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Service Providers Excise Tax Act | House Bill 5918

Service Providers Excise Tax Act | House Bill 5918

While the details of House Bill 5198 — known as the Service Providers Excise Tax Act — continue to be defined by the Michigan Legislature, it is clear that many businesses not previously subject to sales tax will now be subject to some form of sales tax. Historically, receipts from services have been excluded from the sales tax provisions. With this Bill, all that changes.

Many of the services that will now be subject to a 6% sales tax are defined by the North American Industry Classification System (NAICS). It is important to note that the service is subject to this tax based on the description of the service — and not the classification of the business providing the service. Services affected are listed below.

  • Consulting services. [NAICS Code 5416]
  • Investment advice services. [NAICS Code 52393]
  • Warehousing and storage services. [NAICS Code 4931]
  • Mini-warehouse services and self-storage unit services. [NAICS Code 53113]
  • Personal care services, except hair care services. [NAICS Code 8121]
  • Office administration services. [NAICS Code 5611]
  • Specialized design services. [NAICS Code 5414]
  • Janitorial services. [NAICS Code 56172]
  • Landscaping services. [NAICS Code 56173]
  • Carpet and upholstery cleaning services. [NAICS Code 56174]
  • Business service center services. [NAICS Code 56143]
  • Investigation, guard and armored car services. [NAICS Code 56161]
  • Other travel and reservation services. [NAICS Code 56159]
  • Scenic transportation services. [NAICS Code 487]
  • Skiing services. [NAICS Code 71392]
  • Tour operator services. [NAICS Code 56152]
  • Packaging and labeling services. [NAICS Code 56191]
  • Transit and ground passenger transport services. [NAICS Code 4853]
  • Courier and messenger services [NAICS Code 492]
  • Security system services. [NAICS Code 56162].
  • Document preparation services. [NAICS Code 56141].
  • Service contract services in which the seller, in exchange for the buyer’s single payment, agrees to provide repair, maintenance, or replacement of one or more items of tangible personal property during a specific period of time, which services the buyer is not required to buy in connection with the purchase of tangible personal property.

All of the following personal services:

  • Astrology services
  • Baby shoe bronzing services
  • Bail bonding services
  • Balloon-o-gram services
  • Coin-operated blood pressure testing machine services
  • Bondsperson services
  • Check room services
  • Comfort station operation services
  • Concierge services
  • Consumer buying services
  • Credit card notification services
  • Dating services
  • Discount buying services
  • Social escort services
  • Fortune-telling services
  • Genealogical investigation services
  • House sitting services
  • Social introduction services
  • Coin-operated rental locker services
  • Numerology services
  • Palm reading services
  • Party planning services
  • Pay telephone services
  • Personal fitness trainer services
  • Personal shopping services
  • Coin-operated photographic machine services
  • Phrenology services
  • Porter services
  • Psychic services
  • Rest room operation services
  • Shoeshine services
  • Singing telegram services
  • Wedding chapel services (excluding churches)
  • Wedding planning services

As this Tax Act unfolds, please call us with questions you may have. We will be providing updates related to this tax and other changes in the Michigan tax laws.

NAICS Code 5416—Consulting Services This industry code covers most consulting areas and will consequently affects many tax-payers. Management consulting services comprises establishments primarily engaged in providing advice and assistance to businesses and other organizations on management issues, such as strategic and organizational planning; financial planning and budgeting; marketing objectives and policies; human resource policies; practices and planning; production scheduling; and control planning [54161]. Administrative management and general management consulting services includes establishments primarily engaged in providing operating advice and assistance to businesses and other organizations on administrative management issues, such as financial planning and budgeting; equity and asset management; records management; office planning; new business start-up; and business process improvement. This industry also includes establishment of general management consultants that provide a full range of administrative; human resource; marketing; process, physical distribution and logistics; or other management consulting services to clients [541611]. Human resource consulting services include advice and assistance to businesses and other organizations in one or more of the following areas: 1) human resource and personnel policies, practices, and procedures; 2) employee benefits planning, communication, and administration; 3) compensation systems planning; and 4) wage and salary administration [541612]. Marketing consulting services are comprised of establishments primarily engaged in providing operating advice and assistance to businesses and other organizations on marketing issues such as developing marketing objectives and policies; sales forecasting; new product development and pricing; licensing and franchise planning; and marketing planning and strategy [541613]. The industry of process, physical distribution, and logistics consulting services is defined as establishments primarily engaged in providing operating advice and assistance to businesses and other organizations in areas such as: 1) manufacturing operations improvement; 2) productivity improvement; 3) production planning and control; 4) quality assurance and quality control; 5) inventory management; 6) distribution networks; 7) warehouse use, operations, and utilization; 8) transportation and shipment of goods and materials; and 9) materials management and handling [541614]. Other management consulting services includes all management consulting services not described above. It also includes establishments providing telecommunications or utilities management consulting services [541618]. Environmental consulting services comprises establishments primarily engaged in providing advice and assistance to businesses and other organizations on environmental issues such as the control of environmental contamination from pollutants, toxic substances, and hazardous materials. These establishments identify problems, measure and evaluate risks, and recommend solutions. They employ a multi-disciplined staff of scientists, engineers, and other technicians. Establishments providing sanitation or site remediation consulting services are included in this industry code [541620]. Other scientific and technical consulting services encompasses advice and assistance to businesses and other organizations on scientific and technical issues (except environmental) [541690].

