The Single Business Tax (SBT) is the only general business tax levied by the State of Michigan. The SBT was enacted in 1976 to replace seven business taxes, including the corporate income tax.
The SBT is a “value added” tax—it is not a net income tax. Value added taxes are levied on “services consumed,” or the “benefits received principle.”

The SBT base consists of essentially three components—labor, capital used, and profit. Labor is measured by the compensation and benefits an employer pays to its employees; capital used is measured by depreciation, interest, dividends, and royalties paid the entity; and profit is measured by the taxpayer’s federal taxable income, as adjusted for SBT purposes.

The nexus standards set forth under Public Law 86-272 do not apply for determining if a person or entity is subject to the SBT, because it is not an income tax. However, all persons or entities engaged in a “business activity” in Michigan are subject to this tax.

The State has issued Revenue Administrative Bulletin 98-1, which sets forth when an out-of-state person or entity is subject to the Single Business Tax. Based on this bulletin, an out-of-state person or entity is subject to this tax when it engages in any of the following activities:

It has one or more Michigan employees conducting business activity in Michigan.

It owns, rents, leases, maintains, or has the right to use—or uses—tangible personal or real property that is permanently or temporarily physically located in Michigan.

Its employees own, rent, lease, or maintain an office or other establishment in Michigan.

Its agents, representatives, independent contractors, brokers, or others acting on its behalf own rent, lease, use, or maintain an office or other establishment in Michigan, and this property is used in the representation of the out-of-state business in Michigan and is significantly associated with its ability to establish and maintain a market in Michigan.

It has goods delivered to Michigan in vehicles it owns, rents, leases, uses, or maintains, or its goods are delivered by a related party acting as a representative of the out-of-state business.

It regularly or systematically conducts in-state business activity through its employees, agents, representatives, independent contractors, brokers, or others acting on its behalf, whether or not these individuals or organizations reside in Michigan.

The State has taken the position that all direct selling, multilevel marketing, and network marketing companies are subject to this tax, based on their Revenue Administration Bulletin 98-1. The State is aggressively seeking all of these companies, by searching for companies registered for their sales and use tax and reviewing the Internal Revenue records of all persons and entities that have issued forms 1099 to individuals or entities in the State of Michigan.

Any person or entity that is registered for the Michigan sales/use tax, or that has issued a 1099 to an individual or entity in the state, but has not filed a Single Business Tax return, will be notified that they must file and pay the applicable tax, penalties, and interest, beginning with 1995. Four of my clients, based in Florida, California, Minnesota and Alabama, have already been notified.

A company may avoid penalties and having to file for all years beginning with 1995, if it files a voluntary disclosure request and nexus questionnaire. Filing these documents will require the company to file only returns for the prior four years and pay the applicable tax, interest, and filing of all future returns.

I am indebted to James Richmond, of Professional Tax Services, Inc., 8591 Cedar Lake Drive Jenison, MI 49428, 616-457-2954,, for the substance and research of this article. I have known James for over 20 years, going back to my days at Amway, where we worked together. James Richmond is not an Attorney, but is a two degreed tax professional with over 30 years of tax experience. Twenty-three of those 30 years of experience were gained working with and for direct selling companies. Both James & I believe that all companies in this industry, with independent contractor representatives in Michigan, that are not currently filing Single Business Tax returns, have reason to be concerned. The recommended first step is to consult with their own counsel or CPA/tax preparer about filing the voluntary disclosure and nexus questionnaire. James Richmond is available as a Michigan based and knowledgeable resource to the company or its advisors.