How to Use Michigan Form 5081 for Tax Exemption

Michigan Form 5081 is the state’s annual return for sales, use, and withholding taxes. Businesses use this form to report tax-exempt sales that were documented using a Michigan Sales and Use Tax Certificate of Exemption, Form 3372. This process allows sellers to substantiate why tax was not collected on certain transactions. The purchaser is responsible for properly completing Form 3372 and providing it to the seller.

Qualifying for the Industrial Processing Exemption

To use an exemption for industrial processing, a business must qualify as an “industrial processor.” This is an entity that transforms, alters, or modifies tangible personal property, changing its form, character, or composition. The process must prepare the property for its ultimate sale at retail or for use in manufacturing other property to be sold at retail.

The exemption covers tangible personal property used or consumed directly in these activities, including machinery, equipment, and materials. For example, a car parts manufacturer’s machinery used to stamp, cut, and assemble metal components would be eligible. The electricity and natural gas used to power this specific machinery also qualify.

Certain activities are excluded from the industrial processing definition, making purchases for these functions taxable. These non-qualifying activities include:

• Administrative tasks
• Accounting
• Sales
• Marketing operations

Equipment used in an office setting, like computers for bookkeeping or sales office furniture, does not qualify. The exemption also does not extend to transporting the final product to the customer, so delivery vehicles are not covered.

Information and Documentation for Form 5081

To complete Form 3372, the purchaser must provide their business name and address, along with the seller’s name and address. The purchaser must also specify the type of purchase, the items covered, the basis for the exemption, and provide a final certification.

In Section 1, the purchaser designates the certificate’s scope by selecting either “One-Time Purchase” for a specific order or “Blanket Certificate” for a recurring business relationship. A blanket certificate can remain valid for up to four years. In Section 3, the purchaser must check the box for “Industrial Processing” and may need to enter the percentage of the property’s use that qualifies for the exemption.

Submitting and Retaining the Completed Form

The purchaser provides the completed and signed Certificate of Exemption directly to the seller; the form is not sent to the Michigan Department of Treasury. The certificate serves as the seller’s proof to substantiate their tax filings and justify not collecting sales tax.

Both the purchaser and the seller must retain a copy of the completed Form 3372 for at least four years. This documentation is necessary in the event of an audit, where the seller presents the certificate to validate why tax was not collected, and the purchaser uses their copy to prove they were entitled to the exemption.

Failure to maintain proper documentation can have financial consequences. If a seller is audited and cannot produce a valid exemption certificate for a non-taxed sale, the state may hold the seller liable for the uncollected tax, penalties, and interest. The purchaser would then be responsible for reimbursing the vendor for these costs if the exemption claim is disallowed.