In search of ... Michigan taxpayers.

• Author: Bakale, Anthony

The Michigan Department of Treasury in 1998 revised the jurisdictional standard that determines whether a taxpayer is subject to tax under the Single Business Tax (SBT) Act or is subject to tax in another state for purposes of apportionment. The SBT liabilities of many companies located in Michigan have been significantly reduced as a result of the revised nexus rules, which often allow more sales to be sourced outside of Michigan. The repeal of the sales throwback rule has further contributed to the reduction of SBT paid by Michigan-based companies. Not surprisingly, the Michigan Treasury has contacted many out-of-state businesses with activity in the state to determine nexus status and collect delinquent taxes if due.

Many taxpayers remain confused about Michigan's revised nexus rules and the periods they cover; consequently, many companies with business activity in Michigan have not properly addressed nexus issues with the state. Others, however, have opted to approach the Michigan Treasury to settle tax issues proactively via voluntary disclosure (rather than wait to be contacted by the state).

Michigan's Nexus Standard

The revised nexus standard for Michigan SBT is set forth in Revenue Administrative Bulletin (RAB) 1998-1. The standard now resembles the "physical presence" test set forth in Quill Corp. v. North Dakota, 504 US 298 (1992), rather than the narrower test of P.L. 86-272, which had previously been applied in determining nexus for SBT purposes. An out-of-state business is subject to Michigan's SBT if it regularly and systematically conducts in-state business activity through its employees or representatives. RAB 98-1 provides a list of activities that constitute "business activity" for nexus purposes; this list includes solicitation of sales. Regular and systematic business activity exists if at least 10 days of activity occur annually. Facts and circumstances determine the existence of systematic business activity if the taxpayer has activity less than 10 clays annually. It will be presumed to exist if the activities are performed two or more days annually, unless the taxpayer can successfully argue that the activities are not conducted for the purpose of developing or maintaining a market in the state.

The use tax nexus standard is expressed in RAB 1999-1. Regular and systematic presence exists if at least two days of presence occur annually. The 10-day rule for SBT does not apply for sales and use tax nexus purposes.

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