Remote Sellers Required to Remit Sales Tax After September 30, 2018
Michigan has changed its sales tax rules for businesses that sell their products and services into Michigan remotely. Businesses that are without a physical presence in Michigan, but meet certain activity thresholds (described below), may be required to begin filing sales tax returns for periods after October 1, 2018. If you are a business remotely selling products into Michigan, the time is now to assess your potential sales tax filing requirements. Michigan businesses purchasing products and services from vendors located outside of Michigan should ask their vendors about these new sales tax procedures as well.
In Revenue Admin. Bulletin 2018-16 (RAB 2018-16, issued 8/1/18), the Michigan Department of Treasury has issued guidance on how the SCOTUS’ decision in Wayfair impacts Michigan’s sales tax rules, including: considerations for nexus, enforcement dates, and potential penalty abatements.
Within the RAB, Treasury explains that it is effectively amending Michigan’s sales tax nexus standards to align with Wayfair and that change is effective after September 30th, 2018. The RAB makes clear that Michigan will be following the same rule for economic nexus as provided for under the South Dakota law, which was the main issue at question in Wayfair. In other words, Michigan now has the authority to require a remote seller to register to collect and remit sales tax, when that seller meets either or both of the following, based on its activity in Michigan during the previous calendar year:
- Sales exceeding $100,000
- 200 or more separate transactions
The RAB clarifies this rule and states:
“Remote sellers must review their 2017 calendar year sales (i.e., January 1, 2017-December 31, 2017) to determine if they have exceeded either of the economic nexus threshold, and therefore have nexus in Michigan after September 30, 2018. Remote sellers that only have nexus due to exceeding either of these economic thresholds are not liable for any tax, penalty, or interest for any transactions occurring on or before September 30, 2018.”
In addition to the August 1st RAB, Michigan released a supplemental Notice to Remote Sellers Regarding Sales Tax & South Dakota vs. Wayfair. The notice highlights the above points and provides:
“Treasury will waive failure to file and deficiency penalties for returns and payments due prior to December 31, 2018, so long as the taxpayer incurring those penalties has nexus solely due to RAB 2018-16 and Wayfair; interest will not be waived”
Based on the information released to date, it is unclear for how long Michigan will provide for the penalty abatements described above. For remote sellers meeting the new filing requirements, it is in their best interest to begin complying with Michigan’s new rules to take advantage of the abatement period.
As a recap of the above, the following actions are suggested:
- Review calendar year 2017 Michigan sales activity. If your business had 200 or more transactions or sales exceeding $100,000 during calendar year 2017, you have a Michigan sales tax filing requirement beginning October 1, 2018.
- If you have a filing requirement, your business will need to register to collect and remit sales in Michigan. This is done directly with the Michigan Department of Treasury.
- In addition to registering to collect and remit sales tax, businesses meeting this new requirement will need to update their systems to correctly invoice Michigan sales tax. Accounting systems and sales tax compliance systems will also need updated to account for this new Michigan sales tax collection and remission requirement.
Please contact a member of Barnes Dennig’s State and Local Tax team if you have any questions about Michigan’s new rules or any other related state and local tax matters.