Sales tax on invoices in Michigan

In Michigan, a contractor who builds, alters, repairs or improves real estate for others pays sales or use tax on its materials and charges its customer no sales tax. It can recover that tax in its price, but it may not break the tax out on the bill as if it were billing sales tax.

Sales tax license: retailers need one, contractors don’t

Michigan sales tax is remitted by retailers, the individuals or businesses that sell tangible personal property to the final consumer, and each needs a Michigan sales tax license. The license is free and issued every year, valid from January to December. Register through Michigan Treasury Online (MTO) or on Form 518, Registration for Michigan Taxes.

Contractors and subcontractors don’t need the license, because Treasury treats them as the final consumers of the materials they affix to real property. A contractor that also sells at retail does, as below.

Contractors are consumers under RAB 2025-18

Treasury’s Revenue Administrative Bulletin 2025-18 makes a contractor who constructs, alters, repairs or improves the real estate of others the consumer of what it uses: it pays sales or use tax on its equipment, supplies and materials, including materials affixed to and made a structural part of Michigan real estate. Having paid that tax, a Michigan contractor may not charge sales or use tax directly to its customer, but it may include the tax in the total contract price as an overhead cost.

Treasury’s Construction FAQ counts a landscaper as a contractor: it pays tax on the materials, equipment and supplies used to fulfill the contract and charges its customers no sales tax, though it may include the tax in its cost.

Exempt projects: only the bulletin’s list

The contractor exemption for property affixed to or made a structural part of real estate applies only in the ten cases RAB 2025-18 lists, such as nonprofit hospitals, qualified nonprofit housing, church sanctuaries and qualified data centers. To claim any of them except the brownfield exemption, which has its own form, the contractor gives its supplier an exemption certificate, or other identifying information and the reason, and should also provide Form 3520, the Contractor Eligibility Statement, with the property owner’s information.

• Other exemption claims don’t reach affixed property. When your customer gives you any other exemption claim, such as the industrial processing exemption or a direct pay authorization, you still owe use tax on the property you affix to its real estate.
• An owner’s signed Form 3520 isn’t a shield. If an audit or anything else shows some of the property doesn’t qualify, you owe use tax on it as its consumer.

When a Michigan contractor acts as a retailer

A contractor makes a retail sale when it sells building materials or other tangible personal property over the counter. It also makes one when, on a construction contract, it sells property that isn’t consumed, affixed to or made a structural part of the real estate and stays tangible personal property; Treasury’s likeliest examples, depending on the facts, include free-standing appliances and window unit air conditioners. On those sales it owes sales tax, may charge it to the customer, and must be licensed under the General Sales Tax Act, unless it is registered under the Streamlined Sales and Use Tax Agreement and not otherwise required to hold a Michigan license.

Services: certain ones carry use tax in Michigan

Michigan’s sales tax is on retail sales of tangible personal property, and Treasury notes that use tax also applies to certain services, such as telecommunications and hotel or motel accommodations. A business that repairs, improves or alters other people’s tangible personal property and also sells property needs a sales tax license, and any property that goes with the customer in connection with the repair is a retail sale, subject to sales tax.

Tax line on a Michigan invoice

• Real estate work: no tax line. Treasury’s Construction FAQ says contractors don’t charge sales tax to their customers and may not break out the tax as though sales tax were being billed. You can bill all the costs of the contract, including the tax you paid, as part of your price: that tax is a cost of doing business. The exceptions are the retail sales below and a contractor that consistently holds itself out to the public as a retailer: RAB 2025-18 says such a contractor collects and remits sales tax on the sales price of the property, and owes the difference if that comes to less than the tax on its purchases for its contracts.
• Retail sales: tax may be added. Section 23 of the General Sales Tax Act (MCL 205.73) lets a retailer add the tax to the sale price, computed to the third decimal place and rounded to a whole cent: up when the third decimal is greater than 4, down when it’s 4 or less. A retailer may not advertise or hold out to the public that the tax isn’t an element of the price to the consumer.
• Delivery and installation of goods you sell. Most delivery and installation charges aren’t subject to sales and use tax when you itemize them separately on the invoice and keep records showing how you calculated the tax; a utility’s sale of electricity or gas is the exception. Left inside the item’s price, they’re part of its taxable sales price.

No local sales tax in Michigan

Michigan has no city, local or county sales tax and doesn’t allow local units to impose one, so a Michigan invoice has no local rate to add to the state rate on this page.