In an effort to increase sales and use tax revenues, Michigan has adopted Affiliate Nexus and Click-Through Nexus laws. The Michigan Department of Treasury recently released RAB 2015-22, explaining the Treasury’s interpretation of these new rules. “Nexus” is the connection necessary for a state to impose a tax. These new rules broaden the scope of businesses that will be subject to sales and use tax collection in Michigan.
The affiliate nexus rules impact Michigan businesses that have an out-of-state parent or affiliate. For example, many foreign entities with established subsidiaries in Michigan will have affiliate nexus under these rules. Any direct sales to Michigan purchasers by the parent entity would then be subject to sales tax collection. Even if the sale was exempt for resale or industrial processing, the foreign parent would be required to obtain the appropriate exemption certificates and would be required to file a sales and use tax return in order for the statute of limitations to run.
The click-through nexus rules were adopted to capture online sales when online sellers have a contractual arrangement with Michigan residents that help them establish a market in Michigan.
An out-of-state seller will be presumed to be subject to the collection of Michigan sales and use tax when the seller or another person performs any of the following activities in Michigan:
- Sells a similar line of products as the seller and does so under the same or similar business name as the seller.
- Uses its employees, agents, representatives, or independent contractors in Michigan to promote or facilitate sales by the seller to purchasers in Michigan.
- Maintains, occupies or uses an office, distribution facility, warehouse, storage place, or similar place of business in Michigan to facilitate the delivery or sale of tangible personal property sold by the seller to the seller’s purchasers in Michigan.
- Uses, with the seller’s consent or knowledge, trademarks, service marks, or trade names in Michigan 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 Michigan.
- Facilitates the sale of tangible personal property to purchasers in Michigan by allowing the seller’s purchasers in Michigan 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 Michigan.
- Shares management, business systems, business practices, or employees with the seller, or in the case of an affiliated person, engages in intercompany transactions related to the activities occurring with the seller to establish or maintain the seller’s market in Michigan.
- Conducts any other activities in Michigan that are significantly associated with the seller’s ability to establish and maintain a market in Michigan for the seller’s sales of tangible personal property to purchasers in Michigan.
The presumed collection responsibility may be rebutted by demonstrating the activities in Michigan are not significantly associated with the out-of-state seller’s ability to establish or maintain a market in Michigan for sales of tangible personal property to Michigan purchasers.
An out-of-state seller will also be presumed to be engaged in the business of making sales at retail 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 both the following bright-line tests are met:
- Gross receipts from all referred sales to purchasers in Michigan are greater than $10,000 during the immediately preceding 12 calendar months;
- Gross receipts from all sales to purchasers in Michigan exceed $50,000 during the immediately preceding 12 calendar months.
The out-of state seller may rebut the presumption if they can demonstrate they did not engage in any solicitation or other activity significantly associated with the seller’s ability to establish or maintain a market in Michigan.
For more information regarding affiliate nexus and click-through nexus, view the RAB 2015-22 on the State of Michigan website or speak with your tax advisor.