Are you an industrial processor or member of the industrial processing industry? Have you purchased personal protective equipment (PPE) for your workplace to protect your employees from COVID-19? If you answered yes to both questions, your PPE and safety equipment purchases likely qualify for sales and use tax exemption. How?
On July 20, 2020, the Michigan Department of Treasury released a bulletin allowing PPE to qualify for the industrial processing exemption.
PPE or safety equipment is exempt if it’s:
- Purchased by an individual who’s involved in industrial processing on behalf of an industrial processor or purchased by an individual who’s an individual processor
- Used for the safety of authorized personnel (personnel directly involved in industrial processing activities)
- Used in industrial processing activities
How does this impact me?
This decision means your PPE purchases aren’t subject to Michigan’s 6% sales and use tax. This is an immediate tax break for manufacturers. And, it’s retroactive to the beginning of the coronavirus pandemic. You can submit a refund request on all eligible PPE expenses by completing Form 5633 and following the instructions listed on the form.
If you use your PPE for both exempt and nonexempt purposes, you must adjust your exemption amount based on your use. The Treasury presents the following examples to help clarify when PPE is exempt or nonexempt from sales and use tax:
Example 1: Industrial Processor purchases face masks for employees to wear while working on the production line (and engaged in an industrial processing activity) to help stop the spread of infectious disease. The masks are exempt.
Example 3: Industrial Processor purchases face masks for employees in its marketing department to wear to stop the spread of infectious disease. Marketing is not an industrial processing activity. The masks are taxable.
Example 6: Industrial Processor purchases hand sanitizer for use by production line employees prior to entering, and while working on, the production line (and engaged in an industrial processing activity) and for employees that are not engaged in an industrial processing activity. The hand sanitizer is exempt when used by production line employees, but taxable when used by nonproduction employees; therefore, the exemption must be apportioned.
Have questions about your PPE purchases and the industrial processing exemption? Let’s talk!