A recent ruling from the Michigan Court of Appeals is shedding light on a common misconception among businesses. Just because a product is sold to another business does not automatically mean the sale is exempt from sales tax. The case involved a dental laboratory, LaDouce Dental Laboratory CO., which created custom dental products and sold them to dentists.
The Michigan Department of Treasury (Department) audited LaDouce Dental Laboratory for the 2017 and 2018 tax years. During the audit, the Department reviewed the company’s sales and determined that some of its products were taxable and that sales tax had not been properly paid. The company argued that because they sold their products to dentists, and dentists resold these products to patients, all its sales should be exempt from sales tax under the resale exemption. But the court ruled against the company saying it did not provide enough proof to qualify for the resale exemption. In the decision, the court emphasized that businesses claiming the resale exemption must keep clear and complete records showing that their customers are legitimate resellers and that sales tax is being collected at the final sale. Without that proof, the Department cannot verify that the tax system is working properly and that puts the original seller at risk.
LaDouce was unable to provide enough documentation to support its claim. The company did not have exemption certificates for all its customers, was missing key tax license information for buyers and could not clearly connect which products were sold to which customers. Most importantly, there was no evidence showing that dentists were charging and collecting sales tax when they sold the product to patients. Because of these gaps, the Department determined that some of the company’s sales were taxable and used an estimation method to calculate tax owed. Under Michigan law, these types of estimates are considered valid unless the business can prove the estimate is wrong. The court ultimately agreed with the Department and upheld the tax assessment.
The ruling sends a strong message to businesses that rely on the resale exemption. It is not enough to assume that a sale is tax-free simply because the product will be resold. Businesses must be able to back up that claim with detailed records that clearly show the flow of goods and the proper handling of sales tax at each step. In the end, the takeaway is simple, the resale exemption is not automatic, it must be earned and proven with simple documentation. This case is a reminder that sales tax exemptions are closely scrutinized. Even businesses operating in what seems like a wholesale model can face unexpected tax exposure if their documentation is not strong enough. If a business wants to avoid paying sales tax under any exemption, it needs to keep clear and complete records. Without that proof, the state can treat those sales as taxable even if the product is later resold. Good recordkeeping is essential when claiming exemptions.
(LaDouce Dental Laboratory Co., Inc. v. Department of Treasury, No. 370507, Michigan Court of Appeals, March 23, 2026)