Sales and Use Tax Nexus Standards for Remote Sellers (RAB 2021-21)

# Purpose, reliance, and scope

RAB 2021-21 (approved November 3, 2021; replaces RABs 1991-1/1999-1, 2015-22, and 2018-16) explains the three ways an out-of-state ('remote') seller — a seller, including a foreign seller, that sells tangible personal property through the internet, catalogs, mail order, or any other similar method — can establish nexus in Michigan for purposes of the General Sales Tax Act (MCL 205.51 et seq.) and Use Tax Act (MCL 205.91 et seq.): physical presence nexus, attributional or 'click-through' nexus, and economic nexus. It also addresses how tax is reported and remitted as either sales or use tax and the filing requirements for remote sellers with nexus. Pursuant to MCL 205.6a, a taxpayer may rely on a Revenue Administrative Bulletin issued after September 30, 2006, and shall not be penalized for that reliance until the bulletin is revoked in writing. For marketplace facilitators and marketplace sellers, see RAB 2021-22.

# 1. Constitutional parameters — Complete Auto, Quill, Wayfair

A state tax on interstate commerce passes constitutional muster under the Commerce Clause if it:

(1) applies to an activity with a 'substantial nexus' with the taxing state;

(2) is fairly apportioned;

(3) does not discriminate against interstate commerce; and (4) is fairly related to the services that the taxing state provides. Complete Auto Transit, Inc. v Brady, 430 US 274, 279 (1977). In Quill v North Dakota, 504 US 298 (1992), the Court held under a bright-line standard that an out-of-state seller was required to have a 'physical presence' in the taxing state; Quill was overturned by South Dakota v Wayfair, 585 US 162; 138 S Ct 2080 (2018), which found the physical presence rule 'unsound and incorrect' and determined that substantial nexus is established when the taxpayer avails itself of the substantial privilege of carrying on business in the jurisdiction. The Court highlighted South Dakota's small-seller safe harbor ($100,000 in sales or 200 transactions), prospective application, and Streamlined Sales and Use Tax Agreement membership. The Department amended its nexus standards to include economic presence effective for transactions on or after October 1, 2018; that policy was codified by Public Acts 145 and 146 of 2019 (MCL 205.52c and 205.95b), without altering the physical-presence standards or presumptions under MCL 205.52b and 205.95a.

# 2.A. Physical presence nexus

An out-of-state seller has nexus with Michigan and must remit sales or use tax on all taxable sales sourced to Michigan when it engages in any one or more of the following: 1. has one or more employees resident or temporarily present in Michigan engaging in any activity intended to establish or maintain the market (an employee temporarily present for two or more days engaging in such activity creates nexus); 2. owns, rents, leases, maintains, or has the right to use and uses real property in Michigan or tangible personal property permanently or temporarily physically located in Michigan (Example: a company whose only Michigan presence is its inventory located in a marketplace facilitator's warehouse has nexus); 3. its employees own, rent, lease, use, or otherwise maintain an office or other place of business in Michigan; 4. has goods delivered to Michigan in vehicles that the seller or an affiliated person owns, rents, leases, uses, or maintains; 5. agents, representatives, independent contractors, brokers, or others acting on its behalf own, rent, lease, use, or maintain an office or other place of business in Michigan used in the representation of the seller; 6. such persons are present in Michigan on a regular and systematic basis (at least 2 days in a 12-month period) conducting activities to establish or maintain a market, including soliciting sales; making repairs or providing maintenance; collecting accounts; delivering property; installing or supervising installation; conducting training; providing technical assistance; resolving customer complaints; providing consulting services; or soliciting, negotiating, or entering franchising or licensing agreements (lawyers, accountants, investment bankers and similar professionals performing customary professional services are not establishing or maintaining a market). 7. Safe-harbor activities that alone are presumed NOT to create nexus: meeting with in-state suppliers; attending meetings with government representatives in their official capacity; attending occasional meetings (board meetings, retreats, seminars, training sponsored by others); holding recruiting or hiring events; advertising in the state through various media; renting customer lists to or from an in-state entity; attending a trade show at which no orders are taken and no sales are made; or participating in such a trade show for fewer than ten days cumulatively on an annual basis. Once physical presence nexus is established, it continues from the date of contact for the remainder of that month and the following 11 months; the seller may submit proof that a shorter period more reasonably reflects the sales caused by its in-state contacts, and the Department may determine a longer period applies.

