LANSING — Michigan residents who buy from Amazon, Overstock and some other online retailers will be forced to pay the state's 6-percent sales tax starting in October, a move to close what backers say is a loophole that has left traditional businesses at a disadvantage.
Republican Gov. Rick Snyder signed "Main Street fairness" laws Thursday to ensure roughly $60 million a year in taxes on Internet and other out-of-state purchases are collected. Shoppers are supposed to voluntarily pay sales taxes on remote purchases when filing their Michigan tax returns, but very few comply.
"That isn't really right or fair," Snyder said. "This is to help correct that."
The GOP-led Legislature passed the legislation last month in conjunction with a $1.3 billion road funding plan. Unlike other parts of that bipartisan proposal, the Internet sales tax change is not contingent on voters also approving a one percentage-point sales tax increase in May.
Barb Stein, owner of the Grade Northern Trading Co. in Rockford, said local brick-and-mortar businesses need no "handout" but just want to make sure that out-of-state companies receive no competitive advantage. Retailers complain that customers visit their shops to look at items but go home and buy online to avoid taxation.
Wal-Mart and other Michigan stores must collect the sales tax when selling their items over the Internet.
The state Treasury Department estimates $445 million in sales and use tax revenue from remote purchases will go uncollected this fiscal year, nearly two-thirds of it from growing e-commerce. Michigan and other states cannot get at a lot of it, though, without the approval of federal legislation.
The new state laws will apply to stores with a "nexus" to the state like Amazon.com. Just 2.5 percent, or more than 100,000 of the state's 4.5 million individual income tax returns include voluntary payment of Internet and other "use" taxes – which equal $6.7 million a year.
"It really is about making sure that Michigan employees are retained and that companies hire more people. This really is a win-win," said Senate Minority Leader Jim Ananich, D-Flint, who sponsored the bills.
Conservative activists have said the laws represent a tax increase that will raise prices. Snyder countered it is "not at all" a tax increase but instead a "collections issue."
"It costs something to our schools, it costs something to our local governments in terms of foregone revenue," he said.