In the wake of the United States Supreme Court overturning Quill v. North Dakota, 504 U.S. 298 (1992), by its ruling in South Dakota v. Wayfair, 138 S. Ct. 2080 (2018), Michigan Department of Treasury issued a lot of guidelines, and changed its position on the sales and use tax nexus standard for online sellers. See Revenue Administrative Bulletin 2018-16. Previously, under Quill, in order for a state to impose sales or use tax on an out-of-state remote seller, the seller must have a “physical presence” in the state (in satisfaction of the “substantial nexus” element). However, the Supreme Court upheld a South Dakota law requiring remote sellers to remit sales tax if the seller’s sales exceeded $100,000 or the seller has 200 or more separate transactions with consumers in the state. Thus, the “substantial nexus” requirement is met if the seller “avails itself of the substantial privilege of carrying on business in that jurisdiction,” i.e. there’s an economic presence. South Dakota v. Wayfair, 138 S. Ct. 2080, 2099 (2018). In following suit, Michigan Department of Treasury, beginning October 1, requires all remote sellers with sales exceeding $100,000 or having 200 or more separate transactions with consumers in Michigan in the previous calendar year to remit sales or use tax on all sales in Michigan and file all required returns.
This means remote sellers must review their 2017 calendar sales to determine if they have an economic presence beginning October 1 (although remote sellers meeting the thresholds are not liable for tax, penalties, or interest for sales prior to October 1).
Remote sellers not meeting the threshold may still remit sales and use tax.
This change allows Michigan business to compete on a level playing field with online retailers (without a Michigan brick-and-mortar). While Michigan businesses are not ultimately impacted in Michigan by the change—Michigan businesses remotely selling in other states should become aware of the potential for other states to change their laws as well. This will effect Michigan businesses out-of-state reporting obligations dramatically.
The Michigan Department of Treasury estimates that tax revenue will increase by more than $200 million.
If you have any questions, please contact Emily Turbiak in the Detroit, Michigan office at 313-223- 3127 or firstname.lastname@example.org.