Mich. Admin. Code R 205.76 — Employer sales and employer-sponsored incentive programs

Rule 26. (1) When an employer sells tangible personal property to employees,
allows them to purchase through the organization or to buy from others on discounts
available to the employer, or in another manner obtain goods through the employer, the
sales are taxable.
(2) An employer shall report and pay tax on sales to employees under subrule (1) of
this rule, even if the employer is exempt from tax on the employer’s regular business.
(3) Tax applies on the sale of tangible personal property to an employer who
purchases that tangible personal property for free distribution to employees, unless the
tangible personal property is otherwise exempt. For example, tax would not apply to the
sale of goggles, protective gear, and other safety equipment to a manufacturer for use by
employees engaged in an exempt industrial process.
(4) The sale of tangible personal property to an employee by a third-party retailer
through an employer-sponsored rewards, performance improvement, or other incentive
program is taxable. The tax on any such transaction is imposed on the total value of the
points, rewards, or other consideration redeemed in the transaction for the tangible
personal property. Tax is not imposed on the redemption of any product that is not
tangible personal property.
Example: An employer contracts with a company to operate a points-based
incentive plan for employees. Under the plan, employees accumulate points that may
be used to redeem certain prizes from the company, including tangible personal
property and travel packages. Under the service agreement, the company then bills the
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employer based upon the value of points redeemed each period. Under this
arrangement, tax is imposed on any redemption of tangible personal property by the
employee based upon the total value of the points used to redeem that tangible
personal property. Tax is not imposed on any redemption of prizes that does not
involve tangible personal property, such as travel packages. The payments from the
employer to the company for the points redeemed each period relate to the operation
of the service agreement and are not taxable.