State Sales Tax Guide Michigan
Any individual, business, or entity selling goods and services in Michigan must collect sales taxes from their customers and pay them to the state government. Understanding how sales tax in Michigan works is crucial to ensure you pay the correct amount on time.
Failing to pay sales taxes correctly in the state of Michigan can result in fines and criminal charges. Our comprehensive guide can help you understand Michigan’s sales tax rates, schedules, and penalties, how to file and pay sales taxes to the state government, and what to expect in a sales tax audit.
What Are Michigan’s Sales Tax Rates?
Per Section 205.52 of the General Sales Tax Act, all persons engaged in a retail business or selling tangible personal property must pay the Michigan sales tax. For most taxpayers, the Michigan sales tax rate is 6%.
An exception applies to specific categories of taxpayers providing electricity, natural gas, and home heating fuels, such as state-regulated gas providers. The tax rate for these products is 4%, corresponding to the state’s sales tax rate before April 1994.
In addition to the standard Michigan sales tax, the state government levies the use tax, described by the Michigan Department of Treasury as a companion to the sales tax. The use tax applies where the sales tax cannot apply to businesses providing specific categories of tangible personal property, rentals, leases, telecommunications services, lodging, and out-of-state companies. The use tax rate is 6%, equal to the state’s sales tax rate.
Internet purchases are a typical transaction where the Michigan use tax applies.
For example, when an out-of-state retailer ships clothing to a Michigan resident, the clothing items count as tangible personal property. The retailer will owe the use tax to the Michigan state government, calculated from the transaction’s total price, including shipping and handling charges.
Only the state government levies the Michigan sales and use tax. There are no city or local sales taxes in Michigan.
Who Needs to Collect Sales Tax?
Generally, any business or organization that meets the legal definition of engaging in retail sales must collect the Michigan sales tax from their customers and pay it to the state government.
The law (MCL 205.52) specifies the sales tax applies to individuals in any of the following cases:
- Transfers of tangible personal property for consideration, such as from a retailer to a customer. Businesses providing repairs, improvements, alterations, or other services to tangible personal property must also pay the sales tax.
- Sales of electricity, when transmitted or distributed to the customer for consumption, either through the seller’s own utilities or another provider’s.
- Sales of prepaid telephone cards, including authorization numbers and reauthorizations of existing telephone cards and numbers.
- Conditional sales, installment lease sales, and any other property transfers if the title is temporarily retained for security with the intent to transfer it later.
Per MCL 205.53(4), any individual who owes the use tax but is not otherwise required to obtain a sales tax license does not have to apply for a sales tax license as long as they are registered under the state’s streamlined sales and use tax agreement.
Individuals and organizations engaged in multiple businesses must keep separate books if at least one business is subject to the sales tax and at least one other isn’t. If you fail to keep the books for each business separate, the Michigan sales tax applies to the gross proceeds of each of your businesses.
For instance, if you manage three businesses and fail to maintain separate books for each one, you will pay sales taxes on the gross proceeds generated by all three, even if only one is subject to the sales tax.
All individuals and businesses required to collect and pay the Michigan sales tax from their customers must be licensed by applying for a Michigan Sales Tax License. Individuals may register for a Sales Tax License through the Michigan Department of Treasury’s online portal.
What Are the Due Dates for the Michigan Sales Tax?
The Michigan Department of Treasury (MTO) states that taxpayers who owe the Michigan sales and use taxes must file and pay them to the state government according to their assigned filing frequency. Each business is allocated a filing frequency ranging from monthly, quarterly, or annual, calculated based on their estimated activity levels.
Businesses assigned a monthly or quarterly filing frequency must still complete an annual Michigan sales tax return. The Michigan sales tax due dates for each filing frequency are as follows:
- Monthly filing: On or before the 20th of the next month
- Quarterly filing: On or before the 20th of the month following the quarter. For example, when filing for the first quarter of the year (January 1 to March 31), your deadline is April 20.
- Annual filing: February 28
If the due dates fall on a weekend or holiday, Michigan law considers the due date the next business day. If you pay through Electronic Funds Transfer (EFT), the state government recommends paying one business day before the due date or one day before the weekend or holiday if the due date falls into either.
Michigan recognizes 12 holidays, the dates of which may affect your sales tax due dates: New Year’s Day, Martin Luther King Jr. Day, President’s Day, Memorial Day, Juneteenth, Independence Day, Labor Day, General Election Day, Veterans Day, Thanksgiving Day, Christmas Eve and Christmas Day, and New Year’s Eve.
What Are the Penalties for Failing to Collect or Pay Michigan Sales Taxes?
Michigan law (MCL 205.23) outlines the penalties for failing to collect and pay your sales taxes on time. The statute provides three levels of severity for which penalties may be applied:
- First degree: If the state government determines you have failed to collect or pay the Michigan sales tax with the intention of committing tax fraud, you are liable for the first and highest degree of penalties. If it applies to you, you will owe the state government 100% of the taxes you failed to pay, plus interest.
