Most services in Michigan are not subject to the state’s 6% sales tax. The tax applies to retail sales of tangible personal property — things you can see, touch, or measure — so if you’re paying for someone’s expertise, labor, or time rather than buying a physical item, the transaction generally falls outside the sales tax entirely. Professional services, personal care, repair labor, real property work, custom software, SaaS, and digital goods are all untaxed. The notable exceptions are telecommunications and hotel or motel lodging.
Why Services Are Untaxed by Default
Michigan’s General Sales Tax Act imposes 6% on the gross proceeds of businesses selling tangible personal property at retail.1Michigan Legislature. Michigan Compiled Laws 205.52 The statute defines tangible personal property as anything “perceptible to the senses,” and specifically includes electricity, water, gas, steam, and prewritten computer software.2Michigan Legislature. Michigan Compiled Laws 205.51a Services aren’t on the list. They aren’t tangible property, and the legislature has only pulled a few specific service categories into the tax base.
That matters because it flips the usual question. You don’t need to claim an exemption or file paperwork to avoid sales tax on a service. The service was never within reach of the tax to begin with. The real question for any transaction is whether tangible personal property changes hands, and if it does, whether the goods or the service is the point of the deal.
Professional and Personal Services
Professional services are squarely outside the sales tax. That covers legal work, accounting, medical and dental care, engineering, and consulting — anything where you’re paying for expertise rather than a product.1Michigan Legislature. Michigan Compiled Laws 205.52 A dentist using filling material during a procedure is selling dental care, not dental supplies. A lawyer printing out a contract is selling legal advice, not paper.
Personal care services work the same way. Haircuts, massages, laundry, and similar services involve no meaningful transfer of goods to the customer, so the 6% tax doesn’t apply. If a barber uses styling gel on you, the gel is incidental to the haircut, and the whole charge stays untaxed.
Work on Your Home or Land
Services performed on real property fall outside the sales tax as well. Construction, home improvement, painting, lawn care, pest control, and janitorial cleaning are all labor-based activities where the value lies in the work done on your building or land, not in a product sold to you.
The contractor doing the work still owes tax on the materials they purchase to complete the job. That’s the contractor’s cost, not something the customer pays as a line-item sales tax — but it does get built into pricing.
Repair and Installation: Watch the Invoice
Repair and installation jobs usually involve both labor and parts, and this is where billing practices actually change what you pay. Michigan allows the labor portion to stay tax-free, but only when the invoice separates it from the materials.
Contractors who hold themselves out as retailers may itemize labor and materials, charging 6% only on the retail price of the parts. A lump-sum bill that doesn’t break out labor can be taxable on the entire charge.3Michigan Department of Treasury. Contractor Audit Manual – February 2024 On an HVAC repair with an $800 compressor and $500 of labor, an itemized bill produces $48 in tax. A single $1,300 line can produce $78. Same job, $30 difference.
If you’re hiring a contractor, ask for an itemized invoice. If you’re the contractor, itemize every time.
Warranties and Maintenance Contracts
Optional and extended warranties are treated as sales of non-taxable services. When a warranty is separately stated on the invoice and optional — whether you buy it at the time of sale, after the sale, or on used equipment — the warranty itself is not taxed.4State of Michigan. Sales Tax Treatment of Warranties Only mandatory manufacturer warranties bundled into the original equipment price are subject to sales tax.
Extended maintenance contracts — ongoing agreements for things like oil changes or system checks — get the same treatment. The contract sale is untaxed. Parts used to fulfill the warranty or maintenance work, however, are taxable to the dealer performing the repair.4State of Michigan. Sales Tax Treatment of Warranties For a consumer, that’s a straightforward win: no sales tax on the warranty you buy.
Custom Software, SaaS, and Digital Goods
Software taxability depends on one question: was it built for a specific buyer, or sold off the shelf to the general public? Custom software designed to a particular buyer’s specifications is exempt from sales and use tax. Prewritten or “canned” software is taxable as tangible personal property regardless of whether it’s shipped on a disc or downloaded.5State of Michigan. Revenue Administrative Bulletin 2023-10
Modifications to prewritten software can also qualify for the exemption if they’re designed to a specific customer’s needs and the charges are separately stated on the invoice.5State of Michigan. Revenue Administrative Bulletin 2023-10 Once the customization work is broken out, that portion becomes exempt. If it isn’t broken out, the exemption is lost.
Software-as-a-service, where you access software through a browser rather than installing it, is not subject to Michigan sales tax. The state treats SaaS as a service rather than a transfer of property.
Digital goods — e-books, downloaded music, podcasts, streaming content — are also not subject to Michigan sales tax. The Department of Treasury clarified this in 2016, confirming that digital goods don’t fit the definition of tangible personal property. Many states tax digital downloads; Michigan does not.
Advertising and Media Services
Advertising agencies, media buyers, and creative consultants sell intangible work: strategy, brand development, campaign management, and media placement. Those fees are not taxable. A media buyer purchasing airtime is performing a service.
The line appears when the agency produces physical materials. Printed brochures, banners, and branded merchandise sold to a client are taxable goods. The creative work behind them isn’t. Agencies that produce both should itemize the service fees separately from the physical deliverables.
Which Services Are Taxed
A few service categories have been pulled into Michigan’s tax base, and they’re worth knowing so you don’t assume blanket exemption. Telecommunications is the biggest. Intrastate and interstate phone services that originate or terminate in Michigan are subject to the 6% use tax, covering paging, conference bridging, 900 services, and value-added data services. Internet access is explicitly excluded from the definition of telecommunications and is not taxed.6Michigan Legislature. Michigan Compiled Laws 205.93a
Hotel and motel accommodations are also taxable.7State of Michigan. Sales and Use Taxes Outside of telecom and lodging, a service-based business in Michigan is almost certainly outside the sales tax.