Business Owners Guide to Michigan Sales Tax
If you own a retail business in Michigan or are a remote seller with nexus in the state, you will need to register for a sales tax license. Then, you’ll need to collect sales tax from your customers, file sales tax returns, and remit the tax to the government. This is on top of all of your other MI state tax requirements.
This can be overwhelming for new business owners. To help you get a sense of the basics, we’ve put together this guide to Michigan sales tax. To learn more or to get help now, contact us at the W Tax Group to speak with a Michigan-based tax attorney today.
Michigan Sales Tax Rates
Michigan has a 6% state sales tax on most goods and a 4% sales tax on electricity, natural or artificial gas, and home heating fuels. The state does not allow counties or municipalities to charge sales tax.
Who Needs to Collect Sales Tax in Michigan?
Retailers that make sales to final customers must collect sales tax and remit it to the state. Wholesalers do not have to collect sales tax since they are selling to businesses that are not the final customer.
If you’re a contractor, you generally have to pay sales tax on the materials that you buy unless you have an exemption certificate and you’re working on a nonprofit hospital, a nonprofit housing entity, a church sanctuary, and an air or water pollution facility. You can roll the sales tax into the fee you charge your clients, but you don’t have to collect sales tax from your clients and you shouldn’t break out the tax on the bill.
Additionally, service-based businesses that sell personal property in addition to providing services must collect sales tax. For instance, a hair salon generally doesn’t need to apply sales tax to its services, but it will need to collect and remit sales tax for any products it sells.
What About Event Sellers?
If you only sell items at one or two events per year, you still must collect and remit sales tax, but you don’t have to register for a license. Instead, you can just complete Form 5089 (Concessionaire’s Sales Tax Return and Payment). For example, this rule applies to vendors who sell jewelry, crafts, or other items at county fairs, trade shows, or similar types of events. If you sell at three or more events per year, you must register for a license.
What About Online Sellers?
Remote or online sellers must collect and pay sales tax if they have nexus in the state. Nexus applies if you had over $100,000 in gross sales or 200 or more unique transactions with Michigan customers in the last year.
For instance, if you sold 201 $5 items in separate transactions to buyers in Michigan, you need a sales tax license because you have exceeded the transaction threshold. However, if you only sold 199 $5 items in separate transactions, you would be under the threshold for both transactions and sales value, and you wouldn’t have nexus.
How About Online Shoppers?
What if you live in Michigan and you buy something online but the seller doesn’t apply sales tax? Then, you are legally obligated to pay the sales tax. When the buyer pays sales tax like this, the state calls it use tax.
Both individuals and businesses can pay this tax by filing Form 5087 (Purchaser’s Use Tax Return). Alternatively, businesses can fill out the use tax portion of their 5080 or 5081 Sales, Use, and Withholding Tax Returns. Individuals can also pay use tax on their Individual Income Tax Return. Only choose one of these options.
How to Register for a Michigan Sales Tax License
You can register for a sales tax license online through Michigan Treasury Online (MTO) or through the mail by filing Form 518 (Registration for Michigan Taxes). If you apply online, you should get your license right away. You should get your license in six to eight weeks if you apply through the mail.
If you’re a remote/online seller who needs to register for a sales tax license in multiple states, you can register through the Streamlined Sales Tax Governing Board.
How to File and Pay
You can file your sales tax returns online or through the mail. If filing through the mail, monthly/quarterly filers should use Form 5080. Annual filers should use Form 5081.
Make sure you use the sales tax return for the year you are filing, as the information is subject to change. For instance, if you’re filing an old sales tax return from 2021, you need to find the form that the DOT used that year.
If you average $720,000 in sales tax annually (that’s an average of $60,000 per month), you are an accelerated filer. You must file electronically, and you must pre-pay the lesser of 75% of your sales tax bill from the preceding month or the same period in the previous year by the 20th of the month. Then, you must pay the remaining balance by the 20th of the following month.
You can mail your payment with your tax return, or you can pay MI taxes online through MTO.
Return Due Dates
The due dates vary based on your filing frequency:
- Monthly filers: 20th day of the following month. For example, your April sales tax return is due May 20th.
- Quarterly filers: 20th day of the month following the end of the quarter. For example, your Q2 return and payment are due July 20th.
- Annual filers: February 28th following the year the taxes were collected. For example, your 2021 sales tax return is due February 28, 2022.
If you file or pay even a day late, the DOT will assess a penalty on your account.
If you’re up to two months late, the DOT will assess a penalty of 5% of the unpaid tax. For instance, if you owe $10,000, your penalty will be $500. After the second month, there is a 5% late payment penalty every month. This penalty can get up to 25% of the tax liability.
The MI DOT will also assess interest on your account. The interest rate adjusts twice a year in January and July, and it is the prime rate plus one point. As of early 2023, the interest rate is 5.65%.
Sales Tax Audits
The MI DOT occasionally audits sales tax returns for accuracy. if you are selected for an audit, you will need to back up the information on your return. The state will notify you of the audit by sending Form 4692 (Audit Confirmation Letter and Records Request). The Department will also provide you with a list of your rights.
Generally, sales tax audits are field audits, meaning that the auditor comes to your place of business. They will want to see your sales records, but they’ll also want to see how you handle sales and operations.
Once the auditor reviews all of the information, they will ask you to explain any discrepancies they have discovered. They may also request additional information. Then, they will issue a Determined Audit Adjustments letter. If you disagree with the audit results, you should let the auditor know and provide additional documents to make your case.
If you agree, then, the DOT will issue a Preliminary Audit Determination (PAD), and you should pay the balance by the date shown on the letter. If you don’t agree, wait until you receive the Final Audit Determination. That will outline your rights to appeal the audit.
Get Help With Sales Tax Issues in Michigan
Do you need help registering for a sales tax license in Michigan? Are you worried that you have nexus in the state but haven’t collected sales tax? Behind on your sales tax payments? Facing a sales tax audit? If so, you need experienced help.
At the W Tax Group, we have extensive experience helping clients deal with the Michigan Department of the Treasury for all kinds of personal and business taxes including sales tax. To get help now, contact us for a free consultation today.