Guide to Services Subject to Michigan Sales and Use Tax, December 2007

Report Lists 488 Services Included in Tax; Offers Advice for Compliance

Anderson Economic Group has released a comprehensive guide that identifes all of the services on which the Michigan sales and use tax will be extended. The tax  took effect on December 1, 2007, only to be repealed later that day.

One of the most confusing aspects of the tax is that it uses industrial classifications (NAICS codes) to identify taxable services. These classifications, by definition, describe industries and not individual services. However, businesses rarely restrict their operations to the confines of an industry definition, so businesses that associate with a taxable industry category are likely to also provide services that are non taxable.

For example, a car wash may provide vehicle upholstery cleaning services in addition to exterior washing and waxing. While car washing and waxing services are seemingly not subject to the tax, upholstery cleaning clearly is, thus subjecting the car wash and its customers to a sales and use tax on the upholstery cleaning service. Situations like this make the tax very confusing.

“We’ve heard from a number of businesses that don’t know where to begin when it comes to this new tax” said Scott Watkins, a consultant with Anderson Economic Group and the author of the guide. “Compliance is a major concern, so we’ve assembled this guide to clarify what is, and what isn’t, taxed.”

“In doing so we found not only that the tax applies to many more services than originally thought, but that many services that you think would be taxed really aren’t.” For example - janitorial services are taxable under most circumstances, but not if the cleaning is of a new building interior immediately after construction. Other janitorial and cleaning related service that are not taxable include duct cleaning services, gutter cleaning services, and chimney cleaning services.

About Anderson Economic Group

Anderson Economic Group, LLC, is a research and consulting firm with expertise in economics, policy, finance, and market analysis. The firm has assisted clients including private firms, publicly traded companies, state & local governments, and non-profit organizations throughout the United States, and has offices in East Lansing, Chicago, and Dallas. Recent AEG clients include the State of Ohio, the West Virginia High Technology Consortium, General Motors Corporation, Ford Motor Company, Labatts USA, and Michigan State University.