Sales Tax

Retailers - Retailers make sales to the final consumer. Sales tax of 6% on their retail sales must be remitted to the State of Michigan. In addition, retailers must be licensed to collect tax from their customers and remit the sales tax to the State of Michigan.

Wholesalers - Wholesalers sell to other wholesalers or retailers and not to the final consumer. The price in which the seller sells a product does not determine if the seller is a wholesaler. The determination is based on whom the products are sold to by the seller. Wholesalers buy for resale at wholesale. They are not making retail sales; therefore registration for sales tax is not required. Wholesalers claiming an exemption should provide a written statement that they are purchasing for "resale at wholesale".

Contractors - A sales tax license is not required for contractors or subcontractors, since they are the final consumers of the materials they affix to real property. Anyone who is directly engaged in the activity of constructing, altering, repairing, or improving real estate for others is liable for the sales tax on the inventory value of the materials affixed to the property. If the real estate being constructed, altered, repaired, or improved is a nonprofit hospital or nonprofit housing entity, no tax is due on any materials that became affixed to and made a structural part of the hospital or housing entity. This information may be obtained in Revenue Administrative Bulletin 1988-35 and 1999-02 .

Services - Businesses that repair, improve, or alter tangible personal property owned by others. Businesses, who sell tangible personal property in addition to providing labor or a service, are required to obtain a sales tax license. Any property which goes with the customer in connection with the repair or service is considered a sale at retail and subject to sales tax.

Use Tax

Register for use tax if you:

• Lease tangible personal property in Michigan.
• Sell telecommunication services.
• Provide hotel or motel room rentals for less than 30 consecutive days.
• Purchased goods for use in your business and did not pay sales tax when goods were acquired.
• Purchased goods for use in your business from an out of state, unlicensed vendor.
• Launder or clean textiles under a sole rental or service agreement with a term of at least five days.

Who is required to register for use tax? - Businesses who do not repair or maintain tangible personal property owned by others are considered consumers and must pay tax on everything they use including parts or materials transferred to the customer. A person who has any of the following activities must remit use tax. There is no cost for use tax registration. In order to register for use tax, please follow the application process.

Individuals and Businesses - Use tax on tangible personal property is similar to sales tax, but applies to purchases when Michigan sales tax is not charged. Use tax of 6 percent must be paid on the total price (including shipping and handling charges) of all taxable items brought into Michigan or purchases by mail from out-of-state retailers. It applies to purchases made in foreign countries as well as other states. Businesses registered for sales or withholding tax may remit use tax on their returns.
Individuals should pay use tax on the Individual Purchase Use Tax Return ,which can be found in the individual income tax booklet, or can be obtained by contacting the Department.

Out-of-state businesses - Businesses located outside of Michigan may register to collect Michigan taxes for sales to Michigan residents. This is a use tax registration. Michigan's use tax rate is six percent. This tax will be remitted to the state on monthly, quarterly or annual returns as required by the Department.

Rentals and leases - The use tax rate of six percent is computed and collected on gross rental and lease receipts. This tax is applied if Michigan use tax was not paid on the item at the time of purchase. A method of paying tax when the item is purchased or paying tax on rental/lease receipts must be chosen by the purchaser at the time the item is acquired. In order to elect to pay tax on rental/lease receipts, the lessor must be registered for use tax at the time of lease. The method chosen may not be changed for the entire life of the item. To receive more information on this topic, please read Revenue Administrative 1988-39 and 1994-7 .

Telecommunications - Interstate or intrastate telephone service is subject to use tax.

Lodging - Use tax is due on rooms or lodging furnished by hotelkeepers, motel operators, and other persons furnishing accommodations that are available to the public on the basis of a commercial and business enterprise. No tax is due if the room is rented for a continuous period of more than one month to the same tenant.
 

Withholding Tax

Register for withholding tax if you:

• Individual owners and partners may not remit withholding on their wages through their business account number. They must file quarterly income tax estimates. For information about quarterly estimates, call 800-487-7000.

Unemployment Tax

Register for UIA unemployment tax if you:

• Have employees performing services in Michigan.
• Plan to have employees working in Michigan,
• Have acquired all or any part of the assets, organization, trade or business of an existing business having employees in Michigan.

