Which web sales are taxable?

Q: When a customer orders something from my website, do I have to charge them the 6-percent Michigan sales tax?

A: There has been considerable confusion regarding taxation of Internet sales because the retailer collects the tax in certain cases but not in others.

If a customer buys something from the website of your Michigan business and has it shipped to a destination in Michigan, you will need to collect the 6-percent sales tax on the purchase.

However, if an out-of-state customer makes a purchase for shipment to a location outside Michigan, you do not have to collect Michigan sales tax. (If your business has a physical presence in the destination state, you will need to collect that state's sales tax.)

The same principles apply for purchases made by mail or telephone.

The reverse is also true: if a Michigan consumer buys from an Internet retailer without a physical presence in Michigan, the retailer does not have to collect Michigan sales tax. Customers are supposed to pay a 6-percent use tax as part of their Michigan income tax return, but many fail to pay.

Out-of-state Internet, telephone and mail-order retailers have used this loophole for years to give themselves a price advantage against Main Street retailers, particularly on high-ticket items like furniture and computers.

The Michigan Retailers Association continues to advocate uniform, equitable collection of sales tax by all retailers, regardless of where they are located. A nationwide coalition of state governments is seeking to simplify state sales tax laws, making it more feasible for remote sellers to collect the tax.

Michigan has been an active participant in this process, and legislation has been drafted in the Michigan Senate to address tax code simplification.