Notice Regarding Expansion Of The Industrial Processing Exemptions To Address Property Used To Process Aggregate For Michigan Real Estate Projects

Issued:  May 11, 2023

The industrial processing exemptions under MCL 205.54t and MCL 205.94o (collectively, “IP Statutes”) were recently amended by the passage of Public Acts 27 and 30 of 2023 (the “Acts”), to address sales and use taxes relating to property used to process aggregate for construction and related real property projects located in Michigan.  The amendments made through the Acts are effective May 8, 2023 (the “Effective Date”).

Expansion of the Industrial Processing Exemption

The Acts expand the industrial processing exemptions for sales and use taxes in several ways. 

First, the Acts expand the list of enumerated industrial processing activities in subsection (3) of the IP Statutes to include “production, manufacturing, or recycling of aggregate” by the property, and for the purpose, described in the newly added subsection (4)(i) to the IP Statutes, but only if that aggregate is subject to use tax. 

Second, the Acts amend the types of property that are eligible for the industrial processing exemption under subsection (4) of the IP Statutes by adding a new subdivision (i) that involves “property that performs an industrial processing activity upon an aggregate product or material that will be used as an ingredient or component part for the construction, maintenance, repair, or reconstruction” of real property in Michigan but only if that aggregate product or material is subject to use tax.  This property is not disqualified from eligibility for the exemption simply for being used in any of activities described in subsection (6) of the IP Statutes (e.g., construction or maintenance of real property) or because there is no retail sale of the aggregate; instead, the aggregate must have been subject to use tax. 

Finally, the Acts amend the definitions under subsection (7) of the IP Statutes for the terms “industrial processing” and “industrial processor” consistent with the changes described above and add a definition for the term “aggregate” in subsection (7) of the IP Statutes.

Taxpayer Relief on Unpaid Assessment Balances and Audits for Past Periods

Concerning the tax relief provided by the Acts, Treasury is required to cancel all outstanding (unpaid) balances related to sales or use tax liabilities involving industrial processing activities and property, described in subsections 3(l) or (4)(i) of the IP Statutes, on Notices of Intent to Assess and Final Assessments issued by Treasury before the Effective Date.  Unpaid balances on Notices of Intent to Assess and Final Assessments are considered “outstanding” even if they are in an Informal Conference or on appeal before a court.  The Acts direct Treasury to cancel these outstanding balances related to such industrial processing activities and property no later than 90 days after the Effective Date.  While Treasury will be proactive in locating and cancelling assessments, taxpayers with outstanding balances eligible for this relief are strongly encouraged to contact Treasury at Treas-TCB-Technical@michigan.gov. 

In addition to the cancellation of balances described above, the Acts prohibit Treasury from issuing any new assessments for such industrial processing activities and property for tax periods occurring before the Effective Date.

As the relief provided by the Acts is limited to cancelation of outstanding balances and a prohibition on the issuance of new assessments for prior tax periods as described above, the Acts do not establish a right to a refund for sales tax or use tax on property used for processing aggregate that a taxpayer has already remitted to Treasury prior to the Effective Date.  Consequently, purchasers will not be able to seek refunds based on the Acts from retailers or Treasury for periods prior to the Effective Date.

Treasury Guidance Regarding the Industrial Processing Exemption

Treasury will issue a Revenue Administrative Bulletin (“RAB”) to replace RAB 2000-4 which will further address the industrial processing exemption including the changes made by the Acts.