Understanding your tax obligations and preparing taxes can be very confusing and complicated.  If returns are neglected or filed improperly, penalties and excess payments may be levied.  You may wish to consult with a tax advisor or an accountant to help you understand your obligations and/or prepare your returns.

EMPLOYER IDENTIFICATION NUMBER

An Employer Identification Number (EIN) identifies the business for federal and state tax purposes.  Many financial institutions will not open a commercial banking account under an assumed name without the EIN.  Sole proprietor-ships with no employees DO NOT require an EIN.  This type of business uses the owner’s social security number for tax purposes.

An EIN must be obtained if the business is set up as a partnership, corporation “S” corporation, nonprofit organization, limited liability company, trust or estate, or a sole proprietorship that pays wages to one or more employees.  Remember: if services are performed for a corporation, the owner is an employee of the corporation and subject to all employment taxes.  An EIN is required on any return, statement, or other document if you are an employer.  Individuals who file Schedule C or I (form 2040) must use EINs when filing excise, employment, alcohol, tobacco or firearms returns.

It is important to note:

• Becoming the new owner of a business, you cannot use the EIN of the previous owner.
• An existing business adding, opening or acquiring a second operation of similar type may use its current EIN for both the existing and the new operations.  However, the new establishment must obtain its own EIN if its line of business is different from the existing operation.

An EIN form (SS-4) can be obtained at the IRS website.  The application should be completed early enough to allow processing time for an EIN number to be issued.  To obtain an EIN immediately, call (606) 292-5467.

EMPLOYER TAXES

Any employer of one or more persons must withhold federal, state and possibly local income taxes from the wages paid to employees.  Employers are also responsible for paying into the Social Security and Medicare systems as well as withholding a matched amount from the employee’s wages.  State and federal unemployment insurance payments must be paid entirely by the employer.  No deduction is allowed from an employee’s wages.  For detailed information about hiring employees and your obligations, refer to the “Hiring Employees” section.

SELF-EMPLOYMENT TAXES

Just as employers must withhold tax and report it to various government agencies, so must individuals who work for themselves or are self-employed.  You are self-employed if you operate a trade, business, or profession, either by yourself or as a partner.  To learn more about your obligations, refer to the “Being Self-Employed” section.

PERSONAL INCOME TAXES

As a sole proprietor or a general partner, the owner pays taxes on the income from the business on a personal income tax return with the state and federal governments.  You will also file an additional schedule that identifies income and expenses of the business.  Partners file a partnership return in addition to the personal income tax return which distributes profits and losses between the partners according to the partnership agreement.  Corporations pay taxes on the business income at corporate tax rates.  Shareholders and employees (including paid corporate officers) pay individual income tax on any salary and dividends received from the corporation.

Most businesses are also required to make “Estimated Tax” payments on a quarterly basis for Michigan income tax, federal income tax and self-employment tax. 

For more information about your tax obligations and the proper forms, contact the Michigan Department of Treasury at (800) 827-4000 and the IRS at (800) 829-1040.

STATE BUSINESS TAXES

In Michigan, it is easy to register for taxes.  Fill out one form—Registration for Michigan Taxes (Form 518).  This form allows a business to register for sales, use or withholding taxes, the single business tax, motor fuel or tobacco products tax.  It can be obtained by contacting the Michigan Department of Treasury, (517) 636-4660 or (800) 367-6263 or access the tax information online.  Questions and answers about registering a business can also be accessed online.

SALES, USE AND WITHHOLDING TAXES

Anyone who engages in the retail sales of tangible personal property (defined as any good that one can possess or exchange) from a Michigan location needs a sales tax license.  The Michigan sales tax is 6 percent of retail sales receipts.

When selling or leasing tangible personal property to a Michigan customer from an out-of-state location and the business has no retail location in Michigan one must register for use tax, which is also 6 percent.  Also, register with the Michigan Department of Treasury if a Michigan resident buys or rents tangible property from an out-of-state source or when selling telephone, telegraph or other leased wire communication services.

Every business in this state that employs one or more employees is required to withhold federal income tax under the Internal Revenue Code.  Businesses must also withhold Michigan income tax from wages paid to employees.

When liable for sales, use or withholding tax, an application should be filed with the Michigan Department of Treasury.  This application for registration can be accessed online.  For further information about sales, use and withholding taxes, contact the Department of Treasury at (800) 367-6263 or (517) 636-4660 or access the business tax information online.

SINGLE BUSINESS TAX

The Single Business Tax (SBT) is a modified value-added tax administered by the Michigan Department of Treasury.  It was enacted to replace several business taxes, including a corporate net income tax, franchise tax, personal property tax on business inventories and others.  While the SBT is Michigan’s only general business tax, 70.4 percent of Michigan businesses pay $1,000 or less in SBT, and 59 percent of all businesses pay no SBT.  A business with annual gross receipts of less than $250,000 has no liability under the SBT.

Questions and answers about the Single Business Tax can be found online or by calling Michigan Department of Treasury at (517) 636-4700.

MOTOR FUEL TAXES

Motor fuel tax is levied on highway, marine, and aviation fuel.  IFTA/Intrastate Motor Carriers should contact the Department of Treasury at (517) 636-4600, or email at treasMFD@michigan.gov .  For additional information, review the Motor Carrier and IFTA Licensing section online.

LOCAL TAXES

Local governments in Michigan levy property taxes.  Recent reforms have slashed business property taxes by an average of 33 percent.  Since property tax rates vary by locality, it is important to consult your local city, township or village treasurer’s office.  The local treasurer’s office can also provide information about other local taxes that may apply along with information about registration and payment requirements.