- Second degree: If Michigan determines you failed to collect or pay the sales tax due to an intentional disregard of the law but not with the intent to commit tax fraud, you must pay 25% of the total amount you failed to pay or $25, whichever is higher, plus interest.
- Third degree: If you failed to collect or pay the sales tax due to simple negligence but not intentional disregard, you must pay 10% of the total amount you failed to pay or $10, whichever is higher, plus interest.
The interest owed on a failure to pay sales taxes is calculated based on an annual rate and a daily rate. The Michigan state government revises the interest rates every six months on January 1 and July 1 of each year. You can find the current interest rates in the latest edition of the Michigan Revenue Administrative Bulletin.
- Between January 1, 2023, and June 30, 2023, the annual interest rate is 5.65%, and the daily rate is 0.0001548%.
- Between July 1, 2023, and December 31, 2023, the annual interest rate is 8.25%, and the daily rate is 0.0002260%.
Criminal penalties may apply if the state finds a taxpayer has intentionally failed to collect or pay the sales tax, filed false documents or tax returns, or helped another person avoid paying the sales tax.
Per MCL 205.27, a criminal failure to pay the Michigan sales tax with intent to commit fraud is a felony punishable by up to $5,000 in fines and up to five years in prison.
You may be charged with a misdemeanor if you failed to pay but did not intend to commit fraud, such as intentional disregard. This is punishable by up to $1,000 and up to one year of imprisonment.
What Are the Penalties for Late Sales Tax Returns in Michigan?
Michigan taxpayers filing their sales tax returns past the specified deadline are subject to penalties for late returns. The Michigan Department of Treasury outlines all penalties for late payments.
Failing to file a tax return within the allotted time for the Michigan sales tax exposes you to a penalty equal to 5% of the tax due for the first two months plus 5% for every additional month over the first two, up to a maximum of 25%.
If you filed a sales tax return but failed to pay the tax due on time, the same penalties apply; 5% for the first two months plus 5% for every additional month afterward, up to a maximum of 25%.
How to Avoid Michigan Sales Tax Penalties
To avoid Michigan sales tax penalties, you must pay all applicable taxes and file a sales tax return on time. However, the state government allows you to request a penalty waiver for a failure to pay on time if you can provide sufficient evidence explaining why you were reasonably unable to do so.
Examples of situations where you may need a penalty waiver include:
- Serious illness or death
- Fires and natural disasters
- Criminal acts committed against them
- In specific states of emergency
Whether you need to file a sales tax return on time or require assistance requesting a penalty waiver from the state government, contact an experienced tax professional with TaxCure.
What to Expect in a Michigan Sales Tax Audit
The Michigan sales tax audit process ensures compliance with the state’s sales tax regulations. The state uses computer-generated risk assessments to select businesses for audits. If your business undergoes a sales tax audit, you can expect the following procedures:
- Notification: The Michigan Department of Treasury will notify you in writing about the upcoming audit. The notice will include details such as the audit period, the documents they will review, and any specific instructions.
- Documentation review: During the audit, the state auditors will examine your sales records, purchase invoices, exemption certificates, and other relevant documents. They will verify if your sales tax returns accurately reflect your business activities. Generally, an audit can only go back four years; however, if you did not file, the audit can review documents from any period.
- Interview: The auditors may interview key personnel in your organization to gather additional information and clarify any discrepancies. During this process, you have the right to request that the audit happens at a convenient location and reasonable time, have a tax professional accompany you or represent you during the audit, receive copies of the audit schedule, and meet with the auditor to discuss the findings.
- Sampling: In some cases, the auditors may use a sampling method to review a representative portion of your sales and purchase transactions. This helps them assess the accuracy of your overall sales tax reporting.
- Findings and adjustments: The state auditors will provide you with their findings after completing the audit. If discrepancies or errors are identified, they may propose adjustments to your sales tax liability, which could result in additional taxes, penalties, and interest.
You will receive a Determined Audit Adjustments (DAA) letter with the treasury’s Preliminary Audit Determination (PAD) and a Final Audit Notification (FAN) stating your amount due. Unless you pay the bill or request an appeal, you will receive a Final Bill for Taxes Due - Final Assessment (Form 169) 60 days after the first DAA notice. The MTO provides a guide to SUW audit payments you can reference for paying any assessed liability resulting from your audit.
- Appeal process: You can appeal if you disagree with the audit findings. You can provide supporting documentation and explanations to contest the proposed adjustments. You can request an Informal Conference in writing within 60 days of the DAA notice, where an impartial referee will hear your appeal and report to the Treasury Executive, who will make a final decision.
If you wish to appeal the Informal Conference decision, you can appeal to the Michigan Tax Tribunal within 60 days or the Michigan Court of Claims within 90 days. These can be appealed to the Michigan Supreme Court as a last recourse.
To prepare for a sales tax audit, maintain accurate and organized records, have proper documentation for exempt sales, and review your sales tax compliance to identify and address potential issues. A professional tax advisor from TaxCure can help your safeguard against or prepare for an upcoming audit to ensure you comply with state regulations.
