Section R. 205.22 - Discounts, coupons, and rebates generally; discounts on certain motor vehicle salesRule 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.
(3) For the sale of a motor vehicle, a discount given to a purchaser because of the purchaser's status as a current employee, where the amount of the discount is reimbursed to the seller by a third-party, is not included in sales price and is not subject to tax. Retired employees and relatives of an employee are not considered current employees.(4) An automobile dealer may reduce the taxable sales price, calculate a credit, or seek a refund for consideration received from an automobile manufacturer to reimburse the dealer for a discount or price reduction given on the sale of a motor vehicle, to a member of a group designated by the manufacturer as entitled to a price identified on the manufacturer's invoice to the automobile dealer that the manufacturer requires the dealer to charge the purchaser of that vehicle, if all of the following conditions are met: (a) The purchaser is not employed by the manufacturer when the discount or price reduction is given.(b) The dealer did not reimburse itself tax on the portion of the sales price it receives from the manufacturer.(c) The amount of the credit or refund does not exceed the actual amount of sales tax paid on the portion of the sales price received from the manufacturer.Mich. Admin. Code R. 205.22
1979 AC; 2013 AACS; 2023 MR 15, Eff. 8/11/2023