Unpaid Michigan Sales Tax: Business Owner’s Guide

I Haven’t Been Paying Sales Tax? What Should I Do?

Missing your sales tax filing and payment deadlines in Michigan can have costly and inconvenient consequences. The unpaid sales tax debt incurs penalties and interest, which can significantly increase your tax liability. It can also lead to tax liens, bank levies, wage garnishment, and seizure of your business assets. Luckily, with a good strategy, you can resolve your tax problems and avoid aggressive collections. 

At The W Tax Group, we have all the tools and knowledge required to resolve all of your Michigan sales tax problems. We review your tax situation and customize a solution that not only gets you back to compliance, but that aligns with your finances. Learn how our sales tax attorney can help you.

Key Takeaways

• Risk of ignoring sales tax debt: Penalties and interest, aggressive collection activities such as bank levies and asset seizures. 
• Unfiled sales tax returns: You must file past-due returns before you can resolve the tax debt or seek relief. 
• Disputing the balance: You may be able to challenge the debt if the assessment is incorrect. 
• Payment options: You may qualify for a payment arrangement if you cannot pay the full balance. 
• Personal liability: Business owners and responsible persons may be held personally liable for unpaid Michigan sales tax in certain circumstances. 

Why Ignoring Sales Tax Obligations Only Makes Things Worse

When it comes to unpaid sales taxes, time is the enemy; the more time that passes, the more damage is done. Here is what happens when you ignore your sales tax obligations: 

Penalties and interest

Failing to pay your sales tax on time is subject to a penalty of 5% of the unpaid tax for the first two months. Then, you incur another 5% penalty each month, up to a maximum of 25%.

Besides the penalty, your tax liability starts accruing interest from the time the tax is due until you make payment at 1% above the “adjusted prime rate.” This rate is adjusted on July 1 and January 1 and is published on the Treasury’s website in Revenue Administrative Bulletins (RABs).

Collection actions

If you fail to pay sales taxes, the Michigan Treasury may take other measures to cover the delinquent taxes. These may include: 

• Offsetting refunds or other money owed to you: If you’re responsible for the unpaid sales taxes, the state can use your income tax refund to offset your tax debt. In addition, the Michigan Treasury can offset any money you receive from the state, such as lottery winnings and payments from vendors, to pay your tax debt.

• Financial institution levies: The department can serve a levy against your financial institutions, including credit unions, banks, and brokerage firms. The institutions will be required to send any funds held to the department up to the total past-due tax, penalty, and interest amount. 
• Wage levies: The department may levy against your wages, bonuses, salaries, commissions, and any other kind of compensation from an employer. A wage garnishment requires your employer to deduct a portion of your income until your debt is paid. 
• Asset seizure: The state can seize business assets for unpaid taxes, including inventory, cash drawers, equipment, and real estate. If you’re unable to stop this, your business will be at serious risk. 

Personal liability 

In Michigan, even if your company is a Limited Liability Company (LLC) or a corporation, the state can hold you personally liable for unpaid sales tax if you’re considered a “responsible person” for the tax debt. If the state determines that the failure to pay was willful and that you made that decision, your personal assets are at risk. 

Loss of sales tax license

The State has the right to take away your sales tax license if you don’t pay. Without that license in place, you cannot legally sell taxable goods or services in Michigan. 

Liquor License Revocation or Renewal

If your business holds a liquor license and you’re past due in filing or paying sales tax or other Michigan business taxes such as payroll tax, the Department of the Treasury can ask the Michigan Liquor Control Commission to revoke or not renew the liquor license. 

Increased audit risk

Failing to pay sales taxes can bring unwanted attention to your business and result in being audited. Sales tax audits are time-consuming, expensive, and disruptive to business operations. The state government can also extend the period subject to audit, exposing your business to scrutiny for years. 

Audits often result in additional penalties and unexpected tax liabilities if there are discrepancies or unpaid taxes found.

Legal Consequences

Persistent noncompliance with sales tax can potentially lead to criminal charges like fraud and tax evasion in Michigan. This is rare, but if the state government has reason to believe you’re committing tax fraud or willingly evading taxes, it can lead to substantial fines and even jail time. The severity of the consequences is based on the tax debt and the perceived intent behind the failure to file returns.

