September 30, 2003

Internal Policy Directive 2003-2
GENERAL SALES AND USE TAX ACTS:
STATE CHARTERED CREDIT UNIONS

LEGAL POLICY ISSUE

How are Michigan’s sales and use taxes applied to credit unions chartered by the State of Michigan in light of Section 22 of 1925 PA 285

The following summary of conclusions is reached when contemplating how sales and use taxes are applied to credit unions chartered by the State of Michigan:

Exempt:

1. Sales tax on sales made by state chartered credit unions
2. Use tax on purchases, including seller's collection responsibility
3. Use tax on purchased accommodations, telecommunications, and laundering/cleaning of textiles
4. Use tax on the stream of lease and rental receipts where state chartered credit union is the lessor

1. Sales tax on sales made to state chartered credit unions from in-state sources (i.e. ownership is transferred by the seller to the purchaser in Michigan)
2. Use tax on rentals from a third party (i.e. the state chartered credit union is the lessee)
3. Sales tax on sales of tangible personal property to state chartered credit unions from in-state sources where the state chartered credit union intends to rent or lease the property, but does not possess a Michigan sales tax license or use tax registration

Sales and use tax is applied to state chartered credit unions, as well as vendors and suppliers to state chartered credit unions, with special considerations. It should be noted that application of sales and use taxes to federally chartered credit unions is different and described in Revenue Administrative Bulletin (RAB) 1989-64.

Credit Unions that are chartered under the laws of the State of Michigan will be considered "state chartered credit unions" for purposes of this determination. The applicable Michigan law is 1925 PA 285. Section 22 of that law pertains to taxation, and states:

A credit union shall be deemed an institution for savings and, together will all the accumulations therein, shall not be subject to taxation except as to real estate owned. The shares of a credit union shall not be subject to a stock transfer tax when issued by the corporation or when transferred from 1 member to another. [MCL 490.22]

Legally, this means that state chartered credit unions are not subject to sales and use taxes imposed directly on them. They are, however, not exempted from the economic burden of sales and use taxes imposed directly on vendors and suppliers and merely passed on to the state chartered credit union, regardless of whether itemized or not.

Sales Tax:

Michigan's sales tax is imposed directly on the seller for the privilege of engaging in the business of making sales at retail in this state. [MCL 205.52(1)] Thus, only when the state chartered credit union is the seller are they exempt from Michigan sales tax. When a state chartered credit union purchases from a seller in a transaction subject to Michigan sales tax they are not entitled to any claim of exemption. The seller owes Michigan sales tax on the sale at retail to the state chartered credit union.

Use Tax:

Michigan's use tax is imposed directly on the consumer for the privilege of storing, using or consuming tangible personal property in this state. [MCL 205.93(1)] Thus when the state chartered credit union purchases tangible personal property in an interstate transaction, Michigan's use tax is implicated rather than Michigan's sales tax. As Michigan use tax on tangible personal property is imposed directly on the purchaser, the state chartered credit union would have no liability. Similarly, the out-of-state seller in a transaction for tangible personal property subject to seller's use tax collection responsibility [MCL 205.99] would be excused from collecting and paying use tax on such a transaction with a state chartered credit union.

As Michigan's use tax is also imposed on rentals of tangible personal property and the services of telecommunications, accommodations, and laundering and cleaning of textiles, special consideration must be given to whom the use tax is imposed on in these transactions. These transactions may require somewhat different treatment.

Michigan use tax is imposed on the enumerated services of telecommunications, accommodations, and laundering and cleaning of textiles in the same manner as tangible personal property is taxed under the use tax act. [MCL 205.93a] Thus when a state chartered credit union purchases telecommunications, accommodations, and laundering/cleaning of textile services in Michigan no use tax should apply to the transaction. However if a state chartered credit union were to provide any of the enumerated services use tax would apply to the transaction.

The use tax act's definition of use is as follows:

"Use" means the exercise of a right or power over tangible personal property incident to the ownership of that property including transfer of the property in a transaction where possession is given. [MCL 205.92(b)]

As it is the lessor who "gives possession", use tax on rentals is imposed directly on the lessor. Thus when a state chartered credit union is the lessor of tangible personal property no use tax would apply. However when a state chartered credit union leases tangible personal property from a lessor in a transaction subject to Michigan use tax they are not entitled to any claim of exemption. The lessor owes Michigan use tax on the lease of tangible personal property to the state chartered credit union.

It is important to note that all lessors have the option to pay Michigan sales or use tax on tangible personal property to be leased at the time it is acquired, or to pay use tax on the stream of rental receipts. A state chartered credit union acquiring tangible personal property to be leased from a Michigan seller would have no other claim of exemption than resale/release, which requires prior registration for sales or use tax with the department.