Michigan enacts Main Street Fairness Act
Imposes sales tax collection requirement on certain remote sellers
TAX ALERT |
On Jan. 15, 2015, Michigan Gov. Rick Snyder signed into law the Michigan Main Street Fairness Act (the Act), SB 658 and SB 659, which will require certain remote sellers to collect Michigan sales tax on sales of tangible personal property made to Michigan residents effective Oct. 1, 2015. The Act is intended to level the sales tax collection playing field between in-state sellers and remote sellers and is expected to increase sales tax revenues by approximately $60 million. To accomplish this goal, the Act creates two statutory tests under which a remote seller will be deemed to have established physical presence within the state, thus permitting the imposition of a sales tax collection and remittance responsibility under Quill Corp. v. North Dakota, 504 U.S. 298 (1992).
Under the first test, commonly referred to as affiliate or attributional nexus, a remote seller will be presumed to have a physical presence in Michigan if an affiliated person engages in any of the following activities within the state:
- Sells a similar line of products as the remote seller and does so under the same business name as, or a business name similar to, that of the remote seller
- Uses its employees, agents, representatives or independent contractors within Michigan to promote or facilitate sales by the remote seller to purchasers in Michigan
- Maintains, occupies or uses an office, distribution facility, warehouse, storage place or similar place of business within Michigan to facilitate the delivery or sale of tangible personal property sold by the remote seller to the remote seller’s purchasers in Michigan for storage, use or consumption within Michigan
- Uses, with the remote seller’s consent or knowledge, trademarks, service marks or trade names that are the same as, or substantially similar to, those used by the remote seller
- Delivers, installs, assembles or performs maintenance or repair services for the remote seller’s purchasers within Michigan
- Facilitates the sale of tangible personal property to purchasers in Michigan by allowing the remote seller’s purchasers in Michigan to pick up or return tangible personal property sold by the remote seller at an office, distribution facility, warehouse, storage place or similar place of business maintained by the affiliated person within Michigan
- Shares management, business systems, business practices or employees with the remote seller or engages in intercompany transactions related to the activities occurring with the remote seller to establish or maintain the remote seller’s market in Michigan
- Conducts any other activities within Michigan that are significantly associated with the remote seller’s ability to establish and maintain a market in Michigan for the remote seller’s sales of tangible personal property to purchasers in Michigan for storage, use or consumption in Michigan
For this purpose, an affiliated person is (1) any person that is a part of the same controlled group of corporations as the remote seller or (2) any other person that, notwithstanding its form of organization, bears the same ownership relationship to the remote seller as a corporation that is a member of the same controlled group of corporations. The term “controlled group of corporations” is tied to the definition provided in section 1563(a) of the Internal Revenue Code.
Under the second test, commonly referred to as click-through nexus, a remote seller will be presumed to have a physical presence in Michigan if the remote seller enters into an agreement, directly or indirectly, with one or more residents of Michigan under which the resident, for a commission or other consideration, directly or indirectly refers potential purchasers, whether by a link on an internet website, an in-person oral presentation, or otherwise, to the remote seller, if both of the following thresholds are met:
- The cumulative gross receipts from sales of tangible personal property by the remote seller for storage, use or consumption in Michigan to purchasers in Michigan who are referred to the seller by all residents of Michigan with an agreement with the remote seller are greater than $10,000 during the immediately preceding 12 months
- The remote seller’s total cumulative gross receipts from sales of tangible personal property for storage, use or consumption in Michigan to purchasers in Michigan exceed $50,000 during the immediately preceding 12 months
Under both tests, a remote seller may rebut the presumption of nexus by establishing that the affiliated person or resident referred to in each test, respectively, did not engage in any solicitation or any other activity within Michigan that was significantly associated with the remote seller’s ability to establish or maintain a market in Michigan for the remote seller’s sales of tangible personal property to purchasers in Michigan. The burden of proof clearly rests on the remote seller, and successful rebuttal will likely be difficult absent substantial contemporaneous documentation.
While the application of the Act is likely to be subject to challenge, it is important to note that the language in the Act closely mirrors language used in similar rules adopted in other states that have been upheld by courts in those states. For example, see our prior coverage of Overstock.com, Inc. v. New York State Department of Taxation and Finance.
Remote sellers making sales of tangible personal property to purchasers in Michigan should consider the implications of this change in law and should review their business relationships with Michigan affiliates and residents. To the extent the Act could impose a new sales tax collection and remittance responsibility, remote sellers should prepare to implement systems to either rebut the presumption of nexus or collect and remit tax prior to the Oct. 1, 2015, effective date.