Realizing that you haven’t been fulfilling your tax obligations as a business owner is incredibly stressful, and if you’re behind on MI sales tax payments, the stakes are high. The Michigan Department of Treasury takes sales tax incredibly seriously, which is why it’s important to evaluate your options, get caught up, and comply as you move forward.
Failure to pay sales tax can lead to state tax liens, involuntary asset seizure, loss of your sales tax permit, and potentially even personal liability for business taxes. Don’t wait – get help today by contacting us at the W Tax Group.
Key Takeaways
- Ignoring your sales tax debt puts you at greater risk of aggressive collection actions, as well as a higher bill caused by penalties and interest.
- Filing your past-due sales tax returns is the first step to tax resolution for most taxpayers.
- There are voluntary disclosure options for both Michigan filers and those outside of Michigan.
Why Ignoring Sales Tax Obligations Only Makes Things Worse
When you first realize that you’re non-compliant with sales tax returns and payments, it may be tempting to ignore the problem a little longer. Maybe you think that waiting will give you extra time to save up what you owe or get the documents you need to file. Perhaps you think that if you’ve flown under the radar this long, you can for a little bit longer.
But the fact is that the Department of Treasury can come down hard on companies that don’t file returns or pay their sales tax. Sales tax is a trust fund tax, which means the money is only meant to pass through the business’s accounts on its way from the consumer to the state. If you aren’t paying what you owe, it’s essentially a misuse of government funds. The sooner you get a full picture of what you’re working with and your resolution options, the more likely you are to avoid aggressive collection actions.
Beyond aggressive collection actions, waiting to address your current sales tax leads to heavier financial consequences. Penalties and interest continue to accrue until all required returns are filed and all owed taxes are paid. While it can be stressful to get a full picture of what you owe, doing so does minimize your penalties.
Filing Your Sales Tax Returns
The first step to most resolution options is to file your sales tax returns. However, if you are interested in a Voluntary Disclosure Agreement or Taxpayer-Initiated Disclosure, hold off on actually filing your returns. But you should still get your documents in order, as you will eventually need to file your returns when you apply.
Filing as your first step is important because you face two penalties when you’re behind on taxes: the late filing penalty and the late payment penalty. By filing, you stop the clock ticking on the late filing penalty. This also gives you a better understanding of just how much you owe, which allows you to more easily consider different resolution options.
Filing online is generally the easiest option. You can file by logging on to your Michigan Treasury Online account. The forms you need—Forms 5080 or 5081, depending on your filing frequency—can also be filled out manually and submitted by mail. Note that the Department of Treasury is starting to phase out these paper forms, at which point all filings must be submitted via MTO.
What to Expect After Filing—Assessments, Penalties, and Interest
Assuming that your calculations regarding what you owe are accurate, you should have a fairly good estimate of what you owe—the forms used for sales and use tax returns include lines for calculating penalties and interests, with instructions at the bottom. After your returns are submitted, the Treasury will process them, calculate what you owe, and officially assess the tax. The penalties and interest may be slightly higher than expected, depending on how much time passes between submitting the returns and the tax being assessed.
In Michigan, a late sales tax return results in a penalty equal to 5% of the amount due, which is added to your bill each month until the bill is paid in full. This penalty is capped at 25% of the total tax bill. The late payment penalty is identical to the late filing penalty.
The interest rate is reviewed every six months by the Department of Treasury. For the second half of 2025, the interest rate is 8.66%.
Figuring Out What You Really Owe
If you’re struggling with the first step of this—filing your returns—it’s likely you’re having a hard time figuring out what you really owe. This is common for businesses without a strong record-keeping system or with incomplete records. A tax professional can be very helpful in this situation; they can look over your records, track down sales records via different avenues, and properly estimate your liability.
From there, the Treasury can also verify whether or not your sales tax calculations are correct. If you’ve filed in the past and your new returns are dramatically different from what you used to owe, your numbers fall significantly outside the norm for your industry, or you’re in a high-risk industry like food service, they may want to audit your records to see if your calculations are accurate.
Payment Options
Ideally, you’ll pay what you owe in full and upon submitting your returns. This limits your late payment penalty and essentially allows you to become compliant immediately, assuming that your numbers are correct. However, this is simply not possible for many business taxpayers.Â
If you cannot pay in full, there are a few options to look into with the help of a sales tax attorney:
- Payment plan: In some cases, the Treasury will approve a payment plan for past-due sales and use tax. You’ll need to demonstrate that you are able to afford both your monthly payments and to keep up with new sales tax obligations moving forward. There are additional requirements for payment plans, such as filing and paying all new tax obligations on time.
- Offer in compromise: It’s very rare for the Treasury to accept an offer in compromise request for sales tax debt, simply because sales tax is considered a trust fund tax. While it’s rare, it is not impossible, and you may qualify if you have severe financial hardship or your business is closed and has no more assets.
