Do You Need to Get a Sales Tax Permit in Michigan?
Quick Answer: You need to get a sales tax permit in Michigan (or a “use tax” permit if you do not have a physical presence in Michigan) if you meet economic, physical presence, affiliate or click-through nexus requirements as determined by the state. Read on for more detailed information.
What is Sales Tax Nexus Anyway?
Your business owes sales tax in any state where it has “sales tax nexus”. In short, if you have sales tax nexus you need to collect and remit sales tax. If you don’t have sales tax nexus, you generally don’t need to get a permit.
Sales tax nexus is a legal term that means you have crossed a threshold and now have a sales tax collection responsibility in the state. Nexus can be created by having a physical presence, economic presence, or by other factors. Nexus rules vary by state and retailers have specific nexus rules based on where they have people, property or inventory.
What Should You Do Once You Determine You Have Sales Tax Nexus?
Once you determine that you have sales tax nexus in Michigan, your next step is to register for a sales tax permit in the state. Check out our blog post on getting a sales tax permit in Michigan for more information about that process.
If you are not interested in doing the work of getting the permit yourself, TaxValet can handle the permit registration for you.
Common Ways to Have Sales Tax Nexus in Michigan
1. Economic nexus in Michigan
If you made $100,000 of sales in Michigan in the previous or current calendar year OR had 200 or more separate transactions, then you are required to register for, collect, and pay sales tax to the state. If you meet this threshold, it does not matter if you have a physical presence in Michigan. Nexus has been created based on your volume of sales.
For more information, please see Notice to Remote Sellers Regarding Sales Tax and South Dakota v. Wayfair.
If you need help determining which states you have crossed economic nexus thresholds, check out our Sales Tax Starter Kit service.
2. Physical presence nexus in Michigan
Physical presence nexus is created in Michigan when a person is physically present in the state for more than 1 day. If you have an employee, agent or independent contractor in Michigan, you will need to get a sales tax permit.
For more information, see Michigan Dept of Treasury Nexus & Apportionment 5.
If you need help determining which states you have a physical presence in, check out our Sales Tax Starter Kit service.
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Uncommon Ways to Have Sales Tax Nexus in Michigan
- Affiliate Nexus in Michigan
What exactly is affiliate nexus? Affiliate nexus can exist when a business has sufficient contact with a state through a separate business. If your out-of-state business has a relationship with an in-state business, then you may have affiliate nexus.
Please keep in mind that an “affiliated business” does not necessarily mean that it is a marketing “affiliate” in the typical sense of the word. Instead, “affiliate nexus” refers to the relationship between two businesses.
You may have affiliate nexus if your business has ties to a business in Michigan that engages in any of the following:
- Uses its employees, agents, representatives, or independent contractors in the state to promote or facilitate sales.
- Maintains, occupies, or uses an office, distribution facility, warehouse, storage place, or similar place of business.
- Uses, with the seller’s consent or knowledge, trademarks, service marks, or trade names in this state that are the same or substantially similar to those used by the seller.
- Delivers, installs, assembles, or performs maintenance or repair services for the seller’s purchasers in the state.
- Facilitates the sale of tangible personal property to purchasers in the state by allowing the seller’s purchasers in this state to pick up or return tangible personal property sold by the seller at an office, distribution facility, warehouse, storage place, or similar place of business maintained by that person in the state.
- Shares management, business systems, business practices, or employees with the seller, or in the case of an affiliated person, engages in inter-company transactions related to the activities occurring with the seller to establish or maintain the seller’s market in the state.
- The seller enters into an agreement, directly or indirectly, with one or more residents of the state under which the resident, for a commission or other consideration, directly or indirectly, refers potential purchasers, whether by a link on an internet website, in-person oral presentation, or otherwise, to the seller, if all of the following conditions are satisfied:
- The cumulative gross receipts from sales by the seller to purchasers in the state who are referred to the seller by all residents of this state with an agreement with the seller are greater than $10,000.00 during the immediately preceding 12 months.
- The seller’s total cumulative gross receipts from sales to purchasers in the state exceed $50,000 during the immediately preceding 12 months.
- Conducts any other activities in the state that are significantly associated with the seller’s ability to establish and maintain a market in the state for the seller’s sales of tangible personal property to purchasers in the state.
For more information about affiliate nexus in Michigan, see Michigan Nexus Standards for Business Taxes.
2. Click-through Nexus
What is click-through nexus? Referrals from in-state entities may trigger nexus for an out-of-state company. An out-of-state seller is presumed to be engaged in the business of making retail sales in Michigan if the seller has entered into an agreement with one or more Michigan residents under which the resident refers potential purchasers (e.g. by a link on an internet website, or by an in-person oral presentation) to the seller for a commission or other consideration based on completed sales if the following apply:
- Gross receipts from all referred sales to purchasers in Michigan are greater than $10,000 during the immediately preceding 12 calendar months, and
- Gross receipts from all sales to purchasers in Michigan exceed $50,000 during the immediately preceding 12 calendar months.
For more information about click-through nexus in Michigan, see RAB 2015-22.
Do You Need a Sales Tax Permit in Michigan If You Only Sell on Marketplaces?
Michigan is not currently a marketplace collection state, however, marketplace collection laws take effect on 1/1/2020. Amazon, eBay, and other marketplaces are NOT required to collect or pay sales tax in Michigan currently. Therefore, you, as the seller are responsible for collecting and remitting the sales tax due in Michigan. As of the publishing of this blog, the state has not released guidance on whether a permit will be required for marketplace only sellers once the law takes effect.
For more information, see RAB 2018-16.
If you are an e-commerce seller who is unsure of where you need to get a sales tax permit, check out our Sales Tax Starter Kit service.
Disclaimer: Our attorney wanted you to know that no financial, tax, legal advice or opinion is given through this post. All information provided is general in nature and may not apply to your specific situation and is intended for informational and educational purposes only. Information is provided “as is” and without warranty.