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Applying Sales Tax To ‘Facilitators’ Is Music To Ears Of House Tax Policy

May 28, 2019

The U.S. Supreme Court’s Wayfair ruling opened the door for state Treasuries to collect sales taxes from out-of-state online retailers like Amazon. Now, lawmakers want to take the next step — applying the 6% sales tax to those outside venders who sell stuff on Amazon, eBay and other sites.

For example, if a Michigan consumer buys a book Amazon is selling, he or she must pay the 6% sales tax under Wayfair. But if he or she buys the same exact book from Bob’s Books, which happens to have its collection available on Amazon, sales tax isn’t collected.

Four bills pending in the House Tax Policy Committee would change this to collect Michigan sales tax if Bob’s Books, or any other retailer selling stuff online, has more than $100,000 in sales or 200 transactions.

“You’re looking at the platforms,” said Jim Stansell, House Fiscal Agency’s senior economist, to a House committee Wednesday. “Amazon has a number of affiliate partners and, in fact, some estimates I have seen said that more than half of Amazon’s sales come from affiliate partners.”

The package is HB 4540, sponsored by Rep. Lynn Afendoulis (R-Grand Rapids); HB 4541, by Rep. Joe Tate (D-Detroit); HB 4542, by Rep. Michael Webber (R-Rochester Hills); and HB 4543, by Rep. Tenisha Yancey (D-Detroit).

The bills would also codify the current practice of the Treasury Department, put in place by bulletin in the wake of the Wayfair decision. Collections of sales taxes from online retailers began in October 2018.

“We believe this is a fairness issue,” Afendoulis told the committee. “It is not a new tax. Those who have a physical presence in the state and now retailers outside the state are required to collect and remit taxes. We believe the same should hold true for the facilitators through which so many sellers operate. The world is changing rapidly. Main Street isn’t a promenade of shops in the midst of a community, but a line of fiber optics that run under a community’s roads to sellers around the world. This creates tremendous opportunities for buyers, but it puts retailers in Michigan often at a disadvantage. We want all those who sell into Michigan to comply with Michigan law.”

Stansell said Michigan’s system is a little more business friendly than South Dakota’s and other state’s, which are based on the previous 12 month of sales. Michigan’s goes by calendar year.

“So, for example during calendar year 2019, I’m an out-of-state vendor and I don’t meet either one of those criteria for having to remit sales taxes, then I am good for all of 2020 regardless if I have a huge month in January,” he explained.

The committee heard from a number of retailers advocating for the change.

“Retailers aren’t asking for special treatment or consideration here today,” said Amy Drumm, of the Michigan Retailers Association. “They just want the state to look at sales for what they are, sales, and retailers as retailers. So if the state requires retailers to collect the 6% sales tax, all retailers should be asked to collect it the same way on every sale regardless of how the sale happens.”

Doug Wildey, CEO of Game Room Guys, said customers will come into his stores in Livonia and Comstock Park to check out pinball machines, pool tables, air hockey tables and video arcade games. Then they start checking their phones and say they will think about it.

“We follow up,” Wildey said. “We say well, what are you thinking? And they go, ‘Well I already bought one. The sales tax was just too much.’ On a $10,000 purchase, it’s $600. So they can buy from one of our competitors in Ohio, Illinois or Indiana . . . And it’s there the next day or the day after. They’ve saved a boat load of money . . . And this has been going on for a while.”

Marshall Music CEO Dan Marshall has had similar experiences.

“It was wonderful for guitar enthusiasts to be able to walk in to any one of our seven stores and see a broad selection of instruments for them to sample and play and consider and dream about, and eventually purchase,” Marshall told the committee. “Now they do all those things, but then, because the margins are so thin on high end guitars, the vast majority of those sales would go to online retailers and we’d end up just being the showroom for them.”

Afendoulis, who is also the Chair of the House Tax Policy, said she is not ready to call a vote on the package. Treasury offered a number of “friendly suggestions” to improve the bills. Afendoulis said she wants the bills done right before they are reported out.

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