Michigan Treasury Announces Policy Change that Affects Dental Labs

Since 1955, Michigan has exempted various dental prosthetic devices from sales and use tax—a practice that was upheld in 1985 by Michigan Letter Ruling No. 85-20 of the Michigan Treasury. The ruling stated that the sales and use tax acts exempted “any…apparatus, device, or equipment used to replace or substitute for a part of the human body” because “when a dental lab manufactures a device in accordance with specifications provided by a dentist it provides a non-taxable service rather than making a [taxable] sale to the ultimate consumer.” However, in June of 2017 the Michigan Department of Treasury announced that it had revoked Ruling 85-20; therefore, as of July 1, 2017, dental lab sales of dental prostheses are subject to sales tax based on the sales price of the prosthetic.

So what do you, as the owner or manager of a dental lab, need to know about how this will affect your business? Consider the following:

  • For transactions prior to the effective date (July 1, 2017), you may continue to rely on Ruling 85-20.
  • You will need to make the transition into assessing a sales tax based on the sales price of any prostheses you provide.
  • Since the sale of a prosthetic will now be treated as a sale at retail, dental labs may be able to claim the industrial processing exemption for property used in manufacturing its products, provided that said property qualifies under MCL 205.54t and MCL 205.94o.

Be sure to contact your Lewis & Knopf, CPAs, P.C. accountant as soon as possible in order to smoothly make the transition into assessing sales tax on prostheses and determine if you qualify for the industrial processing exemption.