- Penalty waiver: If you have a valid reason for failing to file or pay on time, you may qualify for a penalty waiver. The state requires documentation of your reason for being late. Examples include serious illness or death, a natural disaster, or criminal acts against you.
Why You Shouldn’t Try to Tackle Large Balances Alone
If your sales tax bill is significantly higher than you expected or you have no idea how you’ll ever pay it off, it’s time to involve a tax professional if you haven’t talked to one already. The Treasury tends to act more quickly with this type of debt than with other types of debt, and you risk serious consequences if you try to figure out a solution on your own. First, the Department of Treasury may take direct action against your business. They may place a lien on your assets, levy your business assets, freeze your bank accounts, or garnish incoming funds.
This issue can also affect you on a personal level. The state can legally hold officers and other responsible parties liable for unpaid tax debts accrued by a corporation. Your personal assets and income could be seized to cover business tax debt if you do not handle this issue properly.
A tax professional is a crucial asset in this situation. They can negotiate with the Treasury on your behalf, prove financial hardship or reasonable cause, and negotiate payment solutions that fit your budget and business needs.
What If I’ve Never Filed – When to Consider a Voluntary Disclosure Agreement
Michigan has two main programs that allow taxpayers to disclose unpaid taxes and get their penalties waived. The Voluntary Disclosure Agreement is open to those who have nexus in Michigan but are not domiciled, incorporated, or a resident of Michigan.Â
The lookback period is limited to 48 months for sales and use tax disclosures – however, if you’ve been collecting but not paying sales, tax, the lookback period will include all of the months where you collected sales tax.Â
This option is not available to those who have already been contacted by the Department of Treasury or who are being audited for the taxes in question. If you are approved for this program, then you file your taxes.
Taxpayer-Initiated Disclosure is similar to the VDA, but it is intended for those who are domiciled or registered in Michigan. It does not have a limited lookback period, but does result in a penalty waiver.
Getting Back Into Compliance and Protecting Your Business
Once you have gotten completely caught up on your sales and use tax, it is incredibly important to stay compliant going forward. You know how the Treasury views and approaches sales tax debt, so filing and paying in a timely manner is non-negotiable.
If you initially fell behind because of poor account management, irregular record-keeping practices, or simply not having enough time, this is a good time to bring in ongoing tax assistance. A tax professional who handles your tax records throughout the year can ensure that everything is filed and paid by its due date, protecting you from further issues with the Department of Treasury.
If you’ve fallen behind on your sales tax returns or payments, you have options—but the sooner you explore them, the less you’ll pay in interest and the more options you’ll have at your disposal. At W Tax Group, we help business owners across Michigan catch up and stay compliant. Our goal is to meet your tax needs while keeping your business running. Call us at 877-500-4930 or contact us online to set up a consultation.
Frequently Asked Questions
Can I go to jail for unpaid sales tax?
This outcome is extremely rare. Criminal charges are generally only on the table when there is intentional tax fraud or tax evasion. Otherwise, taxpayers typically only face civil penalties.
Are my personal assets at risk if my business doesn’t pay sales tax?
Yes. Michigan state law allows the Treasury to hold responsible parties personally liable for tax debt accrued by a corporation.
Can I apply for a payment plan or offer in compromise?
In some cases, these options may be available to you. However, this is at the discretion of the Treasury, so you may want to discuss your options with a tax professional.
Sources:
https://www.michigan.gov/-/media/Project/Websites/taxes/Forms/All-Years/4133.pdf?rev=21237644afb040a29365f812f36de3d8
https://www.michigan.gov/taxes/coll-audit/voluntary-disclosure
https://www.michigan.gov/taxes/coll-audit/discovery/content/taxpayer-initiated-disclosure
https://www.michigan.gov/taxes/business-taxes/mbt/faq/accordion/penalty/why-am-i-being-charged-penalty-and-or-interest
https://www.michigan.gov/taxes/iit/tools/tax-interest-rate-calculation
https://mto.treasury.michigan.gov/eai/mtologin/authenticate?URL=/
https://www.michigan.gov/taxes/business-taxes/sales-use-tax/resources/sales-and-use-tax-filing-deadlines
https://www.michigan.gov/taxes/business-taxes/sales-use-tax/2025-sales-and-use-tax-forms
https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/SUW/TY2025/5080.pdf
https://www.michigan.gov/taxes/business-taxes/sales-use-tax
https://www.michigan.gov/taxes/iit/tools/calculate-late-penalty-and-interest
https://legislature.mi.gov/Laws/MCL?objectName=mcl-205-24
https://www.michigan.gov/taxes/iit/interest-rate
https://www.michigan.gov/taxes/questions/collections/penalty/how-do-i-request-a-penalty-waiver
https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-205-27
https://www.michigan.gov/taxes/collections/corporate-officer-liability-frequently-asked-questions
