12 PROPOSED ADMINISTRATIVE RULES

 

SOAHR 2006-060 DEPARTMENT OF TREASURY STATE TREASURER

GENERAL SALES AND USE TAX RULES

 

Filed with the Secretary of State on                            These rules take effect 7 days after filing with the Secretary of State

 

(By authority conferred on the Department of Treasury by section 3 of 1941 PA 122, MCL 205.3).

 

Draft October 10, 2006

 

R 205.56, R 205.72, R 205.126, R 205.127, and R 205.136 of the Michigan Administrative Code are amended as follows:

 

SPECIFIC SALES AND USE TAX RULES

 

R 205.56 Bakeries.

Rule 6. (1) Sales of bakery products for home consumption are exempt, except that sales of bakery products which are “prepared food,” as defined in MCL 205.54g(4),  are taxable.

(2)   Sales of bakery products for immediate consumption are taxable. This includes bakery items sold in conjunction with hot coffee, tea, or milk on a "to go" basis items described in MCL 205.54g(5)(d) are not sales of “prepared food” and are exempt. (See Rule 205.136 “Food for home consumption.”)

(3)   Tangible personal property is taxable, unless that tangible personal property becomes an ingredient or component part used or consumed in the preparation of bakery products produced for sale by a retailer for retail sale.

  (4) The purchase of tangible personal property by a person regularly engaged in the baking business is exempt as a purchase for resale if the item purchased becomes an ingredient or component part of a bakery product produced for sale. (See Rule 205.90--Industrial processing.)

 

R 205.72  Milk dealers and dairy products.

Rule 22. (1) The commercial producingtion of milk for sale, by persons regularly engaged in business as farmers or agriculturists, is covered by Rule set forth in R 205.51. The sale of all  tangible personal property consumed or used directly in such producing prior to shipment from the place  of production is not taxable.

(2)   Sales of tangible personal property consumed or used in the receiving, storage, transportation,  or delivery of milk are taxable. Transportation of milk from the place

where it is produced for sale by persons regularly engaged in business as farmers or agriculturists, as well as the receiving and storage of the milk at the processing plant, is taxable. Processing includes all necessary operations performed on the milk prior to

shipment from the plant. Sales of tools and equipment used directly in the processing of milk or milk products, and lubricants and other materials consumed or used in the repair or maintenance of that

 

 

equipment, are not taxable. Sales of tangible personal property consumed or used in the construction, alteration, repair, or improvement of buildings and grounds are taxable.

(3)   Sales of equipment used or consumed in the transportation or delivery of milk and milk products are taxable, including horses, harnesses, wagons, trucks vehicles, cases, crates, etc., and property used for the maintenance and operation of that equipment.

(4)   Sales of milk bottles and milk cans to dairies for use in processing milk for sale at retail by others, together with including washing machines for the same and cleaning compounds used in connection therewith by such processors, are not subject to tax. Sales of milk bottle crates or cases for transportation, receiving, storage, or delivery are subject to tax. Sales of milk cans to farmers or agriculturists for use in cooling milk prior to shipment to dairies are not taxable.

  (5) Dairy products sold by retailers to consumers for home preparation of meals are not subject to sales tax.

  (6) Sales of prepackaged ice cream or sherbet in pints, quarts, gallons, or larger quantities are exempt  when sold for home consumption. Sales of sundaes, cones, milk shakes, soft drinks, and similar items  sold for immediate consumption, on or off the premises, are taxable.

 

R 205.126  Vending machines and other automatic sales devices.

(2)   The operator of a nonelectric vending machine business, having sales of merchandise wherein the consideration is 10 cents or less, may deduct from the operator's gross proceeds the commissions paid to an exempt nonprofit entity, if the sales are of unsorted nuts, confections, or other merchandise, dispensed at random in substantially equal portions upon insertion of a coin.

(3)   The business operator of a vending machine or other automatic sales device is defined, for the purpose of this rule, as the person who, personally or through an agent, removes the coins or other means of payment from the machines and is responsible for their disposition.

(4)   The business operator of a vending machine or other automatic sales device shall maintain a sales tax license and shall pay the tax to the state on all taxable sales made through every such each machine or device operated by that person.

(5)   It is immaterial whether the business operator owns the machine or the merchandise sold thereby. If merchandise belonging to another is sold, the merchandise shall be considered consigned or entrusted to the control of the business operator for sale. (See Rule , in accordance with R 205.70  “Consignments.”)

(6)   The name, address, and sales tax license number of its current business operator shall appear at all times on every vending machine or other automatic sales device from which tangible personal property is sold.

(7)   Sales or purchases of vending machines and parts, as well as the tools and equipment for the maintenance thereof, are subject to sales or use tax. Machines used in retail vending of tangible personal property cannot qualify as exempt equipment acquired for "industrial processing" purposes.

 

 

R 205.127  Water.

Rule 77. (1) Sales of water when delivered in bottles, containers or in any manner other than through mains, or in bulk tanks in quantities of not less than 500 gallons to a consumer, or as bottled water, are taxable, regardless of the use or purpose of the water, unless exempt under Rule 205.90, "Industrial  processing" or Rule 205.51, "Agricultural producing."

(2) The sale of equipment, tools, machinery, pipes, fittings and supplies to a person for consumption or use in distributing and carrying water is taxable.

 

R 205.136  Food for home human consumption.

Rule 86. (1) Retail sales of food for human consumption normally considered as grocery items for home consumption are tax exempt.

(2)   Alcoholic products, such as beer, wine, and liquor, are taxable.

(3)   Tobacco and tobacco products are taxable.

