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On March 10, 2015, a bipartisan group of senators introduced the Marketplace Fairness Act of 2015. Similar legislation – the Marketplace Fairness Act of 2013 – was previously introduced in February 2013 and passed by the Senate on May 6, 2013. That legislation failed to be enacted. If passed, the Marketplace Fairness Act of 2015 would authorize states meeting certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. For more information on the previous legislation, visit Federal Government Introduces New Remote Seller Bill. (Marketplace Fairness Act of 2015, March 10, 2015)

 

UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.

(03/16/2015)

Michigan has announced that beginning January 2015, current-year sales, use and withholding tax returns may be filed using a new online system, Michigan Treasury Online (MTO). Beginning January 2015, all taxpayers are required to file a return regardless of how payments are made and regardless of whether tax is due. Previously, taxpayers paying via EFT were not required to file a separate return. Due to the availability of e-file options, beginning with tax year 2015, SUW forms and instructions will no longer be mailed. Tax returns for 2015 using a 4% sales tax rate must be filed using MTO. Paper filing of returns that include a 4% sales tax rate will not be allowed in tax year 2015 and beyond. Forms have also been revised and renumbered. Current sales tax licenses are valid until September 30, 2015.  Once expired, new licenses will NOT be mailed but can be accessed and printed from MTO.  Michigan (ME) account numbers will be discontinued effective September 30, 2015 and all returns should be filed under the entities FEIN or Treasury (TR) number.  The system will accept multiple returns representing different locations for the same registration number.  Filing can continue through E-File Treasury approved commercial or proprietary software or taxpayers can use the state’s MTO website. (Sales, Use, and Withholding Taxes 2015, Michigan Department of Treasury, December 9, 2014)

(02/17/2015)

On December 16, 2014, President Barack Obama signed the Consolidated and Further Continuing Appropriations Act, 2015, for sales and use tax purposes. The Act includes a provision that extends the Internet Tax Freedom Act (ITFA) until October 1, 2015 with all provisions unchanged.

 

On January 9, 2015, the House of Representative introduced a bill (un-numbered) that would permanently extend the ITFA, banning states and local jurisdictions from imposing any new tax on internet access. The proposed bill removes the current effective dates of November 1, 2003 through October 1, 2015 and changes the effective date to be effective for new taxes imposed after the date of the enactment.  It is not clear if states that have been grandfathered under the existing provision could retain their current tax on internet access but it appears that may be the case.  No formal legislation has been introduced that would incorporate the Marketplace Fairness Act into this bill. The bill is sponsored by House Judiciary Committee Chairman Bob Goodlatte, among others.

 

For our previous news item on this topic, see Internet Tax Freedom Act is Extended Through December 11, 2014.

 

For an update on this news item, see Internet Tax Freedom Act Extended Until December 11, 2015.

 

(Consolidated and Further Continuing Appropriations Act, 2015; H.R. 235)

(02/12/2015)

Michigan Governor Rick Snyder has signed legislation that enacts affiliate and click-through nexus provisionseffective October 1, 2015. Per the affiliate nexus legislation, a seller is presumed to be engaged in business in Michigan if it or any other person, including an affiliated person, other than a common carrier, engages in the following activities:

 

  • sells a similar line of products as the seller under the same or a similar business name;
  • uses its employees, agents, independent contractors, or representatives to promote sales by the seller in Michigan;
  • maintains an office, distribution facility, warehouse, storage place, or similar place of business in Michigan to facilitate the delivery of tangible personal property sold by the seller to customers in the state;
  • uses, with the seller’s knowledge or consent, trademarks, service marks, or trade names in the 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 customers in Michigan;
  • facilitates the seller’s delivery of property to customers by allowing the seller’s customers in the state to pick up tangible personal property sold by the seller at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the 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 intercompany transactions related to the activities occurring with the seller to establish or maintain the seller’s market in Michigan; or
  • 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.

 

The affiliate nexus presumption may be rebutted by demonstrating that activities of the other person or affiliated person were not significantly associated with the seller’s ability to establish or maintain a market in Michigan. The above provisions are very broad and will likely establish nexus for many remote sellers as it does not just apply to commonly owned affiliates but any individual or entity performing these activities on behalf of the seller other than a common carrier.

 

The click-through provision states that a seller is presumed to be engaged in business in Michigan if the seller enters into an agreement with one or more residents under which the resident, for a commission or other consideration, directly or indirectly, refers potential customers, by a link on an Internet website, in-person oral presentation, or otherwise, to the seller. The broad referral activities cover both online and offline referrals.  For the click-through provision to apply, cumulative gross receipts from sales to Michigan customers who are referred to the seller must be greater than $10,000 during the immediately preceding 12 months. Additionally, total cumulative gross receipts from sales to Michigan customers must be greater than $50,000 during the immediately preceding 12 months. This will protect some smaller sellers that don’t have significant sales into Michigan.

 

The click-through presumption may be rebutted by demonstrating that the persons with whom the seller had agreements did not engage in activities that were significantly associated with the seller’s ability to establish or maintain a market in Michigan. The presumption would be considered rebutted by evidence of the following:

 

  • written agreements prohibiting all residents with an agreement with the seller from engaging in solicitation in Michigan on behalf of the seller, and
  • written statements from all residents with an agreement with the seller stating that the residents did not engage in any solicitation activities on behalf of the seller during the immediately preceding 12 months.

 

This appears to be an annual requirement and could be burdensome on the seller. However, the New York cases that found the New York provisions constitutional discussed the burden and indicated it would not create an unconstitutional law to have a reporting requirement to rebut the provision.

 

An agreement where a seller purchases advertisements from a person in Michigan to be delivered via television, radio, print, the Internet, or any other medium is not an agreement that would lead to a presumption of nexus unless the revenue paid to the persons is commissions that are based on completed sales. Therefore, traditional advertising including pay per click will not establish nexus.  (Act 553 (S.B. 658) and Act 554 (S.B. 659), Laws 2015, effective October 1, 2015)

(02/12/2015)

Purchases of electricity by telecommunications companies were not eligible for Michigan’s industrial processing exemption because telecommunications signals do not qualify as tangible personal property.  In Michigan, industrial processing involves either the modification of tangible personal property for ultimate sale at retail or the use of tangible personal property in manufacturing a product to be ultimately sold at retail. In order to qualify for the exemption, a taxpayer must ultimately sell tangible personal property. The telecommunications companies argued that telecommunications signals qualify as tangible personal property as a modified form of electricity or that the signals are a new form of tangible personal property in their own right. While telecommunications signals are electricity at some point in the transmission process, they are not electricity at every stage. The Court of Appeals concluded that the word “electricity” does not include matter that is manifestly not electricity at various stages of its transmission. Additionally, the absence of "telecommunications signals" from the relevant tax statute and the inclusion of other specific terms in the definition indicates that it was not intended for telecommunications signals to fall within the definition of tangible personal property. The taxpayers did not present any convincing evidence that telecommunications signals "can be seen, weighed, measured, felt, or touched, or [are] in any other manner perceptible to the senses." (MidAmerican Energy Company v. Department of Treasury, Michigan Court of Appeals, No. 316902, December 4, 2014)

(02/12/2015)

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