A Michigan Jobs & Career Portal service.

FEDERAL TAXES

EMPLOYER IDENTIFICATION NUMBER

 An Employer Identification Number (EIN) identifies your business for federal, state, and local tax purposes.  Many financial institutions will not open a commercial banking account under an assumed name without the EIN.

You must obtain an EIN if you are a partnership, S corporation, corporation, non-profit organization, trust, estate, or if your business pays wages to one or more employees.

NOTE:

Sole Proprietors

You will be required to obtain a new EIN if the following statements are true. Refer to " How to Apply for an EIN."

• You are subject to a bankruptcy proceeding.
• You incorporate.
• You take in partners and operate as a partnership.
• You purchase or inherit an existing business that you operate as a sole proprietorship.

You will not be required to obtain a new EIN if the following statements are true.

• You change the name of your business.
• You change your location and add other locations.
• You operate multiple businesses.

Corporations

You will be required to obtain a new EIN if the following statements are true. Refer to " How to Apply for an EIN."

• A corporation receives a new charter from the secretary of state.
• You are a subsidiary of a corporation using the parent's EIN or you become a subsidiary of a corporation.
• You change to a partnership or a sole proprietorship.
• A new corporation is created after a statutory merger.

You will not be required to obtain a new EIN if the following statements are true.

• You are a division of a corporation.
• The surviving corporation uses the existing EIN after a corporate merger.
• A corporation declares bankruptcy.
• The corporate name or location changes.
• A corporation chooses to be taxed as an S corporation.
• Reorganization of a corporation changes only the identity or place.

Partnerships

You will be required to obtain a new EIN if the following statements are true. Refer to " How to Apply for an EIN."

• You incorporate.
• Your partnership is taken over by one of the partners and is operated as a sole proprietorship.
• You end an old partnership and begin a new one.  

You will not be required to obtain a new EIN if the following statements are true.

• The partnership declares bankruptcy.
• The partnership name changes.
• You change the location of the partnership or add other locations.
• A new partnership is formed as a result of the termination of a partnership under IRC section 708(b)(1)(B).
• 50 percent or more of the ownership of the partnership (measured by interests in capital and profits) changes hands within a twelve-month period (terminated partnerships under Reg. 301.6109-1).

Estates

You will be required to obtain a new EIN if the following statements are true. Refer to " How to Apply for an EIN."

• A trust is created with funds from the estate (not simply a continuation of the estate).
• You represent an estate that operates a business after the owner's death.

You will not be required to obtain a new EIN if the following statement is true.

• The administrator, personal representative, or executor changes his/her name or address.

Trusts

You will be required to obtain a new EIN if the following statements are true. Refer to " How to Apply for an EIN."

• One person is the grantor/maker of many trusts.
• A trust changes to an estate.
• A living or intervivos trust changes to a testamentary trust.
• A living trust terminates by distributing its property to a residual trust.

You will not be required to obtain a new EIN if the following statements are true.

• The trustee changes.
• The grantor or beneficiary changes his/her name or address.

An EIN may be obtained from the Internal Revenue Service (IRS), 800.829.4933.  The application should be made early enough to allow time for processing the forms and for an EIN to be issued.  Forms can be obtained from the IRS or the Michigan Small Business Technical Development Center (1.616.331.7480). You may also request an EIN using the IRS web site, click  here.

WITHHOLDING

Any employer of one or more persons must withhold federal income taxes from wages paid to employees.

A withholding exemption certificate, known as a W-4, should be completed by each employee.  These forms are available from the District Director of the Internal Revenue or on the IRS web site, click  here.  Based upon information on the certificate, a certain amount of tax is withheld from wage payments.  The employer is required to deposit the tax funds collected.  Employers must file quarterly returns with the District Director of Internal Revenue and file an annual reconciliation of the quarterly returns with copies of the withholding statements.  If an employer neglects to file or improperly file returns, penalties and excess payments may be levied.

A separate list of employers' responsibilities is available from the  Michigan Small Business Technical Development Center in Grand Rapids at (1.616.331.7480) or (1.313.331.7939) in the Detroit Metro Area.

SOCIAL SECURITY AND MEDICARE TAXES

Anyone who owns a business, employs one or more persons, or has net earnings of $400 or more as the sole owner or partner is subject to the Social Security/Medicare tax.  The employer pays a percentage on wages for each employee.  This amount is matched by the employee on all wages received up to a maximum annual amount of earnings.  The employee's share of the Social Security/ Medicare payment is deducted by the employer at the close of each pay period.