NAICS Code 523930—Investment Advisors This large service industry comprises establishments primarily engaged in providing customized investment advice to clients on a fee basis, but do not have the authority to execute trades. Primary activities performed by such establishments are providing financial planning advice and investment counseling to meet the goals and needs of specific clients.

NAICS Code 4931 and 53113—Warehousing and Storage Services Warehousing and storage are set out in two NAICS classifications. NAICS Code 53113 includes mini-warehouse services and self-storage unit services and is described as establishments primarily engaged in renting or leasing space for self-storage. These businesses provide secure space where clients can store and retrieve their goods. NAICS Code 4931, warehousing and storage services, consists of several sub-categories, however, the general definition includes those establishments primarily engaged in operating warehousing and storage facilities for general merchandise, refrigerated goods, and other warehouse products. These establishments provide facilities to store goods. They do not sell the goods they handle. These establishments take responsibility for storing the goods and keeping them secure. They may also provide a range of services, often referred to as logistics services, related to the distribution of goods. Logistics services can include labeling, breaking bulk, inventory control and management, light assembly, order entry and fulfillment, packaging, pick and pack, price marking and ticketing, and transportation arrangement. However, establishments in this industry group always provide warehousing or storage services in addition to any logistic services. Furthermore, the warehousing or storage of goods must be more than incidental to the performance of services, such as price marking. Bonded warehousing and storage services and warehouses located in free-trade zones are included in the industries of this subcategory.

NAICS Code 8121—Personal Care Services The tax will be imposed on personal care services, excepting hair care services. These services include nail care services, facials or make-up services, tanning salons, and massage parlors. Also included are non-medical services to assist clients in attaining or maintaining a desired weight. The sale of weight reduction products, such as food supplements, may be an integral component of the program. These services typically include individual or group counseling, menu and exercise planning, and weight and body measurement monitoring.

NAICS Code 5611—Office Administrative Services Businesses in this NAICS classification of office administrative services generally provide a range of day-to-day office administrative services such as financial planning; billing and recordkeeping; personnel; and physical distribution and logistics for others on a contract or fee basis. These establishments do not provide operating staff to carry out the complete operations of a business.

NAICS Code 5414—Specialized Design Services Specialized design services is an industry comprised of establishments providing specialized design services except architectural, engineering, and computer design. Included in specialized design services is interior design services engaged in planning, designing, and administering projects in interior spaces to meet the physical and aesthetic needs of people using them, taking into consideration building codes, health and safety regulations, traffic patterns and floor planning, mechanical and electrical needs, and interior fittings and furniture. Interior designers and interior design consultants work in areas such as hospitality design, health care design, institutional design, commercial and corporate design, and residential design. This industry also includes interior decorating consultants engaged exclusively in providing aesthetic services associated with interior spaces [541410]. Also within the realm of specialized design services is industrial design services described as services performed in creating and developing designs and specifications that optimize the use, value, and appearance of their products. These services can include the determination of the materials, construction, mechanisms, shape, color, and surface finishes of the product, taking into consideration human characteristics and needs, safety, market appeal, and efficiency in production, distribution, use, and maintenance. Establishments providing automobile or furniture industrial design services or industrial design consulting services are included in this industry [541420]. Graphic design services engaged in planning, designing, and managing the production of visual communications in order to convey specific messages or concepts, clarify complex information, or project visual identities are also included in are also included in specialized design services. These services can include the design of printed materials, packaging, advertising, signage systems, and corporate identification (logos). This industry also includes commercial artists engaged exclusively in generating drawings and illustrations requiring technical accuracy or interpretative skills [541430]. And, finally, the classification of other specialized design services includes all professional design services not covered above [541490].

NAICS Codes 56172, 56173 and 56174—Cleaning and Landscaping Services Classifications 56172, 56173, and 56174 are very specific but affect many small businesses in the service arena. Janitorial services include cleaning building interiors, interiors of transportation equipment, and/or windows [56172]. This classification is identified as landscaping services and comprises: 1) establishments primarily engaged in providing landscape care and maintenance services and/or installing trees, shrubs, plants, lawns, or gardens; and 2) establishments primarily engaged in providing these services along with the design of landscape plans and/or the construction (i.e. installation) of walkways, retaining walls, decks, fences, ponds, and similar structures [56173]. Services provided in cleaning and dyeing used rugs, carpets

NAICS Code 56143—Business Service Centers Establishments primarily engaged in providing mailbox rental and other postal and mailing services (except direct mail advertising). Establishments, generally known as copy centers or shops, primarily engaged in providing photocopying, duplicating, blueprinting, and other document copying services without also providing printing services (i.e., offset printing, quick printing, digital printing, prepress services). Establishments that provide a range of office support services (except printing services) such as mailing services, document copying services, facsimile services, word processing services, on-site PC rental services, and office product sales.

If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.