Alerts and Updates
Illinois, Michigan and California State Tax Advisory
July 15, 2011
Recent developments in state tax laws include sales tax changes in Illinois and California, including the latter's "Amazon law," as well as replacement of the business tax in Michigan.
California has joined a number of states that have passed "Amazon laws" that seek to make non-California retailers subject to California use tax on their sales when they advertise though websites associated with California companies (i.e., click-through nexus). Basically, it requires that a retailer register to collect California use tax when such retailer enters into an agreement under which a person in California, for a commission or other consideration, refers potential purchasers of tangible personal property to the retailer, whether such referral is by an Internet-based link or an Internet website or otherwise, provided that both of the following conditions are met:
- The retailer's total sales of tangible personal property to California consumers that are referred pursuant to all of those agreements with persons in California in the preceding 12 months must be in excess of $10,000.
- The retailer's total sales of tangible personal property to California consumers in the preceding 12 months must be in excess of $500,000.
Lower Sales Tax Rates
On the brighter side for retailers, California has lowered its sales/use tax rates by 1 percent effective July 1, 2011. The statewide rate is now 7.25 percent rather than 8.25 percent before applicable district taxes.
Repeal of Michigan Business Tax with Enactment of New Corporate Income Tax
Effective January 1, 2012, the Michigan Business Tax is repealed and replaced with a new 6-percent corporate income tax. In addition, for those companies operating multistate businesses, a single sales-factor sourcing will be required. See Michigan's House Bill No. 4361, House Bill No. 4362, and House Bill No. 4479.
Local Sales Tax Sourcing Legislation
A taxpayer coalition was able to pass SB 2194 through the Illinois State Assembly's senate, but not the house of representatives. This bill was designed to codify decades of regulations, administrative decisions and court rulings on the sourcing of local sales taxes—i.e., what local tax rate to charge. This was attempted since the local rates can vary by as much as 3½ percent and the Illinois Department of Revenue had decided to abandon its previous regulations on the bright-line sourcing of such sales and move to a more subjective facts-and-circumstances test. Currently, the matter is on hold with discussions to be held this summer on a possible compromise. It is likely some type of new local tax sourcing law will be passed in fall of 2011.
For Further Information
If you would like more information on how this may affect your company, please contact Stanley R. Kaminski, any other member of the State and Local Tax Practice Group or the lawyer in the firm with whom you are regularly in contact.
As required by United States Treasury Regulations, you should be aware that this communication is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under United States federal tax laws.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.