The Use Tax nexus standard was promulgated by the Department of Treasury in Revenue Administrative Bulletin 1999-1 Use Tax Nexus Standards. The bulletin describes the jurisdictional standard to determine whether a seller is subject to the collection requirements of Michigan’s Use Tax. The nexus standard, based on judicial decisions, is “physical presence”.  It would seem reasonable to believe the "physical presence" nexus standard will continue as Michigan significantly adds to the number of services taxed under the Use Tax Act. 

In the Quill US Supreme Court decision on nexus, the "physical presence" standard established by the National Bella Hess US Supreme Court decision in the 1960s was upheld.  Although there has been some erosion of the "physical presence" standard, such erosion has only occurred in the franchise tax and income tax areas.  Therefore, it would seem logical to believe the new Michigan Use Tax on services will continue the "physical presence" nexus standard.

The "physical presence" nexus standard combined with the benefit received sourcing rule creates a dilemma for both tax administrators and Michigan consumers.  Out of Michigan service providers of taxable services to Michigan consumers will be compelled to collect and remit the Use Tax on such taxable services sourced to Michigan.  However, if "physical presence" nexus is not established, Michigan cannot compel a registration and submission of the tax.  Therefore, the Michigan consumer will be obligated to self assess the tax and remit it to the state.

The administrative challenge tax administrators have been wrestling with for years will be substantially increased with the expansion of the Use Tax to additional services.