Michigan Sales Tax on the Business Assets You Sell

Why This Comes Up at All

Michigan charges a 6 percent sales tax on retail sales of tangible property. In an asset sale, you are selling tangible property: machines, desks, shelving, tools, maybe cars and trucks.

If all of that were taxed like a normal retail sale, the bill could be large. Fortunately, Michigan treats a one time sale differently.

The Isolated Sale Rule

Michigan's sales tax law does not count an isolated transaction as a retail sale. An isolated transaction is one made outside the ordinary course of repeated, similar sales.

A machine shop selling its machines once, as part of selling the whole company, is not in the business of selling machines. That kind of sale usually falls under the isolated rule.

The state's own rule gives a similar example: a merchant selling store fixtures at auction. Fixtures, furniture and equipment you used to run the business are the classic case.

Where the rule stops

The exemption is for one time sales. A business that regularly sells used equipment, even a little at a time, is treated as being in that business and can lose it.

Spreading the sale of assets across many buyers over months can also muddy the picture.

Inventory Works Differently

Inventory is the stuff you sell to customers in the normal course of business. Selling it in bulk to a buyer is not really an isolated sale of business equipment.

In practice, a buyer who will resell the inventory usually gives you a resale exemption claim, so no sales tax is charged on it at closing. The buyer then collects tax when it sells to its own customers.

Supplies used up in the business, rather than resold, are a gray area. Ask your CPA how yours should be handled.

Vehicles Are Their Own Case

Cars, trucks and trailers have titles. When a buyer takes over company vehicles, the title transfers through the Secretary of State, and tax is usually handled there.

Many states limit how sale exemptions apply to vehicles. Don't assume a company truck rides along with the equipment exemption. List each vehicle separately in the purchase agreement and let your CPA work out the tax.

Equipment You Keep or Sell Separately

Some owners hold back a machine or two, or sell extra equipment to a dealer before closing. Those side sales are not part of the business sale, so check with your CPA how each one is treated before you agree to it.

Splitting the Price

The purchase agreement usually divides the price among the assets: equipment, inventory, vehicles, goodwill, a noncompete and so on. That split matters for income tax too, so your CPA and the buyer's will both care about it.

For sales tax, a clear split makes it obvious which dollars are for exempt equipment and which are for inventory or vehicles. Vague lump sums invite questions later.

The Buyer Watches This Closely

Michigan has rules about a buyer's own exposure for a seller's sales tax. Whether a buyer can be held responsible depends in part on whether it keeps your trade name or goodwill, continues the business, and how much of your property it acquires.

Because of that, the buyer will want proof that your sales tax returns are filed and paid. It is one more reason the tax clearance matters. See our Form 5156 guide.

Closing Your Sales Tax Account

After the sale, you file your final sales tax return and close the account through Form 163. Your sales tax registration does not pass to the buyer; the buyer registers its own. The steps are in our Form 163 guide.

Businesses Where This Matters Most

Retailers, restaurants and dealerships carry the most inventory and the most sales tax history, so this topic gets the most attention in their deals. Shops with heavy equipment, like tool and die shops, care most about the equipment side.

All of this is Michigan law. A company based in another state follows that state's rules.

Want a number before you get into tax details? Send the short form or call (313) 555-0152.