Michigan sales tax state guide

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Michigan first adopted a general state sales tax in 1933, and since that time, the rate has risen to 6 percent. In many states, localities are able to impose local sales taxes on top of the state sales tax. However, as of March 2019, there are no local sales taxes in Michigan.

As a business owner selling taxable goods or services, you act as an agent of the state of Michigan by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Michigan is administered by the Michigan Department of Treasury.

Any sales tax collected from customers belongs to the state of Michigan, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

In Michigan, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.

To help you determine whether you need to collect sales tax in Michigan, start by answering these three questions:

1. Do you have nexus in Michigan?
2. Are you selling taxable goods or services to Michigan residents?
3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in Michigan is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in Michigan, it’s now possible for out-of-state sellers to have sales tax nexus with Michigan.

Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:

Affiliate nexus: Having ties to businesses or affiliates in Michigan. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer.

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and:

• The total cumulative gross receipts from such referrals is more than $10,000 during the immediately preceding 12 months; and
• Annual sales in the state of Michigan total more than $50,000.

Economic nexus: Having a certain amount of economic activity in the state. For sales made after September 30, 2018, a remote seller that makes retail sales into Michigan must register with the state then collect and remit Michigan sales tax if the remote seller meets either of the following criteria (the economic thresholds):

• The remote seller's sales (taxable and non-taxable) into Michigan during the previous calendar year exceeds $100,000; or
• The remote seller made sales (taxable and non-taxable) for delivery into Michigan in 200 or more separate transactions during the previous calendar year.

Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Michigan in a warehouse owned or operated by Amazon.

For more information, see the Michigan Department of Treasury Sales and Use Tax Information for Remote Sellers, Michigan Nexus Standards for Business Taxes, and Revenue Administrative Bulletin 2015-22.

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. In Michigan, nexus is established on the date of contact and continues for the remainder of that month and the following 11 months.

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Michigan.

If you sell taxable goods to Michigan residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

Michigan is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.

For additional information, see the Michigan Department of Treasury Sales and Use Tax page.

After determining you have sales tax nexus in Michigan, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Michigan business license and sales tax registration.

You can register for a Michigan seller’s permit online through the Michigan Department of Treasury. To apply, you’ll need to provide the Michigan Department of Treasury with certain information about your business, including but not limited to:

• Business name, address, and contact information
  
• Federal EIN number
• Date business activities began or will begin
  
• Projected monthly sales
  
• Projected monthly taxable sales
  
• Products to be sold
  

There is currently no cost to register for a seller’s permit in Michigan.

You must register with the Michigan Department of Treasury if you acquire an existing business in Michigan. The state requires all registered businesses to have the current business owner’s name and contact information on file.

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

Michigan became a full member of the SST on October 1, 2005.

Once you've successfully registered to collect Michigan sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Michigan Department of Treasury, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect Michigan sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Michigan sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

Michigan sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Some goods are exempt from sales tax under Michigan law. Examples include prescription medications, groceries, newspapers, medical devices, and some agricultural and industrial machinery.

We recommend businesses review the laws and rules put forth by the Michigan Department of Treasury to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under Michigan law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Michigan sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Michigan Department of Treasury may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.

As of March 2019, however, there are no sales tax holidays in Michigan.

You're registered with the Michigan Department of Treasury and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Michigan, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

Once you’ve collected sales tax, you’re required to remit it to the Michigan Department of Treasury by a certain date. The Michigan Department of Treasury will then distribute it appropriately.

Filing a Michigan sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the Michigan Department of Treasury. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

Form 5080 is currently available for download (Michigan DOR states on their site the form is scheduled to be discontinued). Online filing is generally recommended and can be performed through the Michigan Treasury Online portal.

The Michigan Department of Treasury will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

Michigan sales tax returns and payments must be remitted at the same time; both have the same due date.

You may file directly with the Michigan Treasury by visiting their site and entering your transaction data manually. This is a free service, but preparing Michigan sales tax returns can be time-consuming — especially for larger sellers.

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Michigan sales tax code.

Once you have a Michigan seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

The Michigan Department of Treasury requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.

As of March 2019, the Michigan Department of Treasury offers:

• An on-time discount of 0.5 percent on the first 4 percent of the tax. Minimum $6, maximum $15,000 per month.
• An early discount of 0.75 percent on the first 4 percent of the tax, if paid by the 12th of the month. Maximum $20,000 per month.

It's important to know the due dates associated with the filing frequency assigned to your business by the Michigan Department of Treasury. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The Michigan Department of Treasury requires all sales tax filing to be completed by the 20th day of the following month for both monthly and quarterly filing. For annual filing, the due date is February 28. Below, we've grouped Michigan sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

Filing a Michigan sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event a Michigan sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the Michigan Department of Treasury may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting Michigan sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the Michigan Department of Treasury and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Michigan sales and use tax liability.

If you’re collecting sales tax from Michigan residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Michigan sales tax may apply to charges for shipping, delivery, freight, handling, and postage.

Delivery or shipping charges incurred by a seller prior to the transfer of ownership of taxable tangible personal property are subject to tax. Handling charges for tangible personal property are generally considered part of gross proceeds and subject to tax. When shipping charges for taxable goods are included in the sales price, they’re generally taxable.

However, delivery charges for the shipment of exempt property are not subject to sales tax.

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Michigan and sales tax should be taken directly to a tax professional familiar with Michigan tax laws.

For additional information, see the Michigan Department of Treasury Revenue Administrative Bulletin 2015-17.