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More Michigan Internet Purchases Taxed Starting New Year’s Day

Some out-of-state sales tax collections began earlier; this new law adds another $80 million a year

In 2018 the U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc. that states may impose sales tax on their residents’ purchases from out-of-state catalog and internet sellers. On Jan. 1, 2020, the last piece goes into effect from new state laws Michigan legislators passed to collect those taxes.

The Michigan Department of Treasury has been collecting sales and use taxes directly from larger retailers since October 2018. This last part of the package affects “third party facilitators” that process out-of-state sales and use tax collections for smaller retailers. According to official projections, this move will bring in up to $80 million in additional state revenue each year.

The law that goes into effect on Jan. 1, and several others that began a few weeks ago, places those administrative arrangements in state statute books. This means a future governor could not stop collecting the tax without the passage of another new law.

In the 1992 case North Dakota v. Quill, the U.S. Supreme Court prohibited states from taxing out-of-state online and catalog purchases, essentially holding that the process of collecting the tax would be so burdensome that it would strangle interstate commerce.

Fast-forward 26 years and a tech revolution has made those obstacles largely obsolete. The U.S. Supreme Court, and Michigan’s new law, do require exemptions for retailers who only make a few out-of-state sales, defined here as fewer than 200 sales or $100,000 in receipts during the previous year.