Michigan lawmakers should create legislation for an internet sales tax rather than allowing the Department of Treasury to simply make administrative decisions, according to a policy brief released by the Mackinac Center for Public Policy and the National Taxpayers Union Foundation.
Several states have begun implementing internet sales taxes after the Supreme Court ruled in South Dakota v. Wayfair that states could collect sales taxes from businesses that sell inside their state remotely even if the business does not have a physical presence there.
Although companies that sell goods via the internet are the primary businesses affected, the tax also applies to sales via phone, magazine or other remote means.
According to a news release, passing legislation would reduce the cost and difficulty related to changes in the sales tax code. It would also allow the legislature to dampen the negative effects of a tax by including more companies in the small business exemption from the tax.
The South Dakota legislation exempts businesses that sell fewer than 200 items and less than $100,000 worth of goods in the state. Many states have copied this threshold, but the legal brief argues that larger markets, such as Michigan, require higher thresholds.
The brief also encourages the legislature to clarify whether tax-exempt sales count toward a business’s overall sales threshold and to investigate “methods of protecting Michigan-based businesses from potentially unconstitutional tax collection schemes from other states.”
The brief was released by the Michigan-based Mackinac Center for Public Policy and the National Taxpayers Union Foundation.
“In Michigan’s case, the administrative bulletin announcing significant new tax compliance obligations was published Aug. 1, 2018, just over a month after the Supreme Court issued its decision in Wayfair,” the brief says. “The new rules took effect two months later, on Oct. 1. That’s good news for state tax bureaucrats looking to capture new revenue during the holiday season, but bad news for retailers expected to implement a significant new tax compliance infrastructure in the space of three months. Nearly one year after Wayfair was decided, many businesses are still struggling to adapt to these new tax requirements.”
Michigan currently has a package of bills pending in the legislature that would create standards for the internet sales tax, but it establishes the same exemption threshold as South Dakota and fails to address the other concerns listed in the brief.
Andrew Moylan, one of the analysts who wrote the brief, is scheduled to testify at a hearing on this legislation to address these concerns.