Legislative Analysis
Phone: (517) 373-8080
INDUSTRIAL PROCESSING EXEMPTIONS FOR
http://www.house.mi.gov/hfa
ACTIVITIES PERFORMED ON AGGREGATES
Analysis available at
House Bill 4054 as enacted http://www.legislature.mi.gov
Public Act 30 of 2023
Sponsor: Rep. Greg VanWoerkom
House Committee: Tax Policy
Senate Committee: [Referred to Committee of the Whole]
Senate Bill 97 as enacted
Public Act 27 of 2023
Sponsor: Sen. Joseph N. Bellino, Jr.
House Committee: Tax Policy [Discharged]
Senate Committee: Finance, Insurance, and Consumer Protection
Complete to 5-16-23
SUMMARY:
House Bill 4054 and Senate Bill 97 amend the General Sales Tax Act and the Use Tax Act,
respectively, to change the scope and applicability of the industrial processing exemptions
under those acts to include certain industrial processing activities performed on aggregate
products or materials.
Generally speaking, both acts exempt sales of tangible personal property that is to be used in
industrial processing. Each act contains a list of activities that constitute industrial processing.
Each act also lists the kinds of personal property that are eligible for an industrial processing
sales tax exemption and those that are not eligible for the exemption.
The bills provide that property that performs an industrial processing activity on an aggregate
product or material that will be used as an ingredient or component part for the construction,
maintenance, repair, or reconstruction of real property in Michigan is eligible for an industrial
processing exemption as long as that aggregate product or material is subject to the use tax
under the Use Tax Act. This provision applies notwithstanding another that provides that
industrial processing does not include design, engineering, construction, or maintenance of real
property and nonprocessing equipment.
Aggregate means common variety building materials such as sand, gravel, crushed
stone, slag, recycled concrete, recycled asphalt, and geosynthetic aggregates.
The bills also add that “industrial processing” includes the production, manufacturing, or
recycling of aggregate by the property described above, and for the purpose described above,
as long as that aggregate is subject to the use tax under the Use Tax Act. The bills make
complementary amendments to the definitions of “industrial processing” and “industrial
processor” for purposes of the provisions governing the industrial processing exemption.
In addition, and notwithstanding anything to the contrary in the applicable act, the bills require
the Department of Treasury to cancel any outstanding balances on notices of intent to assess
or final assessments that were issued before May 8, 2023 (the bills’ effective date) that are
related to the industrial processing activities and property exempted under the bills. The
House Fiscal Agency Page 1 of 2
 department is required to cancel those balances within 90 days of May 8, 2023, and is
prohibited from issuing any new assessments on those activities and property for any tax period
before May 8, 2023.
Finally, House Bill 4054 adds new language to the definitions of “industrial processing” and
“industrial processor” in the General Sales Tax Act to include converting or conditioning
tangible personal property for use in the manufacturing of a product to be affixed to and made
a structural part of real estate located in another state. (The Use Tax Act already included this
language.)
Each bill contains an enacting section stating that it is the intent of the legislature to appropriate
sufficient funds from the general fund to the State School Aid Fund (SAF) to fully compensate
for any loss of revenue to the SAF resulting from the bills’ enactment.
The bills took effect May 8, 2023.
House Bill 4054 (General Sales Tax Act): MCL 205.54t
Senate Bill 97 (Use Tax Act): MCL 205.94o
BRIEF DISCUSSION:
According to House committee testimony, recent audits have called into question whether the
equipment used in aggregates production qualifies for the full industrial processing exemption
depending on where the end product is used. The bills are intended to clarify that this
equipment is eligible for the full exemption regardless of where the end product is used.
Supporters of the bills argue that the aggregate is subject to either sales or use tax regardless
of where it is used and that providing the full exemption to the equipment avoids “tax
pyramiding,” or taxing both the production of a good and the final product.
FISCAL IMPACT:
Based on information provided by the Michigan Department of Treasury, the bills would likely
reduce sales and use tax revenue by roughly $1.0 million or potentially less on an ongoing
annual basis. The forgone revenue in the first year would be significantly higher than the annual
impact due to the provisions of the bills requiring Treasury to cancel outstanding balances on
notices of intent to assess or final assessments.
About one-third of use tax revenue is earmarked to the School Aid Fund (SAF), with the rest
accruing to the general fund. Roughly 73% of sales tax revenue is earmarked to the SAF, with
an additional 10% constitutionally dedicated to local revenue sharing. The majority of the
remainder accrues to the general fund.
However, the bills contain intent language that the general fund will reimburse the School Aid
Fund so as to hold the SAF harmless.
Legislative Analyst: Alex Stegbauer
Fiscal Analysts: Jim Stansell
Ben Gielczyk
■ This analysis was prepared by nonpartisan House Fiscal Agency staff for use by House members in their
deliberations and does not constitute an official statement of legislative intent.
House Fiscal Agency HB 4054 and SB 97 as enacted Page 2 of 2


Statutes affected:
Substitute (S-2) AND AMENDMENT(S): 205.94
Substitute (S-2): 205.94
Senate Introduced Bill: 205.94
As Passed by the Senate: 205.94
As Passed by the House: 205.94
Senate Concurred Bill: 205.94
Public Act: 205.94
Senate Enrolled Bill: 205.94