How to File and Pay Michigan Sales Tax
Filing and making your on-time Michigan sales tax payment is a crucial responsibility for businesses operating within the state. If you are wondering how do you file sales tax in Michigan, you can take the following steps to ensure you pay and file on time and with the proper forms:
- Registration: Before filing and paying sales tax, you must register for a Michigan sales tax license. You can register for a sales tax permit with the Michigan Department of Treasury through the eRegistration process or by filling out Form 518, allowing 5 to 6 weeks for processing.
- Filing frequency: Once registered, the Michigan Department of Treasury will assign a frequency and deadline for you to file and pay Michigan sales tax based on your assigned filing frequency, either monthly, quarterly, or annual. You must still file yearly sales tax returns if assigned a monthly or quarterly frequency.
- Electronic filing: Michigan offers convenient electronic filing options. You can file your sales tax returns electronically through the MTO portal following the Michigan Sales, Use, and Withholding Taxes E-File Tax Preparer Handbook guidelines or use approved tax software vendors to submit an electronic return.
The state requires employers with over 250 employees to complete Michigan sales tax filing online using Form 5082 if submitting an amended return.
- Paper filing: If you prefer, you can file paper returns by downloading sales and use tax forms and mailing them to the designated address. Forms may include:
- Form 5080 - Monthly/Quarterly Sales, Use, and Withholding Taxes Return
- Form 5081 - Annual Sales, Use, and Withholding Taxes Return
- Form 5092 - Monthly/Quarterly Sales, Use, and Withholding Taxes Amended Return
- Form 5082 - Annual Sales, Use, and Withholding Taxes Amended Return
- Form 5088 - Seller’s Use Tax Return
- Form 3372 - Michigan Sales and Use Tax Certificate of Exemption
- Payment options: You have several options for making sales tax payments in Michigan. If filing electronically, you can make payments through the MTO portal using your checking account and routing number or a credit or debit card. You can also pay by electronic funds transfer (EFT), following instructions provided by the MTO or EFT debit. You can include a check or money order along with your filed return when paper filing.
- Reconciliation return: An annual reconciliation return may be required if you are registered directly with Michigan. This return reconciles any differences between estimated payments and the actual tax liability. Typically, this is only required if you file and pay sales tax monthly or quarterly. For a 2022 reconciliation, businesses use Form 5081.
- Voluntary disclosure: If you are an out-of-state seller who has not previously paid Michigan sales tax but now realizes the obligation, you may consider the Voluntary Disclosure program. This program allows you to report unpaid taxes and comply with reduced penalties and limited lookback periods. To do so, you will use Form 4133.
What Are the Tax Rules Regarding Online Sales in Michigan?
Generally, Michigan follows the same guidelines for online sales as in-person sales. If you sell goods or services to customers within the state, you must collect and remit the 6% sales tax.
If you have an online store and sell products to customers in Michigan, you need to determine whether the items you sell are taxable or exempt. Most tangible goods are subject to Michigan online sales tax, while certain items like grocery food items, prescription drugs, and medical devices are typically exempt.
For example, if you run an online clothing store and sell a shirt to a customer in Michigan, you need to collect sales tax on that transaction. However, if you sell prescription medication to a customer in Michigan through your online pharmacy, that sale would be exempt from sales tax.
To stay compliant, you must register for your sales tax permit, collect sales tax from customers, keep detailed records of your sales, and file regular sales tax returns.
If you are an out-of-state seller conducting business without a physical presence in Michigan, you are considered a remote seller. Michigan’s online sales tax rules for remote sellers are outlined in Revenue Administrative Bulletin (RAB) 2021-21, which provides guidance on sales and use tax nexus standards.
Remote sellers who meet the economic nexus in Michigan must register with the state and report and pay sales tax nexus. If you earn over $100,000 in gross sales or conduct 200 separate transactions selling to Michigan customers in the previous calendar year, you meet the remote seller threshold. This means you must follow the sales tax guidelines for all businesses in Michigan even though you operate out-of-state.
Sales of tangible personal property, such as clothing, furniture, books, and prewritten computer software, are subject to sales or use tax. If you meet the nexus threshold, you need to register for a Michigan state sales tax license.
If you’re uncertain about your sales tax obligations or need compliance assistance, consult a professional from TaxCure for guidance tailored to your situation.
Get Help With Michigan Sales Tax
As a business operating in Michigan, it is vital to understand the intricacies of sales tax and manage it effectively. For example, you must pay the current 6% tax rate, know the exemptions available for certain goods and services, and comply with reporting and filing requirements.
Properly managed sales tax ensures you follow legal requirements for Michigan businesses and helps you avoid penalties while optimizing your operations. TaxCure can provide expert assistance and advice to help you manage your sales tax liability.
At TaxCure, you can find local professionals that are specalized in Michigan sales taxes. You can start a search today using the search feature on the site, or you can view the Michigan sales tax professionals here.