Like most states, Michigan imposes a sales tax on the retail sale of tangible goods.  The tax is imposed on the retailer.

Since the 1967 U.S. Supreme Court case of National Bellas Hess v. Illinois Department of Revenue, a state cannot impose the tax an out-of-state retailer with no contacts to the state.  Since then, brick and mortar retailers have suffered a competitive disadvantage to out-of-state catalog retailers selling into the state.

For many years, this was not a compelling issue, since the out-of-state sales were largely catalog sales, and they did not account for a significant fraction of overall sales.  As internet sales have exploded in recent years, and in an environment in which state governments seek additional tax revenue, pressure has intensified to rectify this bias.

Prior efforts have been unsuccessful, but bills currently pending in the U.S. Congress seem to have better prospects for passage.  The Marketplace Fairness Act (MFA) is scheduled for a Senate vote on Monday, May 6.  Depending upon the Senate action, the corresponding bill is expected to be taken up by the House of Representatives.

Under the MFA, states may begin to elect sales tax on the first day of the calendar quarter at least 90 days after the date of enactment.  The 22 states that are “full members” of the Streamlined Sales and Use Tax Agreement (SSUTA) (Michigan is a full member), may begin to collect sales tax immediately, and there is a mechanism for other states to participate.  There is an exception for “Small Sellers” with total “remote sales” of less than $1,000,000 in the United States in the preceding calendar year.

Although those opposed to this legislation try to characterize it as a tax increase, it is merely a mechanism to collect tax due under current statutes.  Recent discussion in the media indicates there is a reasonable chance this legislation will pass.  Those engaged in retail sales of goods, stay tuned.

Bruce W. Haffey is part of the Business Practice Group of Giarmarco, Mullins and Horton, P.C., with special expertise in tax law, as well as general corporate law, mergers and acquisitions and franchise and distribution law.  For more information, you may contact him directly at (248) 457-7140 or