Michigan Court of Appeals Finds That the Presence of any Sales Force in Michigan Establishes Substantial Nexus for Purposes of Single Business tax

The Michigan Court of Appeals recently rejected a taxpayer's claim that the size of a company's sales force in Michigan must be considered when determining whether a company has substantial nexus with Michigan. Rayovac Corporation v. Dep't of Treasury, Case No. 02-000062-MT (Nov. 23, 2004), 2004 Mich. App. LEXIS 3190. Instead, the Court found that the presence of any sales force in Michigan establishes substantial nexus for purposes of Michigan Single Business Tax ("SBT").

Factual Background

Rayovac Corporation ("Rayovac") had three sales persons and one sales manager in Michigan who solicited, but did not accept or approve orders. The Court of Claims determined that this presence was insufficient to establish substantial nexus with Michigan under the limitations imposed by the Commerce Clause and found that Rayovac was not liable for SBT.

Court of Appeals Establishes Bright Line Rule - Any Sales Force in Michigan Creates Substantial Nexus

The Court of Appeals agreed with the Court of Claims that Michigan could impose SBT only if Rayovac had substantial nexus with Michigan under the standard established by the U.S. Supreme Court in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Although Rayovac urged the Court to consider the size of a taxpayer's sales force in Michigan in determining substantial nexus, the Court declined to do so. Rather, the Court found that Quill's "bright line rule" as interpreted by its decision in MagneTek Controls, Inc. v. Dep't of Treasury, 562 N.W.2d 219 (1997) could only be preserved by finding that the presence of any sales force in Michigan establishes substantial nexus. To do otherwise, the Court of Appeals stated would "invite chaos from lack of certainty as to what size or character of the sales force would meet the standard." Therefore, the Court of Appeals reversed the Court of Claims' decision and found that Rayovac had substantial nexus with Michigan and was liable for SBT.

Court Reaffirms Its Earlier Decisions Approving the Department's Retroactive Application of its Nexus Standard for SBT

Not surprisingly, the Court reaffirmed, in a summary paragraph, its earlier determinations that found that the retroactive application of the Department's nexus standard for SBT did not violate the Commerce Clause1. Further, the Court found that Rayovac had no vested right in the continued application of a particular taxing standard and could not claim that imposing the SBT was unfair and unjust treatment.

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