Michigan will begin to level the retail playing field this fall when certain out-of-state merchants, including online giant Amazon, are required to collect sales tax just as the state’s retailers do.
Governor Rick Snyder signed Michigan Retailers Association’s Main Street Fairness legislation into law on January 15, capping MRA’s long battle to close a tax loophole that has favored out-of-state merchants over Michigan-based retail businesses.
“This Main Street Fairness legislation levels the playing field for local businesses, helping Michigan job providers better compete with online retailers,” the governor said during a public signing session in his Lansing office.
“Local, brick-and-mortar businesses drive our economy, and without implementing this fix they would continue to serve as showrooms for online retailers.”
The bipartisan legislation, enacted by lawmakers in the final, frantic hours of the 2013-14 legislative session, takes effect October 1.
“This is history-making legislation and a great victory for the home team,” said MRA President and CEO James P. Hallan.
“The governor and lawmakers agreed the state will no longer give ‘remote sellers’ a built-in 6 percent price advantage over our Michigan-based retailers. On behalf of the thousands of Michigan retail businesses and their hundreds of thousands of Michigan workers, MRA thanks lawmakers for stepping up and doing the right thing, the fair thing.”
“It’s not just retail businesses that will benefit from this legislation. We are part of the fabric of our local communities, and our communities and our residents are hurt when we are hurt by unfair competition,” said MRA board member Barb Stein, of Great Northern Trading Co. in Rockford, who spoke at the signing ceremony.
“All we asked for was that out-of-state merchants no longer be given an unfair competitive advantage over those of us doing business here in Michigan. And that’s what this legislation does. It treats us fairly.”
Under federal law, out-of-state merchants are not required to collect a state’s sales tax on goods they sell to residents unless the remote sellers have “nexus” – a physical presence such as a store or warehouse – in that state.
The new Main Street Fairness law would redefine physical presence to include certain practices that out-of-state companies are using to generates sales in Michigan either online or through phone or catalog sales. These include selling through subsidiaries, affiliate networks or other persons with substantial nexus in the state.
The new law will not force all out-of-state retailers to collect sales tax, only the ones that fall under the new, expanded definition of physical presence. Congressional action is still necessary to require all out-of-state merchants to collect sales tax.
The Michigan Department of Treasury estimates the new law will mean $60 million annually in additional sales tax revenue. The additional revenue does not constitute a new tax, because purchasers have been required by existing law to pay the sales tax when they file their income tax – but few actually do.
The problem is one of enforcement of a current tax and not creation of a new tax, the governor explained.
Both the governor and Hallan hailed the new law as a giant step forward for Michigan. Some two dozen states have now taken similar collection actions.
The legislation does not affect Michigan-based retailers who sell remotely to other states.
MRA has been involved in the fairness issue for some 40 years, Hallan said, since furniture retailers complained about unfair competition from drop-ship merchants located in North Carolina who escaped collecting Michigan’s sales tax on items delivered to Michigan residents.
The latest, successful push for fairness began in 2011 and continued into the 2013-14 session. Senator Jim Ananich (D-Flint) sponsored the Senate bills, S.B. 658-59, that were enacted. Reps. Eileen Kowall (R-White Lake Township) and Rob VerHeulen (R-Walker) sponsored similar bills in the House.
In addition to Stein, local retailers attending the bill-signing included Becky Beauchine Kulka, of Becky Beauchine Kulka Diamonds and Fine Jewelry in Okemos, and Cliff Yankovich of Chimera Design in Lowell.