As a Michigan business owner or an out-of-state business owner with nexus in Michigan, you are legally obligated to file and remit MI sales tax on a monthly, quarterly, or annual basis. Failing to do so can lead to the loss of your sales tax license—and that can mean the end of your business.
If you have fallen behind on sales tax returns or payments, it is crucial that you take steps to address the situation and get caught up. Your business depends on it. We can help – contact us at the W Tax Group for guidance today.
Key Takeaways
- Michigan has the right to revoke or suspend your sales tax license if you do not file sales tax returns or pay your sales tax.
- If you lose your license, you cannot legally make sales in Michigan.
- Restoring your sales tax license requires filing all late returns and making all necessary payments.
- Working with a Michigan sales tax attorney can help you keep your business running.
Why a Sales Tax License is Critical in Michigan
In Michigan, you are legally required to have a sales tax license if you are selling taxable goods. Maintaining a license and being able to provide it when asked by Department of Treasury authorities serves as proof of compliance with all state tax obligations.
Without a sales tax license, you can no longer sell taxable goods. For most businesses, that means a sudden and abrupt end to most or all sales and income streams. While you can reinstate a license after it’s been revoked, that’s still a period of time where you have no revenue coming in, which can be hard for a small business to bear.
Keeping up with sales tax payments protects your business’s standing with the Department of Treasury. If you have unpaid sales tax, you need to be proactive.
Michigan Law on License Suspension
Per MCL Section 205.53, the state treasurer or anyone designated by them has the right to suspend or revoke a person’s sales tax license if they fail to comply with the General Sales Tax Act. Valid reasons to suspend or revoke a license include:
- failure to file returns,
- failure to pay tax, and
- Failure to issue proper invoices.
Before revoking your permit, the Department must first send a notice indicating its intent to suspend the license and schedule a hearing.
However, they also have the right to restore a license if a taxpayer pays all delinquent taxes, interest, penalties, and fees due. This means that even if your sales tax license has already been revoked, you do have the chance to turn the situation around and get your business back in good standing.
What Happens If Your License Is Revoked
When the Department of Treasury suspends or revokes your license, you are immediately forbidden from making any taxable sales. Making even one taxable sale can result in the Department of Treasury seizing your business assets in an attempt to force compliance. You should expect significant penalties and delays if you continue to operate in violation of Michigan state law, which can make your current tax situation even worse.
Even if you get your sales tax debt squared away and your sales tax license is restored, this issue can impact your business moving forward. A temporary shutdown can damage your reputation in the community—when a business shuts down, even for a few days, people talk about what happened. This may also leave you unable to pay your suppliers, employees, and others, further damaging your reputation or even putting you at risk of a lawsuit.
Common Mistakes Leading to Loss of License
The Department of Treasury only suspends or revokes a license when it’s the only way to ensure that a business catches up with their tax debt and maintains compliance in their business operations moving forward.
Some of the most common mistakes that can lead to loss of a sales tax license include:
- Failure to file zero returns: Even if you have zero taxable sales for the period in question, you must still file a sales tax return. This is known as a “zero return” and reflects that your business had no taxable sales.
- Using sales tax for other expenses: This is somewhat common for businesses facing financial difficulties. If you use collected sales tax payments to catch up on other bills, pay employees, or cover other expenses, that is a breach of your duty as a business owner. Sales tax is a trust tax, which means you are only meant to hold onto it until you remit it to the state. Using it for other funds is a misuse of government money, and the Treasury is likely to step in quickly.
- Failing to pay sales tax: Even if you have the funds on hand to pay your sales tax bill, you can still lose your license if you forget to make payments. The Treasury isn’t concerned with the reason you haven’t paid; they just know you haven’t paid.
- Filing or paying late repeatedly: You may technically be caught up on returns and payments, but if you habitually file and pay late or need multiple reminders, your license may be suspended.
The loss of your sales tax license doesn’t mean that the Department of Treasury is trying to shut your business down. They may be trying to force you into compliance because your filing and payment habits cause them extra work and inconvenience.
How to Restore a Revoked or Suspended License
In order to restore your revoked or suspended license, you must first address all of the issues that led to revocation or suspension. If you’re missing sales tax returns, file those first. You can then use the information from those returns to figure out exactly how much you owe (including penalties and interest) and remit payment to the Department of Treasury.
