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Expanded Online Sales Tax Moves Out Of House Committee For First Time

June 25, 2019

Amazon, eBay, Walmart and other major online retailers must collect Michigan sales tax from third-party retailers who sell goods and services off their websites to Michigan customers, under a four bill package that moved out of the House Tax Policy Committee Wednesday morning.

The expansion of Michigan’s online sales tax law to include Mike’s Sporting Goods, RareFinds or anyone else selling under a major retailer’s banner is expected to draw between $80 to $120 million more into the state, a change that has the support of the Michigan Retailers Association (MRA), Amazon, Walmart, the Department of Treasury and local governments.

Wednesday’s vote marks the first time legislation requiring every sale on a common marketplace that takes place in Michigan be subject to state sales and use taxes has moved out of a Michigan legislative committee.

“Retailers are thrilled that the committee reported legislation to provide equal treatment to all sales,” said MRA spokesperson Amy Drumm. “We commend all the work done by the sponsors and committee to develop truly good policy.”

Last year’s U.S. Supreme Court decision in South Dakota v. Wayfair allows states to tax major online retailers. The Michigan Department of Treasury has been operating on internal rules that is allowing it to collect sales tax from online retailers who make more than $100,000 in sales to Michigan residents or had 200 or more transactions from Michigan customers.

Michigan is expecting to bring in $168 million this fiscal year and $225 million next fiscal year due to this change, according to the House Fiscal Agency, and Tax Policy Committee Chair Lynn Afendoulis (R-Grand Rapids Twp.) said she feels it important that these rules be put into statute.

AT&T, Sprint, Comcast and other telecommunications providers are opposed to HB 4540, HB 4541, HB 4542 and HB 4543 until they’re able to get a specially tailored exemption. 

They’re not opposed to Walmart or Amazon collecting state sales tax off any of their products they happen to sell. They just don’t want online retailers put in a position to collect information that the telecommunications companies currently collect so they can capture local, 9-1-1 and other taxes every month.

By surrendering customer data collection to another entity, the telecoms are concerned they’ll be on the hook to pay the taxes of a customer whose information was collected incorrectly and can’t be tracked down.

Afendoulis said she’s aware of the concerns and said she “hopes to be part of the solution.” Drumm said in her comment that the Retailers don’t want “true tax fairness” to be “eroded by adding exemptions for the hypothetical sale of future products or services on marketplaces.”

The bills advanced to the House Ways & Means Committee on a 13-1 vote based, at least in part, on a fairness argument made by brick-and-mortar retailers. Afendoulis’ committee took testimony last month from shop owners who claim customers try out products in their stores only to buy the same product online to avoid paying state sales taxes.

Rep. Matt Hall (R-Emmett Twp.) cast the lone no vote on moving the bills. He said he wished the committee could have addressed the telecommunications industry’s concerns first. Also, he noted that Grover Norquist’s Americans for Tax Reform (ATR) sent out an email shortly before committee to say a vote in favor of the bills is a violation of the group’s “No Tax Pledge.”

“Despite the United States Supreme Court’s ruling last year in South Dakota v. Wayfair, ATR still has major concerns with forcing online businesses to pay taxes to states where they have no physical presence and therefore no representation,” Norquist wrote.

Said Hall, “I do think we should have some more discussions . . . While we have spent a lot of time on these bills, there were a lot of changes made at the end of the negotiations. It seems to have been decided yesterday and we learned there were some unintended consequences of the bills.

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