Michigan Sales and Use Tax Audits: A Guide to Preparedness

Sales and use tax compliance in Michigan involves understanding what constitutes taxable sales, when use tax applies, and what establishes nexus requiring a business to collect tax. Taxable sales include tangible personal property and certain services. Use tax applies to items purchased for use in Michigan that were not subject to sales tax at the time of purchase.

When a business receives a Michigan Routine Audit Letter, the process typically begins with pre-audit research by the auditor, followed by an entrance conference where the auditor explains what records will be needed. The auditor then compares your sales and use tax returns to federal income tax returns and bank statements to ensure all applicable sales have been properly reported.

The auditor will also review exempt and out-of-state sales, and conduct a use tax audit on applicable purchases including advertising expenses, auto and truck expenses, repair and maintenance, office supplies, and equipment. Even small errors in how tax was charged, multiplied over a three-year audit period, can result in significant tax liability.

If you receive an assessment, it is important to have a sales tax professional review it before agreeing to any amount. Businesses have 30 days to contest findings with the auditor, and 60 days from receipt of an Intent to Assess to file a formal appeal or protest. Many businesses overpay simply because they were not aware of the sales tax laws that, if properly challenged, could have reduced their liability.