Mich. Admin. Code R. 205.76 - Employer sales and employer-sponsored incentive programs

Rule 26.

(1) When an employer sells tangible personal property to employees, allows them to purchase through the organization or to buy from others on discounts available to the employer, or in another manner obtain goods through the employer, the sales are taxable.

(2) An employer shall report and pay tax on sales to employees under subrule (1) of this rule, even if the employer is exempt from tax on the employer's regular business.

(3) Tax applies on the sale of tangible personal property to an employer who purchases that tangible personal property for free distribution to employees, unless the tangible personal property is otherwise exempt. For example, tax would not apply to the sale of goggles, protective gear, and other safety equipment to a manufacturer for use by employees engaged in an exempt industrial process.

(4) The sale of tangible personal property to an employee by a third-party retailer through an employer-sponsored rewards, performance improvement, or other incentive program is taxable. The tax on any such transaction is imposed on the total value of the points, rewards, or other consideration redeemed in the transaction for the tangible personal property. Tax is not imposed on the redemption of any product that is not tangible personal property.

Example: An employer contracts with a company to operate a points-based incentive plan for employees. Under the plan, employees accumulate points that may be used to redeem certain prizes from the company, including tangible personal property and travel packages. Under the service agreement, the company then bills the employer based upon the value of points redeemed each period. Under this arrangement, tax is imposed on any redemption of tangible personal property by the employee based upon the total value of the points used to redeem that tangible personal property. Tax is not imposed on any redemption of prizes that does not involve tangible personal property, such as travel packages. The payments from the employer to the company for the points redeemed each period relate to the operation of the service agreement and are not taxable.

Notes

Mich. Admin. Code R. 205.76

1979 AC; 2023 MR 15, Eff. 8/11/2023