Transfer of Award Merchandise Taxable in Michigan

Monday, March 17th, 2014


The Michigan Tax Tribunal recently ruled that a taxpayer's transfer of merchandise to its customers in exchange for award points was taxable.

Michigan taxes sales of tangible personal property. Sales of services are not generally taxable. Nontaxable services sold with tangible personal property are not taxable if the property is incidental to the service.

The taxpayer performed services for its customers. As part of the services contract, the taxpayer gave program participants award points for services purchased. The program participant could later redeem these award points for merchandise. The taxpayer argued that its transfer of award merchandise was incidental to its sale of nontaxable services.

The tribunal ruled that the transfer of award merchandise was a taxable sale. The merchandise was not incidental to the services because the merchandise was transferred in a separate transaction. The taxpayer's provision of services for money was one transaction. The taxpayer's transfer of merchandise for award points was a second, separate transaction. Award points were consideration for the second transaction. The transfer of merchandise was a sale of tangible personal property and thus subject to tax.

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