Mich. Treasury to enforce sales tax on online, out-of-state retailers
Those days of avoiding Michigan state sales taxes by shopping online soon will be largely gone.
The Michigan Treasury Department says that mail-order and online retailers — even those with no physical presence in Michigan — must pay a 6 percent sales tax on all transactions on taxable sales in the state starting Oct. 1. The Treasury estimates the change will bring in $203 million in the first year, and $248 million in 2021.
"This is something many Michigan businesses and associations have wanted for years," Michigan Treasurer Nick Khouri said. "If you wanted to buy a table in Michigan, you'd have to pay the 6 percent tax, but if you were selling it on the internet, you were exempt. There was this unfair price advantage that we can now equalize."
The U.S. Supreme Court's South Dakota v. Wayfair decision in June opened the way for the change. The court overruled decades-old decisions that made it difficult for states to collect sales taxes on certain online purchases because the taxes encroached on interstate commerce. Following the June ruling, several states have announced changes to their sales tax law enforcement.
Michigan has required retailers or e-commerce companies with brick-and-mortar stores or other types of physical presence in the state — including Amazon — to pay the 6 percent sales tax since October 2015.
It was up to consumers to voluntarily report untaxed purchases on their income-tax returns and pay an equivalent 6-percent "use tax." Those purchases included such goods as those purchased online or by mail-order from out of state from eBay, Etsy, Overstock, Wayfair and third-party sellers that use Amazon's platform.
"There was very little (reported) in dollar terms," Khouri said. "It was essentially unenforceable."
Starting in October, online out-of-state retailers that exceed $100,000 in sales or 200 or more transactions in Michigan within the previous calendar year will have to report and pay sales tax to the state. Buyers will no longer have to report use-taxes on purchases from those companies, but the requirement still exists for purchases from businesses that do not meet the threshold.
The first sales-tax payment deadline for the rule change is Nov. 20 for monthly filers. Quarterly and annual filers will do so at the beginning of the year.
The $100,000/200-transaction threshold exemptions come from South Dakota's law, Khouri said, which the Supreme Court deemed constitutional.
"It could be smaller, potentially," he said, "but you would have to test it with the courts."
E-commerce, according to the U.S. Census Bureau, grew 16 percent in 2017 to 8.9 percent of total retail sales. Online purchases for 2018 are beating last year's totals.
Dan Papineau, director of tax policy and regulatory affairs for the Michigan Chamber of Commerce, said Michigan is implementing its new rules in a "positive way" by giving businesses advance notice. However, he expressed concerns for Michigan companies doing business in other states with similar rules.
"It’ll be hard on them," Papineau said. "A lot of other states have local taxes. Businesses will have to comply with each one. It's complicated."
No Michigan cities have additional sales taxes.
Craig Shearman, vice president for government affairs and public relations for the National Retail Federation, said technology and new software have eased the ability for businesses to comply. The federation submitted a brief to the Supreme Court for the Wayfair decision in defense of South Dakota's law.
Shearman said the sales-tax exemptions prior to the Supreme Court's ruling provided a "significant advantage" to online retailers, many of whom already had low overhead and economies of scale that gave them pricing benefits.
"It creates a level playing field," Shearman said, "so that businesses can compete in service and innovation and not have one type be favored on the basis of tax policy."
The new sales-tax revenue, according to Michigan law, would go toward the school-aid fund, the general fund and revenue sharing for local governments. Khouri, however, said Gov. Rick Snyder has expressed interest in designating that money for Michigan's roads and that he hopes the state will work with the Michigan Legislature to make that happen.
"I do believe this is an important opportunity for the state of Michigan to be able to equally tax in state and out of state," Khouri said. "This is a new world. Internet sales are increasing quickly."