Is Shipping Taxable in Michigan? Rules, Exceptions, and Penalties

Shipping is not taxable in Michigan when the seller lists the delivery charge as a separate line on the invoice and keeps it separate in their books. If either condition is missing, the full charge falls into Michigan’s 6% sales tax base. The rule has been in place since April 26, 2023, and it covers delivery, handling, packing, and installation fees alike.¹

The Two Conditions That Keep Shipping Tax-Free

Michigan’s General Sales Tax Act and Use Tax Act both define “sales price” to include delivery charges by default. MCL 205.51(1)(d)(xv) carves out an exclusion when two conditions are met at the same time:²

The delivery or shipping charge appears as its own item on the invoice, bill of sale, or similar document given to the buyer.
The seller’s internal accounting records track delivery transactions apart from the price of the goods.

Meeting only one is not enough. A shop that prints shipping on a separate receipt line but lumps everything together in its accounting software has not qualified for the exclusion, and the shipping charge stays taxable.

When Shipping Becomes Taxable

A delivery fee gets pulled into the 6% base whenever it fails either condition.¹ The usual ways that happens:

Bundled pricing. A $100 item with a $10 shipping fee shown as a single $110 charge is taxable on the whole $110.
“Free shipping” built into the product price. If the seller raises prices to absorb the shipping cost, there is no separately stated charge to exclude, and the hidden delivery cost gets taxed along with the product.
Records mismatch. The invoice shows shipping on its own line, but the seller’s books don’t track delivery transactions independently. The charge stays taxable.

Handling, Packing, and Installation

Michigan defines “delivery charges” to cover transportation, shipping, postage, handling, crating, and packing.² A separately stated handling fee, packing charge, or combined “shipping and handling” line qualifies for the same exclusion, because every piece of it fits the statutory definition.

Installation charges got the same treatment starting April 2023. A separately stated installation fee is now excluded from the tax base under the two-condition rule.¹ Before that date, installation was generally taxable regardless of how it appeared on the bill. Sellers of appliances, furniture, and similar goods saw a real change.

Utility Bills Are Different

One category cannot use the separately stated rule. Utilities supplying electricity, natural gas, or artificial gas must include delivery charges like transmission and distribution fees in the taxable amount, even when those fees appear on their own line of the bill.² Residential customers pay a reduced 4% rate on electricity, natural gas, and home heating fuels, but delivery charges still sit inside that taxable base.³

Use Tax Follows the Same Rule

Michigan’s 6% use tax mirrors the sales tax treatment. When an out-of-state seller ships into Michigan and does not collect sales tax, the buyer owes use tax, and whether the delivery charge is part of that taxable amount comes down to the same separately stated analysis. RAB 2023-16 covers both statutes.²

Shipments Containing Both Taxable and Exempt Goods

A single shipment sometimes mixes taxable items with exempt items, such as groceries alongside taxable household goods. Michigan participates in the Streamlined Sales Tax Agreement, which allocates the delivery charge proportionally between the two categories using either the sales price or the weight of the taxable goods compared to the full shipment.⁴ The portion allocated to the exempt goods follows those goods and stays out of tax; the portion allocated to the taxable goods is then run through the separately stated analysis.

Selling Into Michigan From Another State

Remote sellers must register and collect Michigan sales tax if, during the previous calendar year, they exceeded either $100,000 in gross sales to Michigan buyers or 200 separate transactions with Michigan buyers.⁵ Gross sales for that threshold include taxable, nontaxable, and exempt transactions. Sellers with inventory in a Michigan warehouse or fulfillment center, or with employees or representatives in the state, have physical nexus and must collect from the first dollar. Once you are collecting, the same shipping rules apply to every Michigan order.

Refunds When Taxed Shipping Is Returned

When a customer returns a product, the seller must refund any sales tax collected on the refunded portion. If the original shipping charge was taxable because it was bundled with the product, the tax on that piece gets refunded too. The seller has to process the refund within the timeframe stated in its return policy or 180 days after the sale, whichever comes first.⁶ The refunded tax can then be deducted from a future sales tax return.

Penalties for Getting It Wrong

If a seller fails to collect tax on delivery charges that should have been taxable, the state can assess the unpaid tax plus penalties. Under MCL 205.24, the penalty starts at 5% of the tax owed when the failure lasts two months or less, with another 5% for each additional month, up to a 25% cap. Interest runs from the original due date until the tax is paid. The treasurer has discretion to waive the penalty if the seller shows the failure was not due to willful neglect, though the tax and interest remain due.⁷ For any seller shipping in volume, the cleanest fix is to configure invoicing and accounting so shipping always prints on its own line and posts to its own account.

1
Michigan Department of Treasury. Delivery and Installation Charges
2
Michigan Department of Treasury. Revenue Administrative Bulletin 2023-16
3
Michigan Department of Treasury. Sales and Use Taxes
4
Streamlined Sales Tax Governing Board. Motion SL23021/AM23003: Delivery Charges and Sales Price
5
Michigan Department of Treasury. Sales and Use Tax Information for Remote Sellers
6
Michigan Legislature. Michigan Compiled Laws MCL 205.101
7
Michigan Legislature. Michigan Compiled Laws MCL 205.24