The computation of the Social Security tax is separated into two parts.  The old-age, survivors, and disability insurance part is referred to as Social Security. The hospital insurance portion is referred to as Medicare.

Self-employed individuals pay a self-employment tax, which is also a percentage of wages up to a maximum amount of earnings. This tax provides Social Security and Medicare coverage for the self-employed, and it is paid in place of the Social Security tax. 

Details on the Social Security/Medicare tax can be obtained from the IRS web site, click  here or by calling (1.800.829.3676). 

FEDERAL UNEMPLOYMENT TAX (FUTA)

The federal unemployment tax system, along with state systems, provides unemployment payments to workers who have lost their jobs.  The federal unemployment tax system funds employment service activities to those seeking work as well as to employers. FUTA applies to all wages paid to employees, unless an exception applies. Most employers pay both federal and state unemployment taxes.  However, even if your business is exempt from state tax, you may still have to pay federal tax.  FUTA is collected by the District Director of Internal Revenue. For additional information, click here.

PERSONAL INCOME TAX

If you are a sole proprietor or a general partner, you pay tax on your income from the business on your personal income tax return.  You file an additional schedule that identifies income and expenses of the business.  To determine expenses that are deductible business expenses, please refer to the Business Deductions Table found below. In the case of a partnership, you must file a partnership return, in addition to your personal income tax return, which distributes profits and losses between the partners according to your partnership agreement. 

Sole proprietorships and partnerships are also required to file an "Estimated Tax" on a quarterly basis for their federal income tax and self-employment tax liability.  Contact the IRS at (1.800.829.1040) for further information and forms, or click here.

ALLOWABLE BUSINESS DEDUCTIONS

THE IRS PROVIDES FREE ONLINE SMALL BUSINESS/SELF-EMPLOYED VIRTUAL SMALL BUSINESS TAX WORKSHOPS.

CORPORATE INCOME TAX

If your business is a corporation, it pays taxes on profits.

Shareholders and employees (including paid corporate officers) pay individual income tax on any salary and dividends received from the corporation.  Corporations are also required to file "Estimated Tax" returns quarterly.

S Corporations are assessed taxes differently than a regular "C" Corporation.  See "Legal Structures For Business" for the qualifications for an S Corporation.  You may want to have your accountant or tax adviser help you decide if S Corporation status would be beneficial to your business.

See the Business Deductions Table (above) for allowable deductions that may be taken by businesses.

STATE TAXES

A business must file a " Registration for Michigan Taxes" (Form 518) with the Michigan Department of Treasury when any of the taxes in this section apply.  Technical questions should be discussed with the appropriate tax agency.  Forms may be obtained by contacting the Michigan Small Business Technical Development Center or the Michigan Department of Treasury at the address below or on their web site, click here.

Michigan Department of Treasury
Registration Section
Treasury Building
Lansing, Michigan  48922

Telephone:  1.517.636.4660

SALES AND USE TAXES

Anyone who engages in the retail sale 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 six percent of retail sales receipts.

Anyone who intends to sell or lease tangible personal property to Michigan customers from an out-of-state location and has no retail location in Michigan must register for use tax, which is also six percent.  You must also register if you are a Michigan resident who buys or rents tangible property from an out-of-state source or if you sell  telephone, telegraph or other leased wire communication services.  

Two classes of industrial property are exempt from sales and use taxes.  These are:machinery and equipment used in manufacturing and raw material used for production; and certain pollution control equipment.

If you are liable for sales tax, you should file an application for a license with Sales, Use and Withholding Division of the Michigan Department of Treasury.  The license fee is $1.00.  For more detailed information on sales and use taxes, you may request a copy of "Understanding Michigan's Sales and Use Taxes" from the Michigan Department of Treasury.  The application (Form 518) and explanations of Sales, Use and Withholding taxes are also found on the Michigan Department of Treasury web site, click here.

MICHIGAN  INCOME TAX WITHHOLDING

If you are an employer required to withhold federal income tax, you are required to withhold Michigan  income tax from your employees' pay.  The state withholding process is identical to the federal process.

To request any information on sales, use or withholding taxes, contact:

Michigan Department of Treasury
Sales, Use and Withholding 
Taxes Division
Treasury Building
Lansing, Michigan 48922
Telephone:  517.636.4730

or use the web site, click  here.

