When you owe sales tax as a business owner, it’s easy to fall behind. Unfortunately, the consequences escalate quickly, starting with penalties and ramping up to enforced collection action. But if you’re behind on Michigan sales tax, you may be able to set up a payment plan.
Learn more about your payment plan options and how you can get caught up while setting your business up for future compliance. To get hands-on, customized help today, contact us at the W Tax Group.
Key Takeaways
- Payment plans are available for sales tax debt, but they are not a guaranteed solution.
- You must be up-to-date on all required returns before requesting an installment agreement.
- You must be able to keep up with all new sales tax returns and payments to avoid defaulting on your installment agreement.
- Working with a tax professional can help you secure more favorable payment plan terms while protecting your assets.
Why Sales Tax Debt Can Quickly Spiral Without a Plan
Your sales tax debt may start small and seem manageable—but it can grow quickly, thanks to penalties and interest. The initial late penalty is 5% of the balance due for the first two months. After the first two months, the penalty is an additional 5% per month. The late payment penalty is capped at 25% of the initial tax bill. The Michigan Department of Treasury charges interest at one percentage point above the adjusted prime rate. As of the second half of 2025, the interest rate is 8.66%.
With these additional charges hitting your bill every month and new tax obligations accruing with each sale, it’s difficult to get caught up. The longer your sales tax debt goes unpaid, the more likely it is that you’ll face more aggressive collection efforts. The state may place a lien on your assets, seize your assets and use them for repayment, or even revoke your sales tax license.
Bottom line – unpaid sales tax can put your business at risk of closure, and you may face personal liability for these taxes as well.
Michigan Treasury Options for Paying Back Sales Tax
The payment options for sales tax are not quite as extensive as they are for other types of tax, like individual income tax. Sales tax is considered the property of the state; the business just collects it from customers on behalf of the state. As a result, failure to pay is treated as a serious matter.
In general, the MI Department of Treasury prefers a lump sum payment. Not only does this get you caught up immediately, but it also limits the amount you pay in interest and penalties.
However, if you cannot pay your back sales tax debt in full, you may be able to seek relief with an installment agreement.
How to Request a Payment Plan
Businesses can apply for an installment agreement on their MI sales taxes by filling out Form 990, Installment Agreement. After choosing the type of business entity you have, you can list the assessed taxes you owe, provide information on owners and partners, and propose a monthly or bi-weekly payment plan.
It’s important to note that compliance is a key part of getting an installment agreement approved. Before the Department of Treasury will consider approving your request, you must be caught up with all required returns. Moving forward, you must be able to file required returns on time and make all necessary payments by their due dates.
Generally, taxpayers requesting a payment plan that lasts 48 months or less do not have to provide financial information. However, since sales tax debt is viewed differently by the Department, you may need to provide financial records if requested.
Note that while the Department is reviewing your installment agreement request, you must make all proposed payments until they reach a decision.
Eligibility Factors That Impact the Department of Treasury’s Decision
The Department of Treasury looks at a variety of factors when deciding whether or not to approve an installment agreement request. They do not want to approve an installment agreement that is likely to fail, so they may request proof of your business’s cash flow and overall financial stability—especially if you have a history of tax non-compliance or late payments. Since you must be current on all payments going forward, they want to see that you have the cash flow needed to fulfill new tax obligations while paying off your past-due ones.
What to Expect From a Michigan Sales Tax Installment Agreement
When you apply for an installment agreement, you propose a suggested biweekly or monthly payment. If approved, the Department of Treasury will hold you to that payment schedule. You can either make payments manually with the pre-identified payment coupons provided by the Department or set up automatic payments.
If you miss a payment or pay late, the Department of Treasury may default on your installment agreement. At that point, the full balance is immediately due in full. If you do not pay, they may move straight to enforced collection actions.
During this time, penalties and interest will continue to accrue, so paying your debt off as quickly as possible can save you money. Additionally, the state will still file a lien after approving an installment agreement—this protects the state’s interests should the installment agreement fail. Should you be entitled to any tax refunds throughout the course of your installment agreement, they will be seized and applied to your debt.
