“In this world, nothing can be said to be certain, except death and taxes.”
Those words written over two centuries ago by Benjamin Franklin still ring true today, as the Supreme Court of the United States ruled in June that online businesses must pay sales tax in the decision of South Dakota v. Wayfair.
The ruling is supposed to create a level playing field for both online retailers and businesses that have a physical presence, such as storefronts and warehouses across the country. According to court documents, out-of-state sellers — which includes online retailers like Overstock.com and Newegg Inc. — that deliver goods and provide services now are required to collect and remit a 6 percent sales tax to Michigan.
Amy Drumm, vice president of government affairs at Michigan Retailers Association, said online businesses like Amazon were voluntarily paying sales tax to the state of Michigan.
“Amazon agreed to collect the state’s sales tax for anything it sells directly from Amazon itself, but Amazon also has a marketplace, and they don’t collect sales tax on items sold through their marketplace,” Drumm said. “Anybody can sell an item on Amazon’s marketplace, and Amazon has made the determination itself that those sellers have to determine whether they meet the threshold to collect sales tax in Michigan or not.”
According to the ruling, Amazon’s buyers and sellers now will have to pay sales tax for their items. Andrea Crumback, tax attorney for Mika Meyers’ Grand Rapids office, said Michigan already has a law called the Main Street Fairness Law (or “Amazon tax” law) that imposes a sales tax on larger online businesses.
However, Crumback said midsize online retailers will be the ones that will be most affected by the ruling.
“What the Wayfair case is saying is that they are looking for any state where there is a substantial nexus between the state and the online business — that is when sales tax will have to be paid,” she said.
Crumback acknowledged that since the Supreme Court recently approved the online sales tax law, the state has not yet defined what that “substantial nexus” would be for midsize online retailers.
Prior to the new law, the Michigan Department of Treasury defined a nexus as “a person who has a physical presence in the state for more than one day, solicits sales in Michigan and has gross receipts of $350,000 or more sourced to Michigan or has an ownership or beneficial interest in a flow-through entity (directly or indirectly through one or more flow-through entities) that has nexus in Michigan.”
According to the Michigan Department of Treasury, Michigan estimated it would lose $468 million in 2017 before the Amazon tax law was put into place. With the Amazon tax law, the state is estimated to collect $50 million per year, according to the Michigan Senate Fiscal Agency.
Crumback said she doesn’t believe businesses and the state will feel the financial impact until next year.
“Some of this delay is going to be due to the fact that Michigan has to do some of its own identifying of these businesses — where they are hiding and making sure that they are repaying what they should,” Crumback said.
Once the state implements sales tax laws that are specific to Michigan online buyers and sellers, Drumm said all businesses will be able to conduct their business on an even playing field.