Good news for marketplace sellers! The state of Michigan now requires marketplaces to collect sales tax on behalf of sellers on online marketplaces like Amazon or eBay.
This means that if you sell on a platform like Amazon, then Amazon will collect sales tax from your Michigan buyers on your behalf, and remit it to the state.
But as usual, states manage to throw a monkey wrench in here and there when it comes to eCommerce sales tax.
This post will explain what online sellers need to know about the Michigan marketplace facilitator law, and answer your frequently asked questions.
Overview of the Michigan Marketplace Facilitator Law
Michigan’s marketplace facilitator law states that marketplace facilitators who generate $100,000 or more in sales, or generate sales in 200 or more separate transactions, must collect sales tax on behalf of third-party sellers on sales made through that marketplace.
Quick Facts about the Michigan Marketplace Facilitator Law
- Effective date: January 1, 2020
- Threshold: Marketplace facilitators who make more than $100,000 in sales or at least 200 transactions in Michigan must collect sales tax on behalf of third-party sellers on their platform.
- State law information: Read the full text of the Michigan marketplace facilitator law.
- Marketplaces that have adopted this law:
Frequently asked Questions about Marketplace Facilitator Laws
What exactly is a marketplace facilitator in Michigan?
Michigan law defines marketplace facilitators as a “person that facilitates retail sales for third-party marketplace sellers by listing or advertising the seller’s product for sale on its marketplace, and either directly or indirectly (through agreements with third parties or the facilitator’s affiliates), collects payment from retail purchasers and transmits that payment to marketplace sellers for consideration.”
Online sales platforms like eBay and Amazon are considered marketplace facilitators under Michigan law.
A software like BigCommerce or Ecwid that allows online sellers to build and manage their own stores would not be considered a marketplace facilitator.
Does this mean I can stop collecting Michigan sales tax?
It depends. Every business’s sales tax situation is unique to that business.
Let’s look at a couple of common scenarios for businesses who have sales tax nexus in Michigan.
Example #1: You only make sales on online marketplaces.
In this example, you only sell on Amazon and Etsy. Because Amazon and Etsy are both now collecting sales tax from Michigan buyers on your behalf, you are not required to collect sales tax from your buyers. (However, as a seller with nexus in the state, you will still be required to file periodic sales tax returns. See “Does this mean I can cancel my Michigan sales tax permit?” below.)
Example #2: You sell on online marketplaces and your own online store and/or brick and mortar store.
In this case, you’d still be required to collect sales tax from buyers who purchase from you through your own online store (for example, via your BigCommerce or Magento store). And you would still be required to collect sales tax from your brick and mortar customers.
Marketplace facilitator laws only cover marketplaces. The state still requires that merchants collect sales tax from buyers via sales channels where the marketplace facilitator laws do not apply.
Does this mean I can cancel my Michigan sales tax permit?
If you have sales tax nexus in Michigan:
Michigan’s marketplace facilitator law does not affect the sales tax registration requirements for existing sellers. So if you live or otherwise have sales tax nexus in Michigan (including Michigan economic nexus), then you are still required to hold a Michigan sales tax permit. This also means you are still required to file sales tax returns on due dates set for you by the state.
Michigan requires that sellers with nexus in the state remain registered in order to remit the General Excise tax.
If you do not have sales tax nexus in Michigan:
However, if you are registered to collect sales tax in Michigan, do not have any other sales tax nexus (including economic nexus) in Michigan, and only make marketplace sales in Michigan, you can most likely cancel your sales tax permit.
But first, a word of caution. We recommend checking directly with the state or a sales tax expert before cancelling your sales tax registration. This is because your business is now on the state of Michigan books and potentially on their radar should they decide that you still have sales tax obligations in the state of Michigan.
Final note: It’s important to assess your business before making a decision about cancelling sales tax permits. Are you in a growth stage? Do you plan to expand and think you may have Michigan sales tax collection requirements in the future? Then you may want to hang on to your Michigan sales tax permit rather than cancelling it and going through the administrative hassle of registering again in the future. This business decision is up to you.
Do I still need to file a Michigan sales tax return?
If you are registered to collect sales tax in Michigan (i.e. you have an active Michigan sales tax permit) then the state still requires that you file sales tax returns.
If you only make sales via marketplaces, and all of your marketplaces collect sales tax from buyers on your behalf, then you may only be required to file a “zero return.” (This is a return showing that you do not have any sales tax to remit to the state.) (All see “Does this mean I can cancel my Michigan sales tax permit?” above.)
If you no longer have any sales tax to remit to the state of Michigan, we recommend checking directly with the state to determine if you can cancel your sales tax registration.
Be cautious here. If you are registered for a sales tax permit and do not file, the state can assess penalties even though you don’t have any sales tax to remit! We have, unfortunately, talked to too many sellers who have found this out the hard way when a tax penalty bill arrives.
What do I do with any Michigan sales tax I have already collected?
If you have already collected Michigan sales tax from buyers, it is vital that you remit that amount to the state. The only way to get in serious criminal trouble in sales tax is to collect sales tax from buyers on the state’s behalf but keep it in your own pocket.
Let’s say you sell on Amazon and Michigan requires you to file and remit sales tax quarterly. Though Amazon began collecting sales tax on your behalf on January 1, if you have any sales tax in your bank account that you collected from Q4 2019, you will still need to remit that to the Michigan Department of Treasury or face a penalty.
Does TaxJar handle this for me?
TaxJar AutoFile Handles Michigan Sales Tax Automatically
TaxJar AutoFile automatically compiles your sales tax data the way the state of Michigan wants it filed. For example, many states, Michigan included, want sellers to break down their sales tax collected interstate (sales originating in Michigan sent to another state) and intrastate (sales made from Michigan to Michigan.)
If a marketplace has collected sales tax on your behalf, TaxJar reports that directly to the state so that the state is aware you have met your sales tax obligations.
Most states, Michigan included, also want you to break out your marketplace vs. non-marketplace sales. TaxJar AutoFile also does this automatically.
If you currently AutoFile your Michigan sales tax returns, you don’t need to do a thing. It’s handled!
TaxJar Reports Give You all the Info You need to File Manually
If you prefer to file manually, your TaxJar Reports also reflect what the Michigan Department of Treasury wants to see on your tax return.
Also don’t worry that you will double pay. TaxJar accounts for sales tax collected on your behalf, and only shows you the amount you owe to the state out of your pocket.
Further reading on Michigan sales tax and marketplace facilitator laws:
- TaxJar’s Marketplace Facilitator FAQ
- State by State: Marketplace Facilitator Laws Explained
- Michigan Sales Tax Guide for Businesses
Don’t have time to keep up with changing state legislation? TaxJar tracks it for you and can file your state sales tax returns automatically with AutoFile, so you can set it and forget it.