Is SaaS and AI Taxable in Michigan? Delivery Is the Line — and Michigan Already Tried Multiple Points of Use

Key Takeaway: Michigan does not tax SaaS, remotely accessed software, AI services, or non-software digital content. What it taxes is prewritten computer software the customer actually receives, at a flat 6% with no local sales tax anywhere in the state. The line is not tangible media versus electronic delivery — it is delivery versus access. And there is a second thing worth knowing about Michigan: it is the one state that built a multiple-points-of-use apportionment regime for software and then tore it out.

The Framework

Michigan imposes sales tax under the General Sales Tax Act and a parallel use tax under the Use Tax Act. Both define "tangible personal property" to include prewritten computer software, and both define that term identically.

I read MCL 205.51a as currently published. Subsection (p) defines "prewritten computer software" as "computer software, including prewritten upgrades, that is delivered by any means and that is not designed and developed by the author or other creator to the specifications of a specific purchaser." Subsection (r) defines tangible personal property as property "that can be seen, weighed, measured, felt, or touched or that is in any other manner perceptible to the senses and includes electricity, water, gas, steam, and prewritten computer software."

Two consequences follow. First, delivery medium is irrelevant — the folk rule that discs are taxable and downloads are exempt describes law Michigan does not have. Second, Michigan has no digital-products provision at all, so if a digital item is not prewritten computer software there is no hook to tax it.

Michigan taxes tangible personal property plus a short enumerated list of services, and neither data processing nor information service is on it. The digital analysis therefore reduces to one question: did the customer receive software?

What the Department Actually Says

The controlling guidance is Revenue Administrative Bulletin 2023-10, approved July 31, 2023 and captioned "Sales and Use Taxation of Computer Software and Digital Goods (Replaces Revenue Administrative Bulletin 1999-5)." I read it in full this morning; it is retroactive to all tax periods open under the statute of limitations as of its approval date. Anyone still working from RAB 1999-5 is working from a bulletin the Department has replaced.

RAB 2023-10 builds on two Michigan appellate decisions it treats as binding, described here as the bulletin describes them rather than from the opinions themselves: Catalina Marketing Sales Corp v Department of Treasury, 470 Mich 13 (2004), and Auto-Owners Insurance Co v Department of Treasury, 313 Mich App 56 (2015).

The bulletin's summary of the delivery test runs in three steps:

• No delivery. If the software will not be accessed or used through a download or other application stored locally on the customer's hardware, there is no delivery, and the transfer — by subscription or otherwise — is not a taxable sale or use of tangible personal property.

• Some delivery. If part of the software is reached through downloaded or locally stored code — the bulletin's examples are a "desktop agent" or "local client" — that software is prewritten computer software.

• Delivered in its entirety. A full download, locally stored, is generally taxable.

Example 1 is a browser-accessed database subscription where all code lives on the vendor's servers: not taxable. Example 2 is a service where the customer submits variables over the internet and gets analysis back, downloading nothing: not taxable. Both are the shape of most AI products sold today.

The Part That Catches Agent Products

Finding delivery does not end the analysis. Where a transaction mixes prewritten software with services, the Department applies the Catalina incidental-to-service test, and RAB 2023-10 works two examples to opposite results.

In Example 3 a conferencing vendor bills one lump sum and the customer downloads a support program; every factor points toward service, and the transaction is not taxable. In Example 4 a vendor sells subscription access to software it develops and customers must download a desktop agent to reach it. Same download, opposite answer: the customer is primarily seeking the software, so the entire subscription fee is taxable.

The distinction is not the client binary but what the customer is buying. Shipping a local runtime does not by itself create Michigan tax, and omitting one does not by itself avoid it. What matters is whether you sell a service that happens to install something, or software that happens to come with support.

Non-Software Digital Content

Here Michigan is broadly favorable and unusually explicit. RAB 2023-10 states that where an item is a digital good that does not fall within the definition of prewritten computer software, it is not subject to sales or use tax regardless of whether it is downloaded, streamed, or accessed through a subscription service. Its examples include recorded music, streamed film, ebooks, digital images, fonts, and non-fungible tokens. The caution runs the other way: a product marketed as content or data that actually delivers an installable tool is software.

