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Michigan's Use Tax – Mail Order and Internet Purchases

  • Every state with a sales tax has a companion tax for purchases made outside the state. In Michigan, that tax is called the "use tax" but might be more aptly described as a remote sales tax because it is a 6 percent tax owed on sales made remotely (i.e. outside of Michigan.)
  • The use tax is not a new law; it was enacted in 1937. With the birth and rapid growth of Internet sales, revenue lost from non-reporting of the use tax is becoming substantial.
  • Remote sales are made up of traditional mail order or catalog sales and e-commerce completed using the Internet.
  • National e-commerce sales to consumers are estimated at $160 billion in 2006. By 2012, projected e-commerce sales to consumers will grow to $268 billion nationally. Consumer mail order and catalog sales are at least as large as consumer e-commerce, although e-commerce is growing much faster.
  • Currently Michigan is losing an estimated $377 million in use taxes from remote sales in fiscal year (FY) 2009. This total is estimated to grow to $414 million in FY 2010.
  • The estimated loss of $414 million in FY 2010 is comprised of $138 million from the School Aid Fund, and $276 million from the General Fund.
  • Use tax is required by law when a person purchases a good from out of state and the retailer hasn't charged sales tax in their jurisdiction.
  • Non-compliance has been a problem for years with mail order sales, but the issue of "remote selling" becomes much more serious with the fast growth of Internet sales.
  • The Internet Tax Freedom Act does not prohibit the sales and use tax on consumer purchases over the Internet by Michigan residents that are taxable under Michigan law. Only new taxes on Internet access are prohibited.