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I am about to purchase a small business in Michigan. It ...

Sent to Tax Experts April 19 2:48 a.m.

I am about to purchase a small business in Michigan. It consists of equipment for cutting lawns valued at $7000. Total purchase price is $15,000. The $8,000 is for 15 accounts which grosses $17,000. I am being told by the seller''s accountant that I must pay 6% sales tax for the business which is an additional $900. Is it correct I need to pay Michigan sales tax on the price of the business?

Optional Information:
Pinckney, Michigan

Already Tried:
Have only received a call from the seller telling me the business will now cost $900 more because he needs to collect 6% sales tax for the state of Michigan. He stated his accountant told him I need to pay this to the seller in addition to the $15,000 price of the business. I am trying to be certain this is accurate before I pay out an additional $900 which I will have no idea if it actually gets paid to the state.

Customer (name blocked for privacy)

Status: Closed Value: $15

Answer
April 19 3:14 a.m. (26 minutes and 21 seconds later)

REPLIED

First of all - only tangible properties are subject of sales tax. Account receivables are not subject of sales tax.

if you provide a copy of their direct pay permit authorized by the Michigan Department of Treasury to pay tax directly to the State.

To claim exemption for purchases the buyer must present the seller with a completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption. For more information on exemptions see Revenue Administrative Bulletin 2002-15.

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LEV -- Tax Preparer -- 99% Positive Feedback on 4452 Tax Accepts
Taxes, Immigration, Labor law

Reply to LEV
Sent April 19 3:47 a.m. (33 minutes and 10 seconds later)

I am not sure what a tangible property is. Is this lawn service business tangible property? To be clear, there are no accts. receivables. $8000 is the value he put on 15 clients that will agree for me to care for their lawns thus providing me with $17000 gross sales per year.

Customer (name blocked for privacy)

Answer
April 19 4:10 a.m. (22 minutes and 41 seconds later)

ACCEPTED

A tangible property is a property that has physical substance and can be touched; - not including real estate or money. Intangible property lacks this physical quality - for instance - contracts that are part of sale are not tangible property and therefore are not subject of sales tax.

Even if you purchase a tangible property - equipment for cutting lawns - you do not have to pay sales tax to the seller but may pay to the Michigan Department of Treasury directly if you apply for the Michigan Sales and Use Tax Certificate of Exemption.

Please see this Registration Booklet - http://www.michigan.gov/documents/518_3620_7.pdf

Edited by LEV on April 19 2008 at 4:12am

__________________
The answer is an advisory opinion (not legal or financial advice). After accepting the answer bookmark it - you may return to this page later for reference or to ask for clarification. Appreciate your positive feedback.

LEV -- Tax Preparer -- 99% Positive Feedback on 4452 Tax Accepts
Taxes, Immigration, Labor law

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