Michigan Announces Economic Nexus – And Gets It Right

On August 2, Michigan released a Revenue Administrative Bulletin (RAB 2018-16) that addresses sales & use tax nexus standards for remote sellers. Most of the language is cookie cutter with other state releases such as creating a threshold of $100,000 in sales or 200 transactions. However, unlike many other states Michigan clearly addresses several key issues:

  1. Sales is defined as both taxable and non-taxable. So a wholesale company with an e-commerce platform will have to collect sales tax on taxable sales of $25,000 into Michigan if non-taxable sales drives the company above the threshold.
  2. The sales threshold is based on the PREVIOUS year. Many states have used the term “annual” sales, which leaves taxpayers wondering how to apply this rule.
  3. In addition to having no retroactive effect, Michigan is going to waive the failure to file and deficiency penalties for all returns through December 31, 2018.
  4. Michigan clarifies that taxpayers that do not otherwise have nexus in Michigan except through economic nexus and have sales where the transfer of ownership is outside of Michigan, should register and remit sellers use tax instead of sales tax.

Let’s hope all other states follow Michigan’s lead.