by Scott McClallen
The Democrat-dominated Michigan House passed two sales and use tax bills critics say are unnecessary and will confuse business owners.
House Bills 4377 and 4378 passed on votes of 56-53. The bills cover prepared food either sold in a heated state or heated by the seller or that is two or more food ingredients that are mixed or combined by the seller for sale as a single item.
The bills intend to codify the Michigan Department of Treasury rules defining these terms, which were struck down by the Michigan Court of Appeals in 2021.
The changes, if enacted into law, would align Michigan with the Streamlined Sales and Use Tax Agreement. The SSUTA is an agreement by 24 states to make uniform the sales and use tax collection for retailers and states.
Bill sponsor Rep. Brenda Carter, D-Detroit, said the bills would likely apply to movie theaters, amusement venues, and sports complexes that sell prepared items as a non-primary source of income.
“It is imperative that we avoid sanctions for failing to comply with this agreement,” Carter said in a floor speech. “It is imperative that we avoid sanctions for failing to comply with this agreement. Additionally, standardizing these definitions will facilitate tax compliance and avoid potential future litigation.”
If a seller’s prepared food sales over the prior tax year were greater than 75%, the eating utensils are considered provided by the seller if they are made available to purchasers.
If the seller’s prepared food sales were 75% or less, eating utensils are considered provided by the seller only if it is the seller’s practice to hand hand-eating utensils to purchasers.
The nonpartisan House Fiscal Agency says the bills shouldn’t have “a significant fiscal impact,” but is still analyzing the bill for a more precise estimate.
The Michigan Chamber of Commerce says the bills create “confusion for business owners and reinstate taxes on certain non-prepared food items under specific circumstances.”
In Michigan’s tax code, prepared foods, known as heated items or two or more ingredients combined by the seller and sold with eating utensils, have typically been taxed.
In November of 2020, the Court of Appeals determined, through Emagine Entertainment, Inc. et. al., v. Department of Treasury, that Treasury’s Rule 86 was invalid and said prepared foods are those with utensils that must specifically accompany the food or be added to it.
The Emagine decision clarified that “bottled water” and “prepackaged candy” were items that are considered “unprepared foods,” which would also be codified and exempt from the collection of taxes if HBs 4377-4378 passes the Michigan Legislature.
Rep. Mark Tisdel, R-Rochester Hills, opposed the bills.
“Lansing politicians are serving up a distasteful tax hike cooked up by tax bureaucrats,” Tisdel said in a statement. “Taxing more foods and beverages — in an extremely convoluted way — will eat up more of Michiganders’ hard-earned income. At the same time, small businesses in our communities will have to navigate the confusing tax policy to figure out which food and drink items are taxed.”
The bills advance to the Senate for consideration.
The Department of Treasury, Streamlined Sales Tax Governing Board, and the Michigan Petroleum Association support the bills while the Michigan Chamber of Commerce, Detroit Chamber of Commerce, and National Association of Theatre Owners of Michigan oppose the bills.
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Scott McClallen is a staff writer covering Michigan and Minnesota for The Center Square. A graduate of Hillsdale College, his work has appeared on Forbes.com and FEE.org. Previously, he worked as a financial analyst at Pepsi.
Photo “Food Being Prepared” by Yente Van Eynde.
