The Michigan Department of Treasury has just released the new sales and use tax standards for remote sellers. Prior to 2018, Michigan could not force sellers without a physical presence in the state to remit sales or use tax to the state. On June 21, 2018, the U.S. Supreme Court overturned this longstanding restriction and states may now tax remote sellers more broadly. Michigan’s updated standards go into effect on October 1, 2018.
According to the standards, “A seller that has substantial nexus in Michigan is required to remit sales or use tax on sales of taxable tangible personal property made into this state and file all required returns.” Substantial nexus may be established:
1) If a seller has a physical presence in Michigan;
2) If a seller has a variation of physical presence in the state, such as where a seller uses a subsidiary to sell goods into the state or where a seller maintains a warehouse for delivery of goods into the state; or
3) By an established economic presence defined by the U.S. Supreme Court in South Dakota v Wayfair, Inc,
Beginning on October 1, 2018, if in the previous calendar year a seller had more than $100,000 of sales into Michigan, or if the seller completed 200 or more transactions of sales into Michigan, the seller is presumed to have an economic presence in the state of Michigan. Where the seller has an economic presence in Michigan, the seller has substantial nexus in Michigan, and therefore must remit sales and use tax to Michigan for those sales made into Michigan. This guidance applies prospectively, but the rule requires sellers to review sales from the 2017 calendar year to determine if they have substantial nexus come October 1, 2018. If substantial nexus is established for 2018 under the economic presence test, the seller only incurs tax liability for those sales that occur after October 1, 2018. Once economic presence is established, the seller must remit taxes every year “until a calendar year passes, in which it does not meet either of the economic nexus thresholds.” as stated in the sales and use tax standards.
Tax must be remitted and reported as sales tax if a seller has substantial nexus in Michigan and it makes a retail sale to a Michigan purchaser. Tax must be remitted and reported as a use tax if a seller has substantial nexus in Michigan, it makes a retail sale to a Michigan purchaser, and the transfer of ownership occurs outside the state of Michigan. Additionally, all sellers with substantial nexus in Michigan must file sales tax returns with Michigan Treasury.
For more information on compliance with the new Michigan sales and use tax standards, please contact Terry Zabel or another member of the Rhoades McKee Tax Team.More Publications