Organizations with an Exempt letter from the State of Michigan (Attach a copy of State’s letter)
Other (explain): ____________________________________________________________________________

SECTION 4:  CERTIFICATION
I declare, under penalty of perjury, that the information on this certificate is true, that I have consulted the statutes, administrative rules and other
sources of law applicable to my exemption, and that I have exercised reasonable care in assuring that my claim of exemption is valid under Michigan
law. In the event this claim is disallowed, I accept full responsibility for the payment of tax, penalty and any accrued interest, including, if necessary,
reimbursement to the vendor for tax and accrued interest.

Purchaser                                                                              Street Address

Area Code / Telephone No.                                                   City                                              State                         Zip Code

Signature and Title                                                                                  Date Signed

Name (Print or Type)                                                                                                          Social Security No. or FEIN

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