Michigan – Taxability of the Low-Income Energy Assistance Fund Surcharge

SALT Report 3017 – The Michigan Department of Treasury issued a letter ruling regarding whether the Low-Income Energy Assistance Fund surcharge found on the monthly bills of utility customers is subject to sales tax.

LIEAF was created by the Public Service Commission to create a low-income energy assistance fund for electric utility companies.  The $1 surcharge is added to every utility customer’s monthly bill. While the customer is required to pay the surcharge if it is on their bill, the surcharge will not be added to a bill if a utility company opts out of LIEAF.  However, if the utility company opts out, it cannot shut-off utility services to any residential customer who has a delinquent account from November 1st through April 15th.

The Department was asked to determine whether the LIEAF surcharge was subject to sales tax as part of the total sales price or if it was considered a taxable fee.  In its response, the Department stated that Michigan imposes tax on the gross proceeds or sales price of all taxable items.  Under MCL 205.51(1)(d) sales price is defined as “the total amount of consideration … for which tangible personal property or services are sold…”  However, MCL 205.51(1)(d)(iii) specifically excludes “any taxes legally imposed directly on the consumer that are separately stated on the invoice, bill of sale, or similar document given to the purchaser.”

Based on these regulations, the Department determined that the LIEAF surcharge is not for a service that is necessary to complete the sale, as all customers are billed for, and are required to pay, the surcharge, but they do not receive any additional services from the utility company.

Further, the Department stated that the LIEAF surcharge does not qualify as a taxable fee because a fee must serve a regulatory purpose rather than a revenue-raising purpose, a fee must be proportionate to the costs of the service, and a user fee must be voluntary.

Therefore, the Department stated that because the LIEAF surcharge is not paid in exchange for a service necessary to complete the sale, and the surcharge is a tax legally imposed directly on the consumer that is separately stated on the utility bill, and it does not meet the requirements of a taxable fee, it is excluded from the sales price and is not subject to tax under the General Sales Tax Act.

For Further Information

Michigan Department of Treasury – Letter Ruling #LR 2013-5