Michigan Manufacturing Sales Tax Exemption Checklist

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1. Does your activity count as industrial processing?

Write down the production activities: converting, fabricating or transforming tangible personal property for saleCRITICALMark where processing begins and ends in each plant, since the exemption follows the production flowInclude activities such as inspection and testing during production, and note which happen after processing is completeSeparate non-processing areas: warehousing of finished goods, offices, shipping and maintenance shopsConfirm the business is registered for Michigan sales and use taxCRITICAL

2. Classify purchases

List tangible personal property used or consumed in industrial processing: production machinery, tooling, dies, process fuel and powerCRITICALCheck whether energy and utilities used in processing meet the usage threshold rules and how mixed-use meters are handledCRITICALIdentify items used outside processing and treat them as taxable: office, selling, shipping and general building itemsTreat raw material and components that become part of the product as purchases for resaleReview repair parts, replacement parts and accessories for exempt equipment as a separate categoryKeep a purchase-level reason code (processing, resale, taxable) in the ERP or fixed asset register

3. Certificates you issue to suppliers

Use Michigan Sales and Use Tax Certificate of Exemption (Form 3372) and tick the industrial processing reasonCRITICALGive a blanket certificate to repeat suppliers; use a single-purchase certificate for one-time capital buysComplete name, address, Michigan account number, description of items and signatureDo not use the certificate for items that serve both processing and non-processing uses without an allocation methodCRITICALRetain issued certificates and review the list when suppliers or product lines change

4. Certificates you collect from customers

Collect a signed certificate before invoicing without Michigan tax, for resale or other exemptionsCRITICALRecord certificate type, number, state of issue and date on the customer masterBlock zero-tax invoicing where no valid certificate is attachedCRITICALKeep shipping records for out-of-state deliveries that you treat as non-taxableRun a periodic exception report of exempt invoices with no certificate

5. Use tax and accounts payable

Make sure untaxed vendor invoices are tested for use tax, since the supplier may not charge Michigan tax on out-of-state purchasesCRITICALSet an accounts payable rule: exempt processing purchases use one tax code, taxable purchases accrue use taxReconcile the use tax accrual account to the return each periodDocument the basis for every processing claim on capital equipment before the return is filed

6. ERP tax code and audit file

Create a tax code for industrial-processing purchases and map it to the right ledger accountAdd exempt flag, certificate number and expiry fields to the customer record and require them togetherCRITICALTest a purchase order, receipt and sales invoice after any tax table updateBuild a single audit folder: certificates issued, certificates received, asset claim list, utility allocation workpaper

Michigan's rules turn on what is used in industrial processing and how. Tick items only when documented. This is a working checklist, not tax advice: confirm details with the Michigan Department of Treasury or your tax adviser.

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How to use the checklist

Start with section 1 to define your processing activity in writing, then classify purchases, then fix the certificate and ERP steps. Items marked critical are the ones most often tested in a Michigan Treasury review. Export to PDF for your tax adviser, or to Excel to track owners and dates.

The industrial processing concept

Industrial processing covers the production of tangible personal property for sale by transforming, converting or fabricating it. Equipment and consumables used in that flow are candidates for the exemption. Activities before or after the flow, such as storage, administration or distribution, are not. Because the boundary matters, the best audit defense is a simple process map that shows where each exempt item sits.

Production machinery, tooling and dies are the clearest cases
Energy used in processing can qualify, subject to the rules for how much of a meter is used that way
Raw materials that end up in the product are bought for resale
Office, selling and shipping items stay taxable

Certificates and use tax in the ERP

Suppliers want Form 3372 before they drop tax from the invoice. Customers owe you one before you do the same. Store both sets in a register. In the ERP, keep a separate tax code for processing purchases so accounts payable does not accrue use tax on them by mistake, and make sure all other untaxed vendor invoices do accrue use tax. Reconcile the accrual to the return every period.

Common mistakes

Frequent issues are claiming the exemption on mixed-use utilities with no allocation, using one blanket certificate for items that are not processing, forgetting use tax on out-of-state purchases, and holding customer certificates that are incomplete. A short written policy for each category prevents most of them.

Frequently Asked Questions

What is the Michigan industrial processing exemption?

It is a sales and use tax exemption for tangible personal property used or consumed in industrial processing, meaning the production of goods for sale. It applies to qualifying equipment, fuel and power used in that flow, not to general business overhead.

Which form do Michigan manufacturers give suppliers?

Michigan Form 3372, the Sales and Use Tax Certificate of Exemption, is the usual form. Tick the industrial processing reason, describe the items and sign. Check the Treasury website for the current version before use.

Do I still owe use tax if I claim the exemption?

Not on items that genuinely qualify as industrial processing. You do owe use tax on taxable items bought without Michigan tax, for example some out-of-state purchases used outside processing. Set accounts payable rules so the two cases are separated.

Can electricity for my plant be exempt?

Energy used in industrial processing can qualify, but Michigan applies tests on how much of the usage is for processing. If one meter serves production and offices, document how you determined the processing share.

If your tax codes and certificates are scattered across ERP fields and spreadsheets, we can build a private assistant that answers audit questions from your own records, hosted in your environment.

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Michigan Manufacturing Sales Tax Exemption (Industrial Processing) Checklist