Michigan Sales Tax Audit Resale Certificates
Michigan Court Clarifies Resale Exemption in Michigan Sales Tax Audit Case
A recent Michigan Court of Appeals decision highlights an important issue for businesses facing a Michigan sales tax audit. The court made clear that simply selling products to another business does not automatically qualify a company for the resale exemption under Michigan sales tax law. The case involved LaDouce Dental Laboratory Co., which manufactured custom dental products and sold them to dentists throughout Michigan.
The Michigan Department of Treasury conducted a Michigan sales tax audit of LaDouce Dental Laboratory for the 2017 and 2018 tax years. During the audit, the Department reviewed the company’s records and concluded that certain sales were taxable because sales tax had not been properly collected or documented. LaDouce argued that its sales qualified for the resale exemption because dentists ultimately transferred the dental products to patients. However, the Michigan Court of Appeals ruled against the company, finding that it failed to provide sufficient documentation to support the exemption claim.
The court emphasized that businesses seeking a resale exemption during a Michigan sales tax audit must maintain detailed and accurate records proving that their customers are legitimate resellers and that sales tax is properly collected at the final point of sale. Without adequate documentation, the Michigan Department of Treasury may determine that the transactions are taxable.
The Outcome:
In this case, LaDouce could not provide complete exemption certificates for all customers, lacked critical sales tax license information, and failed to clearly track which products were sold to specific buyers. Most importantly, the company could not show that dentists charged and collected Michigan sales tax when transferring the products to patients. Because of these deficiencies, the Department used an estimation method to calculate unpaid tax liabilities. Under Michigan law, audit estimates are presumed valid unless the taxpayer can prove otherwise. The court ultimately upheld the Department’s tax assessment.
This ruling serves as an important reminder for businesses dealing with Michigan sales tax compliance and Michigan sales tax audits. Companies cannot assume that a transaction is exempt simply because goods may later be resold. Businesses must maintain proper exemption certificates, organized sales records, and documentation showing the collection and remittance of sales tax throughout the transaction chain.
The LaDouce case demonstrates how aggressively the Michigan Department of Treasury scrutinizes exemption claims during a Michigan sales tax audit. Even businesses operating in industries that commonly involve resale transactions can face substantial tax assessments if their records are incomplete or inconsistent. Proper recordkeeping and sales tax compliance procedures are essential to minimizing audit exposure and protecting exemption claims under Michigan sales tax law.
(LaDouce Dental Laboratory Co., Inc. v. Department of Treasury, No. 370507, Michigan Court of Appeals, March 23, 2026)
Michigan Sales Tax Audit Resale Certificates