Michigan Enacts Click-Through and Affiliate Nexus Provisions

Michigan Governor Rick Snyder has signed legislation that enacts affiliate and click-through nexus provisions effective 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)