SINGLE BUSINESS TAX

The Single Business Tax is a value-added tax administered by the Michigan Department of Treasury.  It was enacted to replace several business taxes, including a corporate net income tax, a franchise tax, an intangible tax and a personal property tax on business inventories.

In general, all forms of business organizations pay the Single Business Tax, although business exempt from federal income taxes are generally exempt from the Single Business Tax.

Commercial farming businesses are also exempt.  A small business with annual gross receipts of under $250,000 has no liability under the Single Business Tax.

[Michigan Public Act 531 of 2002 repeals the Single Business Tax Act for tax years beginning after December 31, 2007.]

For additional information, contact:

Michigan Department of Treasury
Single Business Tax Division
P.O. Box 30059
Lansing, Michigan   48909
Telephone: 1.517.636.4700

or use the web site, click  here.    

PERSONAL INCOME TAX

If your business is a sole proprietorship or a partnership, you pay tax on your income from the business on your personal income tax return (MI-1040).  You file copies of the applicable federal tax schedules with your Michigan return.  If you have personal income from a corporation (salary, dividends), you must report that income on your Michigan return.

Sole proprietorships and partnerships are also required to file an "Estimated Tax" on a quarterly basis for their     Michigan income tax.  Contact the Michigan Department of Treasury, Individual Tax Division, Income Tax Information Line, at 1.800.827.4000 or consult their web site, click here.

STATE UNEMPLOYMENT TAXES

The Michigan Unemployment Insurance Agency (UIA) collects and administers the state unemployment taxes that employers pay.

These taxes are used only to pay unemployment benefits to Michigan workers.  If an employer pays the state unemployment taxes, on time, then the employer is entitled to a credit on his/her federal unemployment tax return.

For more information on state unemployment taxes, contact:

UIA Tax Questions
3024 West Grand Boulevard
Suite 11-500
Detroit, Michigan 48202
Telephone:  1.313.456.2180

or use the web site, click  here.    

LOCAL TAXES

A business should consult the  city, township or village treasurer's office to determine if there is a local or city tax, and for information concerning registration and payment requirements.

PROPERTY TAXES

Property taxes in Michigan are levied by  local government to pay for community services such as roads and public safety. Property tax rates vary by locality, but all property in     Michigan is assessed at 50 percent of true cash value (market value).  Tax rates are expressed in mills per each thousand dollars of assessed value.

Local governments can impose or raise new taxes only by a general vote of the people in the district.  If the state equalized value of existing property rises faster than inflation, the maximum authorized property rate must be reduced so that the maximum possible tax levy is no greater than the previous year's levy adjusted for inflation.

EXEMPTIONS FROM PROPERTY TAX INCLUDE:

• Inventory:  All inventory, goods in process and raw materials.

• Special tools:  Certain short-lived tools, dies, fixtures, molds, patterns and special gages used in manufacturing.

• Pollution control equipment:  All air and water pollution control facilities that protect the general public from industrial effluent or waste can be exempted from real and personal property taxes.

The State Tax Commission ultimately approves exemptions and determines the length of abatement time based on the recommendations they have received.

ZONING AND BUILDING CODES

When starting or expanding a business, it is important to verify that the facilities you use are in compliance with all laws.  To do this first contact the  city assessor or township clerkto assure compliance with local zoning codes.  Second, contact the  local building inspector to assure compliance with regulations affecting construction (e.g. building, electrical, mechanical and plumbing codes, and rules on construction, alterations, demolitions, occupancy and use of buildings).

BARRIER FREE DESIGN

Barrier Free Design, a special part of the building codes, has been public policy in Michigan since 1966.  It is intended to assure that public facilities and facilities used by the public are accessible to and usable by all citizens, including elderly persons, wheelchair users and individuals with permanent or temporary conditions that reduce coordination or mobility or make walking difficult or insecure.

While local units of government have the option of either enforcing the state construction code or adopting and enforcing another acceptable code, businesses must conform to the barrier free design requirements of the state code.  No exceptions to the state requirements can be made by a local unit of government or a state department, agency or person, except the Barrier Free Design Board.  The Board has established guidelines that describe the conditions under which it may grant exceptions.  A person requesting an exception must demonstrate reason, either technical or economic, to warrant the exception.

For additional information and a publication providing more detail on barrier free design requirements, contact:

Michigan Department of Labor & Economic Growth
Bureau of Construction Codes
Barrier Free Design Division
P.O. Box 30254
Lansing, Michigan   48909
Telephone: 1.517.241.9313

Or use the web site, click  here.