For many people, the best thing about buying from Amazon is sticking it to the state by avoiding the 6% sales tax they would pay if they bought those products locally. These people are engaging in illegal tax evasion, and now Michigan is trying to do something about it.
Last month, Republican Governor Snyder signed a law sponsored by Democratic Senate leaders that will require certain Internet retailers to begin collecting the 6% tax on October 1, 2015. The big retailer that is targeted by this is Amazon, but there are others who are potentially affected, so you may see tax start showing up on other purchases as well. For those who have already been paying the required use tax on these purchases with their annual Michigan income tax return, this law change should ultimately make their tax compliance easier by reducing the likelihood that they are purchasing from vendors who are not charging them tax. But for those who have looked at online shopping as a way to score a 6% discount, it looks like the state is finally catching up with them.
With Michigan passing this law, it joins the roughly half of states in the country that are requiring some form of tax collection or reporting by Amazon and the other big online retailers. Interestingly, while Amazon is in favor of a national solution to this problem, they are fighting the moves by various states to impose solutions at the state level. Essentially, Amazon wants the same rules across the country, and that will never happen if each state is allowed to pass its own laws on this issue.
Amazon’s primary way to fight this recently has been to change its business strategy to avoid the new requirement to collect sales tax. They do this by terminating their relationship with Amazon Associates, people in a state who have their own website that links to Amazon. So far, Amazon has terminated these relationships in six states, and it is possible that Amazon might terminate its Amazon Associates relationships in Michigan in response to this new law. If they do so before October 1st, then Amazon still wouldn’t have to collect Michigan tax.
The bottom line is that Michigan has fired a shot at Amazon, and we’ll wait to see whether Amazon fires back. If they do, then they won’t need to start collecting Michigan tax. If they don’t fire back, then starting on October 1st, you’ll start noticing that 6% tax on your Amazon invoices. Look on the bright side, they might just be saving you from breaking the law.