(4)   Prepared food intended for immediate consumption is taxable. All prepared food and drink items  sold by a restaurant, coffee shop, cafeteria, short order cafe, luncheonette, lunch counter, grill, tea room, take-out food service, drive-in, or similar establishments, are taxable. The following apply:

(a)   Sales of “prepared food,” as defined in MCL 205.54g(4), are taxable.

(b)   Notwithstanding subdivision (a) of this subrule, “prepared food” does not include items as specified in MCL 205.54g(5).

(5)   Eating utensils are “provided by the seller” as follows:

(a)   For a seller with a prepared food sales percentage greater than 75%, eating utensils are “provided by the seller” when the utensils are made available to purchasers.

(b)   For a seller with a prepared food sales percentage of 75% or less, eating utensils are “provided by the seller” if the seller’s practice, as represented by the seller, is to physically give or hand the utensils to purchasers, except that plates, bowls, glasses, or cups necessary for the purchaser to receive the food, for example, dispensed soft drink or milk, or salad bar, need only be made available.

(c)   A seller’s “prepared food sales percentage” at an establishment is a fraction determined by dividing the following described numerator by the following described denominator:

(i)    The numerator shall consist of the seller’s annual sales of all of the following:

(A)  Food sold in a heated state or heated by the seller.

(B)  Two or more food ingredients mixed or combined by the seller for sale as a single item, not including food items specifically excluded in subrule (4)(b) of this rule.

(C)  Food where plates, bowls, glasses or cups are necessary to receive the food, for example, dispensed soft drink or milk, or salad bar.

(ii)    The denominator shall consist of the seller’s total annual sales of all food and food ingredients at the establishment including prepared food, candy, dietary supplements and soft drinks

(iii)    Sales of alcoholic beverages are not included in the numerator or denominator.

(d)   For a seller with a prepared food sales percentage greater than 75% who sells an item that contains 4 or more servings packaged as 1 item sold for a single price, that item does not become prepared food due to the seller having utensils available. The following shall apply:

(i)    If the seller provides utensils for that item as in subdivision (b) of this subrule, then the item is considered prepared food.

(ii)    Whenever available, serving sizes shall be determined based on a label on an item sold. If no label is available, then a seller shall reasonably determine the number of servings in an item.

(e)   When a seller sells a food item that has a utensil placed in the package by a person other than the seller, the following shall apply:

 

 

(i)    If that person’s North American Industry Classification System (NAICS) classification code is that of manufacturer (sector 311), the seller shall not be considered to have provided the utensil except as provided in subdivisions (a), (b), and (d) of this subrule.

(ii)    For any other packager with any other NAICS classification code, for example, sector 722 for caterers, the seller shall be considered to have provided the utensil.

(f)  The prepared food sales percentage shall be calculated by a seller for each tax year or business fiscal year, based on the seller’s data from the prior tax year or business fiscal year, as soon as possible after accounting records are available, but not later than 90 days after the beginning of the seller’s tax year or business fiscal year.

(g)   A single prepared food sales percentage shall be determined annually, for all of the seller’s establishments in this state.

(h)   A new business shall make a good faith estimate of its prepared food sales percentage for its first year. A new business should adjust its good faith estimate prospectively after the first 3 months of operation if actual prepared food sales percentages materially affect the 75% threshold test.

(5)   ) (6) Prepared food sold by various organizations, such as churches or charitable,  benevolent, social,  or  fraternal  groups,  including fund-raising projects, is taxable. Such organizations shall have a    sales tax license for the purpose of reporting the tax due.

(6)   ) (7) Sales of prepared food and drink by a caterer are subject to tax.

(7)   ) (8) Sales of prepared food cooked to the order of the purchaser, or maintained at a temperature higher than normal room temperature, are taxable.

(8) Vending machine sales of tangible personal property are subject to sales tax, except sales of milk, juices, fresh fruit, candy, nuts, chewing gum, cookies, crackers, and chips. If both taxable and exempt merchandise is sold through the same vending machine, sales tax applies on the total gross proceeds from that machine, unless it can be determined and substantiated to the satisfaction of the department that a percentage or other apportionment of sales is equitable and practical.

Candy and confectionery

Carbonated beverages (bottle deposits are exempt) Candied apples

Caramel-coated popcorn Cereal and cereal products Chewing gum (nonmedicated) Chocolate

Cocoa Coconut

Coffee and coffee substitutes Condiments

Cookies Crackers

Dehydrated fruits and vegetables

 

 

Diet food

Dietary supplements Eggs and egg products

Extracts, flavoring as an ingredient of food products Fish and fish products

Flour

Food coloring

Fruit and fruit products Fruit juices

Gelatin Health foods Honey

Ice cream, topping, and novelties Insulin

Jams Jellies Lard

Marshmallows Mayonnaise

Meat and meat products Milk and milk products Mustard

Nuts Oleomargarine Olives

Olive oil Peanut butter Pepper Pickles

Pop (bottle deposits are exempt) Popcorn

Potato chips

Powdered drink mixes (pre-sweetened or natural) Prescription drugs

Relishes

Salad dressings and dressing mixes Salt

Sauces Sherbets Shortenings Soft drinks Soups Spices

Sandwich spreads

Sugar, sugar products, and sugar substitutes Syrups

Tea

Vegetables and vegetable products

 

 

Vegetable juices Vegetable oils Vitamins Water, bottled Yeast

(10)   The following are examples of nonfood items are subject to tax: Alcoholic beverages (containing 0.5% or more of alcohol by volume) Cocktail mixes (dry or liquid)

Drugs (nonprescription) Household supplies

Hot prepared foods  Ice

Nonprescription medicines Paper products

Pet foods and supplies

Prepared foods for immediate consumption Soap and soap products

Toothpaste

Water, including mineral and distilled