Michigan Issues Bulletin Addressing Digital Goods

On July 31, 2023, the Michigan Department of Treasury issued a revenue administrative bulletin (RAB 2023-10) addressing the taxation of computer software and digital products. The revised RAB replaces RAB 1999-5 and updates guidance taking into account legislation enacted after the issuance of RAB 1999-5. The definition of tangible personal property for sales and use tax purposes is updated to include prewritten computer software. Key definitions are listed as well as a general overview of the imposition of sales and use tax, sourcing of prewritten computer software, examples, and miscellaneous questions and answers.

Digital goods that are outside the definition of prewritten computer software are not taxable regardless of method of access. Some products that may give the appearance of digital goods may actually be prewritten computer software based on definition. Examples of prewritten computer software may include ”applications and video games downloaded or otherwise installed onto electronic devices such as smartphones, tablets, and game consoles” and would be taxable provided a fee or charge was required for it. The guidance includes non-fungible tokens (NFTs) in a list of examples of digital goods as well as digital images or photographs, digital tickets/tokens, and digital fonts/logos/graphics, to name a few. Unlike other states that look through to the rights an NFT grants a purchaser, Michigan emphasized that an NFT is a “digital code.”

RAB 2023-10 is retroactive to all open tax periods under the statute of limitations. Taxpayers may rely on the RAB for direction, and it is valid until revoked by Department of Treasury or until a law is changed through legislation or binding judicial precedent. When categorizing software and digital goods, a close review of the state’s definitions should be made to ensure proper sales and use tax treatment. Items that may commonly considered intangible property may be defined as tangible personal property in a state and may be subject to sales and use tax. (Michigan Department of Treasury, Sales and Use Taxation of Computer Software and Digital Goods, Revenue Administrative Bulletin 2023-10, July 31, 2023)

Posted on October 2, 2023