How to Fix Unpaid Michigan Sales Taxes

Now that you know the seriousness of ignoring unpaid sales tax in MI, here are the steps to follow to get back to compliance: figure out what you owe, file outstanding returns if applicable, and then set up payments or apply for relief. 

1. Confirm how much you owe

Before you take any action, it’s important to know how much you owe; you can do this by reviewing your Michigan Treasury account, payment records, sales tax returns, and any notices you may have received. 

Remember to calculate the interest your tax debt has accrued. Our tax attorneys can also figure out what you owe as soon as you engage our help.

2. File delinquent sales tax returns

If you have unfiled Michigan returns, you’ll need to file them before you can set up payments ro apply for relief. Michigan sales, use, and withholding returns can be filed through Michigan Treasury Online (MTO), among other filing methods. 

3. Pay the balance you owe

If you have enough funds, paying your tax debt in full is the most straightforward way to resolve this. However, if you can’t afford to pay your balance in full, you can explore tax relief options offered by the MI Treasury such as: 

• Installment agreements: break your tax debt into manageable monthly payments, and a financial disclosure may be required for approval ( this includes monthly expenses, income, assets, and other debts).
• Reasonable cause 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 of acceptable reasonable causes include serious illness or death, a natural disaster, or criminal acts against you.
• Michigan CNC: If the DoT assesses the sales tax against you personally, you may qualify for currently not collectible (CNC) status. To qualify, your “allowable” monthly expenses must meet or exceed your monthly income, and you must prove you have no disposable income to pay back taxes.
• Michigan Offer in Compromise: The Department can allow taxpayers to settle for less than they owe in some circumstances. However, the rules for getting an offer in compromise on sales tax can be complicated. Consult with a tax attorney before sending a request.

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. They include:

The Voluntary Disclosure Agreement

This is open to those who have nexus in Michigan but are not domiciled, incorporated, or a resident of Michigan. 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. 

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.

Taxpayer-Initiated Disclosure

This 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.

When You Need the Help of a Tax Professional 

Unpaid Michigan sales tax can become complicated when the balance is substantial, multiple tax periods are involved, or Michigan Treasury has already taken collection action. A tax professional can help you determine the best resolution option and communicate with Treasury on your behalf.

Here are instances where involving a tax professional can come in handy: 

• You have a huge or long-overdue sales tax balance: A tax professional can review your returns, payments, penalties, interest, and Treasury notices to determine what you actually owe and identify available options for resolving the debt.
• You can’t afford to pay your tax debt in full: A tax professional can help determine the tax relief options you’re eligible for and help with preparing and requesting the settlement offer from the DoT.
• You collected sales tax and failed to remit it: This is a really big offense in the eyes of the MI Treasury. A tax professional can help determine the amount you should’ve remitted and identify the best resolution option to prevent aggressive collection actions.
• You don’t agree with your sales tax assessment: If you believe the liability is incorrect, a tax professional can review the underlying records and assessment and help determine whether you have grounds to dispute or appeal it. 
• You have received a collection notice: A tax professional can help you understand what the notice means, determine what action is required, and explore available options before the matter progresses further. 

Frequently Asked Questions (FAQs)

Here are the most common questions we get on unpaid sales taxes: 

Do I have to file a return if I do not owe any tax?

Yes, if you are registered to pay sales tax, you must file a return within your established filing frequency, even if no tax is due. 

How often do I need to file a tax return for sales, use, and withholding taxes?

Sales, use, and withholding taxes are filed on a monthly, quarterly, or annual basis. A filing frequency is assigned based on your estimated level of activity. After the first tax year of filing, the frequency is determined by your previous tax liability. 

I did not file my monthly/quarterly returns. Can I just file the annual return? 

No, the annual return is meant to reconcile, balance, and close the tax year – it does not replace monthly/quarterly returns. 

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.

Need Help With Unpaid MI Sales Tax?

The sooner you deal with your unpaid sales taxes, the better. Securing a resolution can help to reduce what you pay in penalties and interest, especially if you have unfiled returns. An experienced tax attorney can help to protect your assets and ensure your business isn’t interrupted. 

Your best resolution option depends on how much you owe, how much you can afford to pay, and the tax relief methods available for you. This is why at The W Tax Group, we insist on a customized solution for every business and individual. 

Schedule a consultation with us today by calling 877-500-4930 or contact us online, and our sales tax attorneys will help evaluate your tax problem and recommend the solution with the best possible outcome.

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