New laws on the sales tax and use tax consequences on direct mail became effective in Michigan September 7, 2016. These laws were adopted as part of Michigan’s participation in the Streamlined Sales and Use Tax Agreement, and are intended to clarify to which State sales or use tax must be sourced when mail is mailed out of State.
Some of the important points in the new laws are the following:
- The law makes a distinction in tax treatment between advertising or promotional direct mail and other direct mail. Advertising and promotional direct mail is defined as direct mail the primary purpose of which is to attract attention to, or to attempt to sell, a product or service, person, business or organization. Other direct mail is defined as mail that is not advertising and promotional direct mail, including invoices, bills, statements, payroll advice, any legally required notices, and any other nonpromotional direct mail such as newsletters and informational pieces.
- The new laws address how services are sourced. If services are an “integral part” of the production and distribution of direct mail they have to be sourced as provided in the new laws.
- If services are not an integral part of the production and distribution of direct mail they do not have to be sourced as provided in the new laws and would be sourced to the buyers jurisdiction.
- Advertising and promotional direct mail is sourced to the jurisdiction where the direct mail is mailed.
- Other direct mail is sourced to the buyer’s jurisdiction.
- Development of billing information or data processing services that are more than “incidental” are not sourced under the new laws, regardless of whether advertising and promotional direct mail is included in the mailing.
- The above sourcing rules do not apply if the purchaser gives the mailer a tax exemption certificate or a direct pay permit
Mail that is sourced outside of Michigan under this new law would not be taxable in Michigan and may be taxable under the laws of the State to which it is sourced. The new laws do not take precedence over interstate commerce exemptions or any other state specific exemptions that would otherwise apply to the sourcing of direct mail.
This article is a brief summary of complex new laws. Readers should not rely on the contents of this article as it is not legal advice. Anyone affected by the new laws should seek competent counsel regarding the new laws.
To learn more, contact attorney Ed Castellani at ecastellani@fraserlawfirm.com or 517.377.0845. In addition to having practiced law for more than 30 years, Ed is a certified public accountant. This dual background and experience provides his clients unique insight into business transactions, such as business entity formations, mergers, acquisitions, tax audits and appeals, and general business and tax planning for both profit and nonprofit corporations.