In a recent decision by the Michigan Court of Appeals, the court ruled against an auto service company in a sales tax dispute, sending a clear message to businesses that labor charges must be clearly listed on invoices or they may be taxed. The case involves Sav-Time, Inc., a company that operated oil change maintenance shops in Michigan. After auditing the business for the period of 2015 through 2018, the Michigan department of Treasury found that the company had not properly separated taxable parts from non-taxable labor on its invoices. Because of that, the state treated the full invoice amounts as taxable sales, resulting in Sav-Time owing more than $50,000 in additional taxes plus interest.
In Michigan, sales tax applies to goods like oil and car parts, but not to repair or maintenance labor. However, the key requirement is that labor must be listed separately on invoices. Sav-Time argued that part of its charges represented labor and should not be taxed, but the court found that the company’s invoices did not clearly show the breakdown between taxable and non-taxable. Instead, transactions were listed as single price with no clear separation between labor and parts. The court explained that simply labeling parts of a sale as non-taxable is not enough. Businesses must clearly show labor charges as a separate line item at the time of sale. Later, Sav-Time tried to provide updated invoices showing labor as a separate line items, but the court rejected them. According to the ruling, businesses must have proper records during the audit period, not create them afterward. Additionally, the court noted that Sav-Time’s records were inconsistent. Different reports showed different amounts, making it difficult to verify what was accurate.
When records are incomplete or inconsistent, Michigan law allows the state to estimate tax due, using available information. Those estimates are presumed correct, and the burden falls on the taxpayer to prove otherwise. In this case, the court found that Sav-Time did not meet the burden of proof. For businesses that provide both goods and services, this care highlights a top risk area. Even when labor is legitimately non-taxable, failing to clearly itemize it on invoices can result in the entire transaction being taxed. Clean and consistent documentation is essential for compliance and for defending positions during an audit. Proper invoicing is not just a formality, it is a key part of sales tax compliance. Without clear separation between taxable and non-taxable charges, businesses may find themselves paying tax on an amount that would otherwise be exempt.
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 Treasure, No. 370507, Michigan Court of Appeals, March 23, 2026)