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Revenue Administrative Bulletin 1989-46

Single Business Tax - Jurisdictional Standard (Replaces Single Business Tax Bulleting 1980-1)

Approved: May 31, 1989

RAB-89-46. This Bulletin describes the jurisdictional standard to be used in determining whether or not a taxpayer is taxable in another state for purposes of apportionment under Single Business Tax. A taxpayer not subject to tax in another state must allocate the entire tax base to Michigan. [MCL 208.406]

A taxpayer whose business activities are taxable both within and without this State shall apportion his tax base as provided in Chapter 3 (MCL 208.40 through MCL 208.69) of the Single Business Tax Act. [MCL 208.416]

In order to determine nexus in other states, the Single Business Tax Act relies upon MCL 208.42 which states:

"For purposes of apportionment of the tax base from business activities under this act, a taxpayer is taxable in another state if, (a) in that state he is subject to a business privilege tax, a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business or a corporate stock tax, a tax of the type imposed under this act, or (b) that state has jurisdiction to subject the taxpayer to 1 or more of the taxes regardless of whether, in fact, the state does or does not."

Three court cases have an effect on the jurisdiction position:

Amway v Department of Treasury, * * * * * Mich App * * * * * (1989).

Complete Auto Transit, Inc. v Brady, 430 U.S. 274 (1977)

Washington Revenue Department v Stevedoring Association, 435 US 734 (1978).

In Amway, the court indicated:

"Although Amway did pay a nominal fee when it filed its annual reports in Kentucky . . . Amway did not have employees in Kentucky or own or rent property in that state. Although Amway apparently did solicit orders and make sales in Kentucky through independent contractors, and is registered to do business in Kentucky, these do not constitute a sufficient nexus to allow Kentucky to tax Amway [15 USC 381(a), (c)]. . . . Thus, Amway's Kentucky sales are considered Michigan Sales. . . ."

In Complete Auto and Stevedoring Association the United States Supreme Court ruled a state tax on the "privilege of doing business" is not unconstitutional when applied to an interstate activity if:

1. There is substantial nexus with the taxing state, and

2. The activity within and without the state is fairly apportioned, and

3. The tax does not discriminate against interstate activity, and

4. It is fairly related to the services provided by the state.


A taxpayer incorporated in the State of Michigan has nexus in Michigan and is therefore subject to Single Business Tax.

In determining whether a taxpayer has sufficient nexus with Michigan, the Department will use the court cases developed under Public Law 86-272 as a guide when the business activity involves sales of tangible personal property. The definition of tangible personal property for this purpose will be determined under each state's respective laws.

The fact that a taxpayer is represented in Michigan by an employee exploring the Michigan market and taking orders to be approved and shipped from outside Michigan will not subject the taxpayer to the SBT. However, when the employee's activity goes beyond the solicitation of sales by providing services for the customer (including but not limited to technical assistance, inventory, or stock rotation) or services for the employer (including but not limited to collection of delinquent accounts, warranty work, exchange of damaged merchandise or negotiate settlement of a claim), there is sufficient nexus with Michigan to subject an out-of-state employer to single business tax. (See exception below for that activity conducted by independent contractors.)


Only the sale of tangible personal property is afforded immunity under Public Law 86-272. Therefore, the leasing, renting, licensing or other disposition of tangible personal property is not afforded any such immunity from taxation. In addition, the selling or providing of services, and the selling, leasing, renting, licensing or other disposition of real estate or intangible property are not governed by the nexus standards of Public Law 86-272. The definition of tangible personal property for this purpose is that to be found under each state's respective laws.

Non-immune Activities.

The following in-state activities will cause otherwise immune sales to lose their immunity:

1. Making repairs or providing maintenance.

2. Collecting delinquent accounts.

3. Investigating credit worthiness.

4. Installation or supervision of installation.

5. Conducting training courses, seminars or lectures.

6. Providing engineering functions.

7. Handling customer complaints.

8. Approving or accepting orders.

9. Repossessing property.

10. Securing deposits on sales.

11. Picking up or replacing damaged or returned property.

12. Hiring, training, or supervising personnel.

13. Providing shipping information and coordinating deliveries.

14. Maintaining sample or display room in excess of two weeks (14 days) during the tax year.

15. Carrying samples for sale, exchange or distribution in any manner for consideration or other value.

16. Owning, leasing, maintaining or otherwise using any of the following facilities or property in-state:

A. Repair shop

B. Parts department

C. Purchasing office

D. Employment office

E. Warehouse

F. Meeting place for directors, officers, or employees

G. Stock of goods

H. Telephone answering service

I. Mobile stores (i.e., trucks with driver salespersons)

J. Real property or fixtures of any kind.

17. Consigning tangible personal property to any person, including an independent contractor.

18. Maintaining, by either an in-state or an out-of-state resident employee, an office or place of business (in-home or otherwise).

19. Conducting any activity in addition to those described under Immune Activities below is not an integral part of the solicitation of orders.

Immune Activities.

The following in-state activities will not cause the loss of immunity for otherwise immune sales:

1. Advertising campaigns incidental to missionary activities.

2. Carrying product samples for display only or for distribution without charge or other consideration.

3. Owning or furnishing autos to salespersons.

4. Passing customer inquiries and complaints on to the home office.

5. Incidental and minor advertising (i.e., notice in newspaper that a salesperson will be in town at a certain time).

6. Missionary sales activities.

7. Checking of customers' inventories for reorder, but not for other purposes.

8. Maintaining a sample or display room for two weeks (14 days) or less during the tax year.

9. Soliciting sales by an in-state resident employee of the taxpayer, provided the employee maintains no in-state sales office or place of business (in-home or otherwise).

Public Law 86-272 provides immunity to certain in-state activities if conducted by an independent contractor that would not be afforded if performed by the taxpayer directly. Independent contractors may engage in the following limited activities in the State without subjecting the outstate taxpayer to single business tax:

1. Soliciting sales

2. Making sales

3. Maintaining a sales office.

Sales representatives who represent a single principal are not considered to be independent contractors and are subject to the same limitations as employees.

Maintenance of a stock of goods in the State by the independent contractor, under consignment or any other type of arrangement with the principal, shall remove the tax immunity.


A Michigan taxpayer using a multi-state market will be subject to the same nexus test for a business activity without Michigan as a taxpayer not domiciled in Michigan whether or not a return is filed in the foreign state. When a taxpayer has minimal contact with a state and the taxpayer is apportioning to that state, and by such apportioning the tax base the taxpayer is avoiding taxation in another state, the Department will so advise the foreign state under the provisions of MCL 208.103:

"An officer, agent, or employee of this state or of any department or agency of this state may divulge any information set forth or disclosed in a return or report filed under this act or by an investigation or audit authorized under this act to an office or department of the state government when it is required for the more effective administration or enforcement of the laws of this state, to any proper officer of the United States department of treasury, and to any proper officer of any other state imposing a tax of a substantially similar nature and reciprocating in this privilege. The commissioner may enter into reciprocal agreements with the United States department of treasury, or taxing officials of other states for the enforcement, collection, and exchange of data in connection with the administration of this act."

When nexus in a foreign state is questionable, the Department will require the taxpayer to file an "Affidavit of Taxability" providing specific information and describing the activity subjecting the taxpayer to the foreign state's tax jurisdiction.