How State Of Michigan Defines Tangible Personal Property vs. Real Property

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Image of man bending sheet metal in factory - tangible personal property or real property

The State of Michigan issued a revenue administrative bulletin in 2016 that aims to clarify the nature of property for sales and use tax purposes. This guidance also outlines how the Department of Treasury classifies property and how tangible personal property can become real property.

Why does this matter?

When a retail sale occurs and ownership of tangible personal property (TPP) is transferred, it’s subject to Michigan sales tax. When TPP is used, stored, or consumed in Michigan, it’s subject to use tax. Both statements are true, unless an exemption applies.

If property starts as TPP and becomes real property, it can alter a taxpayer’s tax responsibilities and liabilities.

It can also influence whether a taxpayer is a contractor or retailer; whether sales or use tax rates apply; and, can determine whether the taxpayer can take advantage of certain exemptions.


Tangible personal property vs. real property

In general, tangible personal property is personal property that can be seen, weighed, measured, felt, or touched. It’s perceptible to the senses.

Electricity, water, gas, steam, and prewritten computer software are TPP.

Real property is real estate (land) and anything that’s permanently attached to the land.

How does TPP become real property?

Michigan doesn’t have a clear rule that establishes when TPP has become sufficiently connected with real property.

However, the State of Michigan does consider TPP to be a fixture when all three of the following criteria are met.

1. Annexation to real estate

In most cases, if the object isn’t attached to land, a structure, or an appliance, it retains its status as TPP. If the item is meant for permanent use on the premises, it’s still TPP.

Constructive annexation doesn’t require the item to be physically attached.

2. Adaptation or application to use or purpose of real estate

This criteria refers to property that functions as part of a building or property that carries out part of the real property’s function.

Examples include drive-up window equipment or window screens.

 3. Intention to make property a permanent accession to real estate

This criteria looks at the intention of the parties involved, specifically the party making the addition. There must be an intention to make the property a permanent addition to the real estate.

Treasury will examine the nature of the attached item.

Keep in mind that “permanence” doesn’t mean forever and this criteria doesn’t depend on the degree of force used to attach the item.


Examples of tangible personal property

  • Portable air compressor
  • Freestanding appliances
  • A window unit air conditioner
  • Ductwork for equipment
  • Generator used for specific equipment
  • Plumbing for specific equipment


Examples of real property

  • Air compressor as part of the central building system
  • Awning
  • Built-in appliances
  • Building/home cabinets
  • Carpeting
  • Central air
  • Ductwork for the building
  • Elevator
  • Fire protection sprinkler
  • Generator used to service the building
  • Hot water heater
  • Plumbing for the building
  • Theater seat bolted to the floor


Remember – this guidance shouldn’t be used when making determinations regarding ad valorem property taxes. Those taxes are governed by different laws, interpretations, and principles than sales and use taxes.

Changing a property’s status could result in new tax liabilities. Familiarizing yourself with these criteria can help you avoid surprises, minimize your tax exposure, and plan for property changes.

The treatment of property for sales and use tax purposes is a highly complicated issue. Take a look at the following cases to see how Michigan courts have made decisions on this issue and how tax liabilities are impacted by the rulings.


Have questions about how property types impact your taxes? Let’s talk!