Michigan Already Ran the Multiple-Points-of-Use Experiment

This is the part of the Michigan record nobody writes up, and it is live again.

Before 2009, a business purchaser who knew at the time of purchase that electronically delivered software would be concurrently available in more than one taxing jurisdiction could hand the seller a multiple points of use exemption form, under MCL 205.70 and MCL 205.102. The seller was relieved of liability; the purchaser paid apportioned tax on a direct-pay basis.

Public Acts 438 and 439 of 2008 repealed those provisions, effective January 9, 2009. RAB 2023-10 states the consequence plainly: general sourcing now applies, so a sale sourced to Michigan is taxable here on the full sales or purchase price even if the software might also be used outside Michigan. Its Example 14 is blunt — a purchaser announces intended multi-state use and provides an MPU certificate, and the retailer is liable for Michigan tax on the full sale anyway.

One state, one answer, no apportionment. Michigan ran the alternative for about five years and abandoned it.

I flag this because California's CDTFA is running an informal rulemaking whose topic title includes new Regulation 1600.2, "Digital Products Purchased for Multiple Points of Use," with an interested parties meeting set for September 10, 2026. California is about to build the thing Michigan removed. I do not know why Michigan repealed it and I will not guess — but when the discussion paper lands, "what happened in Michigan" is a fair question to put on the table.

The underlying problem is unsolved in both directions. Apportionment regimes measure by licensed users or terminals, and an agent operator has neither. Michigan's answer at least has the virtue of being computable.

What to Collect

| Category | Michigan |
|---|---|
| SaaS, hosted AI, remote access | $0 |
| Data processing, information services | $0 |
| Non-software digital content | $0 |
| Prewritten software delivered by any means | 6% |
| Custom software (built to the purchaser's specifications) | $0 |
| Local sales tax | none — 6% is the complete rate |

Michigan draws no buyer-type distinction: exempt is exempt for everyone, and taxable software is taxable for everyone. Economic nexus is $100,000 in sales or 200 transactions, either prong — and total Michigan sales count toward it, including sales that turn out to be nontaxable. A pure-SaaS seller can cross into registration obligations while collecting nothing.

How AgentTax Handles Michigan

Verified against the live engine this morning, for a $100 transaction into Michigan:

• SaaS, API access, compute, cloud infrastructure, storage, model access, subscriptions, consulting and data processing all compute at $0, with the Auto-Owners and RAB 2023-10 lineage in the audit trail.

• Digital-good and license transactions compute at 6% — $6 — the right answer for a software download or software license.

• Data purchases compute at $0 through a dedicated sub-rule: a dataset or report download is not prewritten software, and Michigan has no digital-products tax to catch it.

• The generic digital-good category is a deliberate conservative hold. A transaction typed only as digital_good cannot tell us whether the customer received software or content, and Michigan gives those opposite answers. We tax it. If you sell content, type it accordingly.

• An explicit work_type overrides the product-level classification. Sending digital_good with work_type: content computes $0, not $6. That is intended, and worth knowing before you wire it up.

• We carry no Michigan ZIPs in the local-rate table, so a Michigan calculation with a ZIP returns the state rate plus a ZIP-unknown advisory. Michigan is the one state where that costs nothing — with no local sales taxes, 6% is already the whole answer.

What we do not do, in Michigan or anywhere, is apportion: one destination state, one answer. In Michigan that matches the law. In a state that adopts multiple points of use it will not, and we are saying so before that regulation exists.

Try it on your own transaction types. Get a free API key, or see how Michigan compares in the 50-state SaaS taxability guide and the AI agent sales tax hub.

This analysis is for informational purposes only and does not constitute legal or tax advice. This post reflects AgentTax's current interpretation of evolving law. Consult a licensed tax professional for compliance decisions.