# 2.B. Representational, attributional, or click-through nexus (MCL 205.52b / 205.95a)

Effective October 1, 2015, an out-of-state seller is presumed to be engaged in the business of making sales at retail in Michigan when the seller or another person:

(a) sells a similar line of products under the same or similar business name;

(b) uses its employees, agents, representatives, or independent contractors in Michigan to promote or facilitate sales;

(c) maintains, occupies, or uses an office, distribution facility, warehouse, storage place, or similar place of business in Michigan to facilitate delivery or sale;

(d) uses, with the seller's consent or knowledge, trademarks, service marks, or trade names in Michigan the same as or substantially similar to the seller's;

(e) delivers, installs, assembles, or performs maintenance or repair services for the seller's Michigan purchasers;

(f) facilitates sales by allowing Michigan purchasers to pick up or return property at an in-state place of business;

(g) shares management, business systems, business practices, or employees with the seller, or engages in intercompany transactions to establish or maintain the seller's market; or (h) conducts any other activities in Michigan significantly associated with the seller's ability to establish and maintain a market. The presumption may be rebutted by demonstrating the in-state activities are not significantly associated with the seller's ability to establish or maintain a Michigan market. Click-through: a seller is presumed to have nexus if it has agreements with Michigan residents who refer potential purchasers (e.g., a website link) for a commission or other consideration based on completed sales, and both (a) gross receipts from referred sales to Michigan purchasers exceed $10,000 and (b) gross receipts from all Michigan sales exceed $50,000, during the immediately preceding 12 calendar months. The presumption is rebutted with a contract prohibiting solicitation activities in Michigan plus signed annual certifications of no solicitation obtained in good faith. Mere advertising does not give rise to the presumption unless paid for by commissions based on completed sales. Once established, the presumed nexus period runs from the day (or first day of the calendar month, for click-through) nexus is established and continues for the following 11 calendar months, on a rolling basis.

# 2.C. Economic nexus — $100,000 in sales or 200 transactions in the previous calendar year (MCL 205.52c / 205.95b)

After September 30, 2018, a remote seller that had sales into Michigan (both taxable and non-taxable) exceeding $100,000, or that completed 200 or more separate sales transactions into Michigan (both taxable and non-taxable), in the previous calendar year has nexus with Michigan. For calculating the threshold, sales of all types of products are included — tangible personal property, digital goods, and services — measured by gross sales. A single sales transaction consists of a single order, even if multiple items are ordered at the same time and appear on a single invoice, multiple payments are made for a single purchase, or a single order is delivered in several separate shipments; an invoice including items delivered into multiple states is a Michigan transaction if any item is delivered into Michigan. Each calendar year's sales must be reviewed to determine nexus for the following year. Once economic nexus is established, the seller must continue to remit tax until an entire calendar year passes in which it does not meet either threshold (Example: a seller with $100,001 of 2017 Michigan sales had nexus after September 30, 2018; with only $10,000 of sales and fewer than 200 transactions in 2018, it no longer had economic nexus beginning January 1, 2019, and could unregister). The economic nexus standard applies expressly to marketplace facilitators and marketplace sellers: a facilitator counts both its own direct sales and sales it facilitates; a marketplace seller counts its own direct sales and its marketplace sales (see RAB 2021-22). These economic-nexus standards do not apply to sellers that already have physical, representational, attributional, or click-through nexus.

# 3. Reporting as sales tax or use tax

If an out-of-state seller has nexus with Michigan under any standard in this RAB and makes a taxable retail sale to a Michigan purchaser, the tax must be remitted and reported as sales tax. If ownership of the property transfers outside of Michigan, the tax must be remitted and reported as use tax; in most cases ownership transfers in Michigan and sales tax applies. A seller without nexus that voluntarily collects Michigan tax remits it as use tax.

# 4. Registration and filing requirements

Out-of-state sellers with nexus under any standard in this RAB must register with the Department and file all applicable sales and use tax returns. However, a remote seller that meets the economic nexus standards but makes no sales at retail (for example, a pure wholesaler) is not required to register or file returns (MCL 205.52c(6)). The RAB attaches an Annual Certification of No Solicitation and Statement from Organization for rebutting the click-through presumption under MCL 205.52b(4) and 205.95a(4); certifications should be retained for a minimum of 7 years.