Every state taxes purchases made outside the state. In Michigan, the tax on out-of-state purchases is called the "use tax." The use tax was enacted in 1937. Michigan does not tax digital goods; however, software is taxable. The basic rule is: If a business has a physical presence in a state, it must collect sales tax; if not, there is no need to collect sales tax.
State Tax Policies
Michigan does not allow local sales taxes. The state sales tax rate is 6% statewide. You must pay 6% use tax to Michigan on out-of-state purchases not charged sales tax. Compliance with the use tax has been historically low. Michigan has issued guidance on sales tax for software and digital goods. It clarifies the tax treatment and applies retroactively.
New Tax Laws for Online Retailers
Under new rules, out-of-state online retailers must pay 6% Michigan sales tax on sales made after September 30, 2018. A new law requires remote sellers, including internet sellers without a physical presence in Michigan, to collect 6% Michigan sales tax. This is expected to bring in over $200 million annually and aims to create a fair playing field.
Items brought into Michigan for storage, use, or consumption may be subject to 6% Michigan Use tax. However, credit is given for any sales or use tax legally due and paid in another state at the time of purchase.
Tax-Exempt Items and Collecting Online Sales Tax
What items are not taxed in Michigan?
Michigan does not tax digital goods, with one exception: Sales tax must be collected on pre-written software sold online.
The basic rule for collecting sales tax from online sales is: If your business has a physical presence, or “nexus,” in a state, you must collect applicable sales taxes from online customers in that state. If you do not have a physical presence, you generally do not have to collect sales tax for online sales.
International Purchases and GST
Is there tax when ordering something online?
For goods with a value of AUD1000 or less, shipped to Australia, there are generally no duties, taxes, or charges at the border. However, from 1 July 2018, the Goods and Services Tax (GST) may be collected by overseas vendors when imported by consumers in Australia.
Understanding E-commerce Sales Tax
The internet has made shopping online convenient but understanding how taxes are calculated requires insight into e-commerce retailer strategies. Retailers either charge the buyer’s local tax rate or establish a “NEXUS” rate if they have a registered business presence in the state or county.
Getting online sales tax right can be challenging for smaller e-commerce stores. This guide aims to give you a high-level understanding of e-commerce sales tax and how to stay compliant. Always consult with a certified tax accountant or tax compliance expert for tailored advice.