If you are unable to pay your sales tax bill in full, you may be able to qualify for a sales tax payment plan. The Department of Treasury is often open to payment plans for businesses that can both make monthly payments on old tax debt while staying with new sales tax obligations. In certain cases, you may even qualify for an offer in compromise for sales tax–but this is fairly rare.
This step can be overwhelming, particularly if your financial records are in disarray or you have no idea how far behind you are on your sales tax returns. However, you do need to show a strong effort to become compliant if you want the Department of Treasury to show that you are taking the situation seriously. Working with a tax attorney is one way to find all necessary documentation, file missing returns, and come up with a plan for your remaining sales tax debt.
Why You Need a Tax Professional
While a Michigan sales tax attorney can help you at any step of this process, bringing one in before you’re in over your head can make the biggest difference in how this process plays out. When you bring in an attorney early, they have time to track down missing records, calculate how far behind you are, and begin working on different payment options.
If you’re already at the point of losing your license (or your license has already been revoked), your options are a bit more limited, and your attorney may need to do damage control before developing long-term solutions.
One of the main reasons you need a tax professional is protection against personal liability. Michigan state law allows the state to hold responsible parties liable for a business’s tax debt. The sales tax that your business currently owes could become your personal responsibility if you don’t take action and commit to a repayment plan.
Your attorney can work directly with the Department of Treasury to negotiate repayment and prevent more aggressive enforcement efforts, such as liens and levies. Once your current tax situation is addressed, you can work with your tax professional to stay compliant and prevent future license issues.
Don’t Risk Your Right to Operate
Without a valid sales tax license, your business cannot continue to operate. You can’t make taxable sales, which leaves you unable to pay employees, pay vendors and suppliers, and fulfill clients’ or customers’ orders. If you have sales tax debt that you aren’t sure how to pay, taking action now before the Treasury does can help you keep your business in good standing.
We’re here to help. At W Tax Group, our Michigan tax attorneys know how to address issues with the Department of Treasury and what it takes to get caught up. Call us at 877-500-4930 or reach out online to set up a time to review your tax situation.
Frequently Asked Questions
How can I check the status of my sales tax license?
If you’re concerned that your license may already have been revoked or suspended, you can log onto your MTO account and check your license status. If you cannot access your Michigan Treasury Online account, you can reach out to the Registration Unit at 517-636-6925 for a copy of your license.
Can I reopen my business after revocation?
Yes. However, you must first fix the issues that originally caused you to lose your sales tax license. That generally means filing all missing sales tax returns, paying sales tax debt or signing up for a payment plan, and setting yourself up for future compliance.
How long does reinstatement take?
There is no set timeframe for license reinstatement; a new license can take as little as seven business days, so handling the issues quickly may allow you to get your license back in a matter of days. Working with an attorney who can communicate with the Treasury on your behalf may also speed up the process.
Can I still make sales while my license is suspended or revoked?
No. Even if you are in the process of fixing your sales tax situation, you cannot make any taxable sales while your license is suspended or revoked. Making sales can lead to further legal and financial issues.
What if I’ve never paid Mi sales tax?
If you’ve never paid Mi sales tax, then you need to consult with an attorney. The options vary based on whether you have a sales tax permit, have collected sales tax but not filed, or haven’t collected sales tax at all. An experienced attorney can guide you in the right direction, regardless of what’s happening.
Sources:
https://www.legislature.mi.gov/Laws/MCL?objectName=MCL-205-53
https://www.michigan.gov/taxes/business-taxes/sales-use-tax/information
https://www.michigan.gov/taxes/business-taxes/sales-use-tax
https://www.michigan.gov/taxes/questions/iit/accordion/penalty/what-are-the-penalty-charges-for-failure-to-file-or-pay-1
https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-205-24
https://www.michigan.gov/taxes/business-taxes/sales-use-tax/information/sales-tax-license-faq
https://www.law.cornell.edu/regulations/michigan/Mich-Admin-Code-R-205-405
https://www.legislature.mi.gov/(S(i0govqpwlmunfmbsp34jbmqa))/documents/mcl/pdf/mcl-chap205.pdf
https://www.michigan.gov/taxes/business-taxes/sales-use-tax/information/general-faq
https://www.michigan.gov/taxes/business-taxes/sales-use-tax/information/filing-requirements-faq
https://www.michigan.gov/taxes/business-taxes/sales-use-tax/information/filing-deadlines
https://www.michigan.gov/som/government/state-license-search#q=sales%20tax&e=0
https://www.michigan.gov/taxes/business-taxes/new-biz/accordion/forms/registration-forms
