The Michigan Main Street Fairness Act, which went into effect October 1, 2015, was passed back in January with the intention of leveling the sales tax playing field between in-state retailers and out-of-state retailers with some affiliation to Michigan (“remote sellers”). The Act requires remote sellers to collect and remit Michigan sales tax on sales of tangible personal property in Michigan. The Act employs two tests which will determine whether a remote seller will be deemed to have a physical presence within the state, even if the remote seller has not established a brick and mortar structure in the state. If “nexus” to the state of Michigan is established, the remote seller must collect the sales tax from the purchaser and remit the tax to the state.
Governor Rick Snyder and other proponents have represented that the Act is not a tax increase. It is not commonly understood that the tax was already owed without this new legislation because when an out-of-state retailer sells goods to a Michigan resident in Michigan (such as via a catalogue, phone or internet order), and if the retailer does not collect Michigan sales tax on that sale, the buyer, the Michigan resident, was obligated by law to report and remit the tax to the State of Michigan.
The legislation provides a fairly comprehensive “affiliate test,” which looks to the activities of a remote seller’s affiliate and if the affiliate of the remote seller is engaged in any one of a list of activities within the state of Michigan. If so, the remote seller will be presumed to have a physical presence in Michigan and thus, must collect and remit sales taxes on sales of personal property. These activities of an affiliate include providing delivery and installation services for a remote seller’s purchasers in Michigan, facilitating the sale of a remote seller’s goods in Michigan by providing a place to pick-up and return items, conducting activities in Michigan that are “significantly associated with the remote seller’s ability to establish and maintain a market in Michigan . . .” and the list goes on.
The legislation also provides a second test, commonly called a “click-through nexus” where a Michigan resident agrees to refer potential purchasers to the remote seller by a link on a website or an in-person referral or otherwise for a fee or commission. If the amount of business generated meets certain thresholds, the remote seller will be deemed to have established a physical presence in Michigan.
The burden of proof to rebut the presumption of being a remote seller, if the above tests are met, rests on the remote seller, which would likely require extensive and clear documentation.
Out-of-state businesses and individuals who sell to purchasers in Michigan should evaluate their agreements, whether formal or informal, with Michigan residents and prepare to collect and remit the sales tax or marshal evidence to rebut the presumption of nexus. Please do not hesitate to contact Wright Beamer if you would like assistance with this or any other legal matter.