When Treasury May Refuse or Cancel a Payment Plan
The Department of Treasury may refuse to approve a payment plan if the business doesn’t have any way of paying it while staying current on its new sales tax debt. If you have substantial tax debt or a history of non-compliance, the Department of Treasury may request financial documentation to prove your ability to pay. If they don’t believe you will pay on time, they may not approve your request.
They may also cancel a payment plan if you fail to keep up with all new tax returns and payments.
How a Tax Attorney Can Help Negotiate Better Terms
Business tax debt is high-stakes; falling behind or failing to address your debt in time could result in the closure of your business and loss of both your business and personal assets. When you work with a tax attorney, they can negotiate on your behalf with the Department of Treasury.Â
They can use your financial records to show that you experienced financial hardship that caused you to fall behind, but that you are now able to get caught up via an installment agreement. Your attorney may also take steps to protect you from personal liability for your business’s debts, which safeguards your income and personal assets. Throughout this process, your tax attorney will advocate for you to prevent aggressive enforcement actions.
Keeping Your Business Active While Paying Down Tax Debt
Paying off your sales tax debt is only possible if you can keep your business running and bringing in income. An in-depth budget that covers your monthly tax debt payments, new tax obligations, and operational expenses can help you avoid committing to a payment that doesn’t make sense for your business.Â
You may also find it helpful to work with a tax professional on an ongoing basis; this can help you catch problems before they occur and set you up for long-term compliance.
If your business has fallen behind on sales tax payments in Michigan, you don’t have to figure out your next steps alone. With the team at W Tax Group, you can get caught up while helping your business thrive and grow. Set up a consultation now by calling us at 877-500-4930 or filling out our convenient contact form.
Frequently Asked Questions
What if I can’t afford the minimum payment for an installment agreement?
You will likely need to fill out a collection information statement for the Department of Treasury to request a longer repayment term. Avoid agreeing to a minimum payment you can’t afford; even if you can make the payment for a few months, a missed payment will trigger default and leave you back in the same position as before.
Can I roll my penalties and interest into the payment plan?
Yes; the tax debt is not considered paid in full until the interest and penalties are paid off, so your installment agreement payments also go toward your interest and penalties.
Can I roll new sales tax debt into the installment agreement if I can’t pay it in full?
This is generally not an option without explicit approval from the Department. You are required to pay all new tax debts by their due dates, and trying to add them to your installment agreement violates those terms.
What if I can’t afford the monthly payments on an installment agreement?
Then, you may want to look into a settlement for sales taxes. The rules are very complicated, and generally, the Department will not settle sales tax if the business is still operating.
What if I’ve never paid sales tax?
Then, you may want to look into the Voluntary Disclosure Program – that lets you get back into compliance while also minimizing penalties and the risk of criminal consequences. However, the best option for businesses that haven’t been paying sales tax varies based on their situation.
Sources:
https://www.michigan.gov/taxes/collections https://www.michigan.gov/taxes/collections/collection-process-for-delinquent-taxes https://www.michigan.gov/taxes/business-taxes/sales-use-tax https://www.michigan.gov/taxes/business-taxes/withholding/sales-use-and-withholding-tax-payment-options https://www.michigan.gov/taxes/questions/iit/accordion/bill/how-do-i-apply-for-an-installment-agreement-1 https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/All-Years/990_6174.pdf?rev=3749df5619d14d948bb567b62f2c7aeb&hash=AA7DC045C9AAC237237D64FBAC21CFD5
https://www.michamber.com/news/good-news-for-business-taxpayers-treasury-allows-for-sales-use-and-withholding-tax-payment-installment-plans/ https://www.michigan.gov/taxes/iit/tools/calculate-late-penalty-and-interest 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/interest-rate https://www.michigan.gov/taxes/questions/collections/pay/what-should-i-do-if-i-cannot-pay-my-debt-in-full
https://www.michigan.gov/taxes/questions/collections https://www.michigan.gov/taxes/questions/collections/pay/what-should-i-do-if-i-cannot-pay-my-debt-in-full
