Michigan Expands Sales Tax Collection Requirements for Out-of-State Sellers
Jan. 22, 2015
On Jan. 15, following the lead of other states, Michigan enacted legislation expanding the sales tax collection requirements for out-of-state sellers by adding to affiliate nexus provisions and adopting a click-through nexus standard for transactions occurring on or after Oct. 1, 2015.
Under the new affiliate nexus law, an out-of-state seller of property to a customer in Michigan would be required to collect Michigan sales tax if the seller or an affiliate engages in or performs any of the following activities in Michigan.
- Sells a similar line of products and does so under the same business name as an affiliate doing business in Michigan
- Uses its employees, agents, representatives, or independent contractors in Michigan to promote or facilitate sales to purchasers in Michigan
- Maintains, occupies, or uses an office, distribution facility, warehouse, storage place, or similar place of business in Michigan to facilitate the delivery or sale of tangible personal property to purchasers in Michigan
- Consents to a Michigan affiliate’s use of the trademarks, service marks, or trade names (or those that are substantially similar) used by the out-of-state seller
- Delivers, installs, assembles, or performs maintenance or repair services for its purchasers in Michigan
- Facilitates the sale of tangible personal property in Michigan by allowing its purchasers to pick up or return tangible personal property at an office, distribution facility, warehouse, storage place, or similar place of business maintained by an affiliate in Michigan
- Shares management, business systems, business practices, or employees with an affiliate or engages in intercompany transactions with an affiliate related to activities that assist the seller to establish or maintain a market in Michigan
- Conducts any other activities in Michigan that are significantly associated with its ability to establish and maintain a market in the state for its sales of tangible personal property
The presumption of being a Michigan seller may be rebutted by demonstrating that an out-of-state seller’s activities in Michigan are not significantly associated with its ability to establish or maintain a market in Michigan for its sales of tangible personal property to purchasers in Michigan.
The legislation also enacted a click-through nexus standard for online sellers. The click-through nexus standard creates a presumption of nexus and requires an out-of-state seller to collect Michigan sales tax if it enters into an agreement, directly or indirectly, with one or more residents under which the resident, for a commission or other consideration, directly or indirectly, refers potential purchasers, whether by link on a website, by in-person oral presentation, or otherwise, to the out-of-state seller, if both of the following conditions are satisfied:
- The cumulative gross receipts from sales by the out-of-state seller to purchasers in Michigan who are referred by residents of the state via an agreement with the out-of-state seller are greater than $10,000 during the prior 12 months.
- The out-of-state seller's total cumulative gross receipts from sales to purchasers in Michigan exceed $50,000 during the prior 12 months.
This click-through nexus presumption could be rebutted by demonstrating that the resident (with whom the out-of-state seller has an agreement) did not engage in any solicitation or any other activity in the state that was significantly associated with the out-of-state seller's ability to establish sales of tangible personal property to customers in the state. Evidence to rebut the presumption could include written agreements prohibiting all residents with whom the out-of-state seller has an agreement from engaging in any solicitation activities in the state on the out-of-state seller's behalf or good faith written statements from all residents with whom the out-of-state seller has an agreement stating that the residents did not engage in any such solicitation or other activities on the out-of-state seller's behalf during the preceding year.
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