For specific information regarding missing UIA payments, reports, penalties, and/or interest due call 313-456-2180. Note the last three digits of your UIA or FEIN number as you will be transferred to the appropriate tax team based on the last three digits of your number.
 

Single Business Tax

What is the Single Business Tax?
The single business tax (SBT) is the only general business tax levied by the State of Michigan. It was enacted in 1976 to replace seven business taxes, including the corporate income tax. In 1999 the Governor signed legislation to phase out the SBT over the next 23 years.

Value added taxes are levied on a "Services Consumed" or "Benefits Received" principle. The SBT replaced net income based taxation with value-added taxation.
The SBT base consists of essentially three components: labor, capital and profit. Labor is measured by the compensation and benefits an employer pays to its employees; capital used is measured by depreciation, interest, dividends and royalties paid by the taxpayer; and profit is measured by the taxpayer's federal taxable income as adjusted for SBT purposes.

Who is subject to the SBT?
All persons engaged in a "business activity" in Michigan are subject to the Single Business Tax.
"Business activity" includes:

• The sale of real or personal property in exchange for a tangible or intangible consideration.
• Property rental, including both real property and personal property.
• Performance of a service for a fee, except services rendered as an employee or services rendered as the director of a corporation.

Who is exempt from the SBT?
The following may be exempt from the single business tax.

• Most persons, other than non US Persons, who are exempt from federal income tax under the Internal Revenue Code.
• Nonprofit cooperative housing corporations.
• Farmers producing agricultural goods.
• Partners of partnerships and shareholders of Sub S corporations. Partnerships and Sub S corporations are subject to the SBT.

How is the SBT calculated?
The SBT liability starts with the calculation of the total tax base. For most taxpayers the primary components of the tax base are compensation, business income as defined for federal tax purposes, and additions or subtractions to business income.
Compensation includes salaries, wages, employee insurance plans, retirement benefits, and

• Pension and profit sharing plans. Compensation does not include FICA, unemployment insurance or workers' compensation.
• Additions include depreciation, taxes based on income, net operating loss carryover or carry back and any dividend, interest and certain royalty expenses taken on the federal return.
• Subtractions include dividend, interest and certain royalty income reported on the federal return.
• Deductions are allowed for the cost of capital assets acquired in the state during the tax year, while an addition is required for the proceeds from the sale of such items. For tax years beginning after 12/31/99 the capital acquisition
• There are numerous other exemptions, reductions and credits that may be allowed. These modify the value-added nature of the SBT and reduce the tax liabilities for firms that qualify to use them.

What is the tax rate?
The SBT is being phased out over a 23-year period. For tax years beginning on or after October 1, 1994, and before January 1, 1999, the SBT rate is 2.30 percent of the tax base after deductions. Beginning January 1, 1999, the tax rate will be reduced by 0.1 percent each year that the State's Rainy Day Fund exceeds $250 million dollars. Annualized rates will be required for fiscal year taxpayers and those with returns that cover less than 12 months. The tax rate for a return covering the 12-month period ending December 31, 1999 is 2.20 percent.

What credits are available?
The SBT offers a number of credits to eligible taxpayers, including the Small Business Credit, the Unincorporated/ S corporation Credit, the Community Foundation Credit, the Homeless Credit, the Public Contribution Credit, the Public Utility Property Tax Credit, the Michigan Economic Growth Authority Credit, the Brownfield Redevelopment Credit, the Apprenticeship Credit, the Renaissance Zone Credit and the Michigan Historic Preservation Tax Credit. (For more information about these credits, call 517-636-4700.)

How does the SBT apply to firms doing business in more than one state?
Firms doing business in Michigan and in other states apportion their tax base to Michigan using a formula based on their percentage of property, payroll and sales in Michigan. Financial organizations and transportation companies use a single factor formula based on gross business and revenue miles, respectively.

Does the SBT recognize the unitary method of taxation?
No. Only firms actually engaged in business activity in Michigan are subject to SBT.

Register for Single Business Tax if you:

• Have apportioned gross receipts plus recapture of capital acquisition deduction greater than the filing requirement. The filing requirement is $250,000 in 1995 and beyond. Special circumstances apply for controlled groups effective for tax years ending after June 30, 1994.