Michigan Administrative Code › Department - Treasury › Bureau of Tax & Economic Policy › General Sales and Use Tax Rules › GENERAL SALES AND USE TAX RULES › Section R. 205.22 - Discounts, coupons, and rebates generally; discounts on certain motor vehicle sales

Current through Vol. 24-12, July 15, 2024
Rule 22.
(1)
				  Except as provided in subrule (2) of this rule, trade, quantity, or other
				  discounts given directly by a seller to a purchaser are deductible in arriving
				  at the net sales price subject to tax. These discounts are not deductible until
				  the actual discount has been given to the purchaser. For discounts offered
				  directly by a seller after the time of sale, through the mail or other means,
				  the purchaser may seek a refund of the sales tax paid on the discount or rebate
				  amount from the seller if the seller collected the tax from the purchaser. The
				  seller may request a refund from the department of treasury after the seller
				  has refunded the tax to its customer. The discounts must appear on the
				  invoices, records, and accounts of the seller and be substantiated to the
				  satisfaction of the department of treasury.
Example 1: ABC is a retailer that sells widgets for a sales
					 price of $10.00 each. ABC offers a quantity discount of $2.00 per widget if the
					 customer purchases 10 widgets. Customer purchases 10 widgets at a sales price
					 of $80.00. The taxable sales price of the widgets is $80.00.
Example 2: ABC is a retailer that sells musical
					 instruments. ABC sells a baby grand piano to a customer for a sales price of
					 $25,000.00. ABC's contract with the customer provides that if the customer pays
					 $20,000.00 within 60 days, ABC must reduce the price of the piano to
					 $20,000.00. The customer pays in 59 days. The taxable sales price of the
					 property is $20,000.00. However, when the sale is first reported by ABC it must
					 include gross proceeds of $25,000.00 on its return and remit the appropriate
					 tax. If ABC collected tax from the customer on the $5,000.00 discount, ABC
					 shall refund its customer before taking a credit or seeking a refund.
(2) A discount or rebate does not
				  reduce the taxable sales price of a sale at retail and is subject to tax, if
				  all the following conditions are met:
(a) The
				  seller receives consideration from a person other than the purchaser, for
				  example, from a manufacturer, and the consideration is directly related to the
				  price reduction or discount.
(b)
				  The seller is obligated to pass the price reduction or discount through to the
				  purchaser.
(c) The amount of the
				  consideration attributable to the sale is fixed and determinable by the seller
				  at the time of the sale of the item to the purchaser.
(d) One of the following criteria are met:
(i) The purchaser presents documentation to
				  the seller to claim a price reduction or discount granted by a third-party with
				  the understanding that the third-party will reimburse any seller to whom the
				  documentation is presented.
(ii)
				  The purchaser identifies himself or herself as a member of a group or
				  organization entitled to a reduction or discount. Preferred customer cards that
				  are available to any patron do not constitute membership in a group or
				  organization.
(iii) The price
				  reduction or discount is identified as a third-party reduction or discount on
				  the invoice received by the purchaser or on other documentation presented by
				  the purchaser.
Example 3: ABC is a retailer that sells widgets
					 manufactured by XYZ for a sales price of $10.00. XYZ mails manufacturer coupons
					 to the public for $2.00 off per widget. ABC and XYZ have an agreement that XYZ
					 will reimburse ABC $2.00 per widget sold when the coupon is presented. The
					 agreement requires ABC to pass this discount on to its customers. A customer
					 presents XYZ's coupon to ABC and ABC sells the customer a widget for $8.00. The
					 taxable sales price of the widget for purposes of the seller's liability is
					 $10.00. Even though the retailer only charged the purchaser a sales price of
					 $8.00, the seller may collect the full 60 cents from the purchaser to reimburse
					 itself for the sales tax due on the transaction in accordance with section
					 23(1) of the
					 General Sales Tax Act, 1933 PA 167, MCL
					 205.73.
Example 4: XYZ, a non-profit member association and service
					 organization, has agreements with various merchants and service providers under
					 which XYZ's members are entitled to discounts. Membership in XYZ is based on a
					 fee and is not available to the public free of charge. ACME Hotel Group is a
					 merchant that provides its accommodations throughout this state to XYZ members
					 at a discount under such an agreement. Depending on the location within this
					 state, XYZ reimburses ACME Hotel Group in an amount equal to or less than the
					 amount of the discount. At one of ACME Hotel Group's locations, a $100.00 hotel
					 room is rented at a 10% discount to a XYZ member who pays $90.00 with the
					 remaining $10.00 paid to ACME Hotel Group by XYZ. At another ACME Hotel Group
					 location, a $100.00 hotel room is rented at a 10% discount to a XYZ member who
					 pays $90.00 with only $6.00 of the remaining $10.00 paid by XYZ to ACME Hotel
					 Group. ACME Hotel Group absorbs the remaining $4.00 to have the hotel room
					 rented out. Use tax is due on the full consideration paid to ACME Hotel Group
					 by the XYZ member and XYZ. In the first transaction, use tax of $6.00 is due on
					 the consideration received by ACME Hotel Group of the $100.00 purchase price,
					 while in the second transaction, use tax of $5.76 is due on the consideration
					 of $96.00 received by ACME Hotel Group.