In Michigan, SaaS that the customer uses only through a web browser is not subject to sales or use tax. The Michigan Department of Treasury's Revenue Administrative Bulletin (RAB) 2023-10 says that when software is not accessed or used through a download or an application stored on the customer's hardware, there is no delivery of software and no taxable sale. If the customer must download a desktop agent or local application, the transaction can become taxable at Michigan's 6% rate.
This guide explains the delivery test, how Treasury handles subscriptions that include some downloaded code, and what Michigan's nexus rules mean for SaaS sellers. It is educational information, not tax advice. For other states, see our SaaS sales tax by state guide.
Michigan SaaS sales tax at a glance
| Question | Answer |
|---|---|
| Is SaaS taxable? | Not taxable when accessed only through a browser |
| Key authority | RAB 2023-10; Auto-Owners Ins. Co. v. Department of Treasury, 313 Mich App 56 (2015) |
| When it can be taxable | Software downloaded or stored locally, such as a required desktop agent |
| Rate | 6% state; no local sales tax |
| B2B vs B2C | No general business exemption |
| Custom software | Exempt |
| Nexus threshold | More than $100,000 in gross sales or 200 or more transactions |
The delivery test
Michigan taxes "prewritten computer software" as tangible personal property, but only when it is delivered to the buyer by some means. RAB 2023-10, which replaced RAB 1999-5, relies on the Court of Appeals decision in Auto-Owners to draw the line:
- No download. If the customer does not access or use the software through a download or an application stored locally on its hardware, there is no delivery. Treasury says the transfer, "by subscription or otherwise," is not a taxable retail sale or use of prewritten computer software.
- Some code delivered. If the customer receives some software, such as a desktop agent needed to use the service, the software counts as delivered. Treasury then applies the Catalina Marketing "incidental to service" test to the whole transaction.
- Full download. Software that is downloaded and runs on the customer's device is taxable.
Treasury also states that labels such as IaaS, PaaS, and SaaS are not decisive. What matters is whether software is delivered.
Examples from RAB 2023-10
- A vendor sells a subscription where all code stays on its servers and the customer uses a web browser with no desktop agent. Not taxable.
- A conferencing service includes a small downloaded support tool, but the software is incidental to the service being provided. Not taxable.
- A subscription that requires the customer to download a desktop agent to use the service. Taxable.
B2B vs B2C
Michigan does not have a general exemption for software bought by businesses. When delivered software is taxable, it is taxable for both business and consumer buyers unless a specific exemption applies, such as industrial processing, agricultural production, or data center exemptions.
Other rules that affect SaaS sellers
- Custom software is exempt, and separately stated charges to modify prewritten software are also exempt.
- Maintenance contracts: under an optional contract, software updates and upgrades are taxable, while separately itemized support is not. When a maintenance contract is mandatory or priced as a lump sum, the incidental-to-service test applies.
- Digital goods that are not software, such as e-books, music, and streaming video, are not taxable in Michigan.
- No multiple-points-of-use apportionment. Michigan repealed its multiple-points-of-use exemption effective January 9, 2009. When taxable software is sold to a Michigan buyer, the full price is taxable even if the software is also used elsewhere.
Nexus and registration
A remote seller has nexus with Michigan if, in the previous calendar year, it made more than $100,000 in gross sales or 200 or more separate transactions with Michigan customers. Treasury counts gross sales, including nontaxable and exempt sales, so browser-only SaaS revenue counts toward the threshold even though it is not taxed. A seller that crosses the threshold registers with Treasury starting January 1 of the following year.
Registration matters most for SaaS companies that also sell downloadable software, devices, or other taxable items. For rates, filing frequencies, and registration steps, see our Michigan sales tax guide.
What to do next
- Determine whether any product requires a download, installed agent, or local app.
- For products with downloaded components, assess whether the software is incidental to a service under RAB 2023-10.
- Separately itemize support, custom work, and software on invoices.
- Track Michigan gross sales and transactions, including SaaS revenue, against the threshold.
Kintsugi maps each product to Michigan's rules and monitors nexus across every state. See Kintsugi for SaaS.
Frequently asked questions
Is SaaS taxable in Michigan?
Not when the customer uses it only through a browser. Under RAB 2023-10, software that is not downloaded or stored locally on the customer's hardware is not delivered, so there is no taxable sale.
When does SaaS become taxable in Michigan?
When the customer receives software, such as a required desktop agent or local app. Treasury then applies the incidental-to-service test to decide whether the whole transaction is taxable.
What is the Michigan sales tax rate?
6%. Michigan has no local sales taxes.
Does SaaS revenue count toward Michigan's economic nexus threshold?
Yes. Michigan's threshold counts gross sales, including nontaxable and exempt sales.
Is B2B software taxable in Michigan?
Delivered prewritten software is taxable for business buyers unless a specific exemption applies. Browser-only SaaS is not taxable for businesses or consumers.
Sources
- Michigan Department of Treasury, Revenue Administrative Bulletin 2023-10, Sales and Use Taxation of Computer Software and Digital Goods
- Michigan Department of Treasury, Remote seller FAQ
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