Q: I run a lan center in Michigan, my customers purchase time on my equipment. Do i owe sales tax?
I run a lan center in Michigan, my customers purchase time on my equipment. There are no physical products being bought or sold, Do I owe sales tax to the state on those purchases? I've been paying the standard 6% sales tax on every transaction at my business for 2 years now and am wondering if I should have been paying the state for these types of transactions. Thanks!
A: Call the Michigan Department of Revenue and ask them this non-legal question.
A: Generally sales or use tax applies to the purchase of tangible personal property that is not then resold as part of another taxpayer's business activity. What you appear to be selling to customers is the right to use a computer for gaming purposes for a set period of time, similar to an old school arcade but on better computer systems and possibly via the cloud. If this is correct, this "sale" does not appear to fit within the type of sales that are subject to the Michigan 6% sales or use tax. Note though that the statute does subject certain telecommunications activities and software as services transactions to the sales/use tax. You should also consider whether you pay sales tax the computer equipment and gaming vendors for gaming equipment. Generally, when a business pays sales tax to an equipment seller, they do not then charge the same tax on the use of that same equipment. Sales/use tax generally applies once to the end purchaser. You should consider talking this issue over with your tax preparer and note that collecting and remitting unnecessary sales taxes can trigger certain refund obligations. If you contact the Michigan department of revenue, do so on an anonymous basis.
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