The Michigan Court of Appeals remanded a case on whether Detroit may impose its income tax on an out of state taxpayer, in light of the US Supreme Court’s Wayfair ruling. The Michigan Court of Appeals previously upheld the Tax Tribunal’s decision that the taxpayer lacked sufficient nexus with Detroit to be subject to its income tax because the taxpayer did not have a physical presence in Detroit and therefore was not doing business within the City. Apex Labs. Int’l Inc. v. City of Detroit, No. 338218, 2018 WL 2269748 (Mich. Ct. App. May 17, 2018), vacated and remanded, 503 Mich. 1034, 927 N.W.2d 243 (2019).
On appeal, the Michigan Supreme Court remanded the case back to the Court of Appeals in light of Wayfair. The Court of Appeals declined to rule and further remanded the case to the Tax Tribunal. The Court of Appeals concluded that it was not the appropriate venue to decide the case since the Tax Tribunal’s original decision focused only on whether the taxpayer had physical presence in Detroit, as understood under the now overturned Quill and Bellas Hess rule. Additionally, the appellate court could not simply overturn the case in Detroit’s favor, because the Tax Tribunal, disposing of the case on the physical presence issue, never considered the taxpayer’s alternative arguments against the assessment of Detroit’s tax. Apex Labs. Int’l Inc. v. City of Detroit, No. 338218, 2020 WL 34298 (Mich. Ct. App. Jan. 2, 2020). On remand, the Tax Tribunal will consider the parties’ arguments and whether to extend the US Supreme Court’s decision in Wayfair beyond sales and use tax.