Contractors Working With Qualified Native American Tribes May Be Exempt From Sales & Use Tax

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Image of two ironworkers putting up the skeleton of a building - contractors in Michigan

Ten of 12 federally recognized Native American tribes in Michigan have entered into a tax agreement with the State of Michigan.

The agreement allows them to claim exemption from Michigan sales and use tax. This exemption from Michigan sales and use tax may apply to supply retailers, contractors, and other vendors working with a qualifying tribe.

One of two exemption methods may be used by a qualifying tribe.

Exemption certificate method

A tribe can choose this method for itself, or for both itself and its qualifying members. To use this method, a purchaser (the tribe) must present Form 3998, Tribal Certificate of Exemption for Sales and Use Tax, and a copy of the tribe’s Letter of Authorization to the vendor at the time of purchase.

The exemption certificate must be appropriately filled out and signed by the tribe. The letter must be authorized by the Michigan Department of Treasury.

The certificate and letter permit a purchaser to buy goods and materials exempt from Michigan sales and use tax. And, they allow a vendor to remove those sales from its taxable sales when calculating its sales and use tax liabilities.

Form 3998 is only good for one year and can only be provided by a qualifying tribe.

If a tribe hasn’t authorized its qualifying members to use this method, those members must use the refund method.

 

Refund method

If a tribe opts for this method, the tribe and its qualifying members must pay sales and use tax at the time of purchase.

The tribe or a qualifying member can file for a refund of sales and use tax directly from the state.

 

What the construction industry needs to know

This exemption from Michigan sales and use tax applies to contractors only if the tribe they’re contracting with has a tax agreement with the state.

Knowing the tribe has a tax agreement with the state doesn’t automatically exempt a contractor from paying the sales and use tax for materials and goods necessary for the job.

Contractors must receive Form 3998 and a copy of the Letter of Authorization, and retain both for its files.

Contractors also need to supply their vendors with copies of these documents when purchasing materials and goods for the job so the vendor can be relieved of sales tax on those items.

If the job spans multiple years, contractors must receive a new Form 3998 for each year of the job.

Please note! Only the tribe has access to these documents.

If the tribe doesn’t provide the necessary documentation to contractors, retailers, or others in order for them to claim exemption, those parties are required to pay sales or use tax for the materials purchased and consumed in performance of the job.

If subject to an audit, lacking the appropriate documentation to claim this exemption is most likely non-negotiable.

 

10 tribes with a tax agreement

  • Bay Mills Indian Community
  • Grand Traverse Band of Ottawa and Chippewa Indians
  • Hannahville Indian Community
  • Little River Band of Ottawa Indians
  • Little Traverse Bay Bands of Odawa Indians
  • Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians
  • Nottawaseppi Huron Band of Potawatomi Indians
  • Pokagon Band of Potawatomi Indians
  • Saginaw Chippewa Indian Tribe of Michigan
  • Sault Ste. Marie Tribe of Chippewa Indians

 

Additional Resources:

 

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