Tax-Related Obligations When Establishing, Selling, or Closing a Business in the State of Michigan
There are many things involved in establishing a new business. One of the important steps is to protect yourself from hidden liabilities. The following information is intended to provide you with some guidelines regarding tax-related obligations when establishing a new business in Michigan. The Michigan Department of Treasury encourages you to obtain sound professional assistance from an accountant or an attorney to assist you with the process of establishing a new business.
Taxpayers are required to meet certain obligations under Michigan law, including filing tax returns on time and with the correct payment when required. You are responsible for the accuracy of your returns, no matter who you hire to prepare them. You must also keep accurate and complete records for determining tax liability, as required by law or department rule.
As a purchaser of even a portion of a business (including stock of goods or even the transfer of a liquor license), you may be held responsible for the previous owner's liabilities, regardless of any contractual language to the contrary. This is known as Successor Liability.Tax Debts
As a successor in the business, you must withhold sufficient purchase money to cover any business tax debts incurred by the previous owner. These funds may be released when the previous owner produces a receipt showing the taxes have been paid, or a Tax Clearance Certificate from the Michigan Department of Treasury stating that no taxes are due. Note that only the seller can request this information from the Department of Treasury. For more information about Tax Clearance.
For unemployment tax purposes, successors may also be held liable for tax debts incurred by the previous owner. By law, the seller must provide the buyer with certain unemployment insurance information at least two days before an offer to purchase is accepted. For more information about unemployment tax debts, visit the Unemployment Insurance Agency website at www.michigan.gov/uia .Other Liabilities
To protect yourself from other hidden liabilities, it is important that you thoroughly research the business you are purchasing. Some of the steps you can take to protect yourself are:
- Obtain sound professional assistance from an accountant or an attorney.
- To become acquainted with your rights and responsibilities relative to Sales, Use and Withholding taxes view the New Business Webinar Presentation on the www.michigan.gov/businesstaxes website.
- For more information about Starting a Business in Michigan, visit the Michigan Business One Stop website at www.michigan.gov/business.
- Visit the Uniform Commercial Code website, UCC Online, to obtain financing statements about the business, such as information about tax liens and security interest in collateral.
- Check with the County Register of Deeds for possible liens against the property. View list of County Register of Deeds.
Visit the IRS website for information about Starting, Operating, or Closing a Business.
There are several steps you must take when you sell a business that is covered under the Michigan Employment Securities Act.
You must complete the Business Transferor's Notice to Transferee of Unemployment Tax Liability and Rate, form UIA 1027 and deliver the completed form to the purchaser of the business at least two business days before the transfer of the business. This obligation extends to the seller's real estate broker, other agent or attorney. For more information regarding Unemployment Tax obligations, visit the Unemployment Insurance Agency website at www.michigan.gov/uia .
- You must notify the Registration Section of the Michigan Department of Treasury by completing a Notice of Change or Discontinuance, Form 163, or by sending a letter that includes all discontinuance and account information. Mail Form 163 or your letter to:
Michigan Department of Treasury
P.O. Box 30778
Lansing, MI 48909-8278
- You must pay any delinquent taxes due to the Department of Treasury. When making payment, submit a letter identifying the business name, address, Federal Employer Identification Number (FEIN), type of tax being paid and the period(s) the tax was due. Payment should include tax, penalty and interest owed. Contact the specific tax division for help calculating penalty and interest.
- The seller should request a Tax Clearance Certificate to verify that all taxes have been paid. For more information about requesting a Tax Clearance, see below.
Delinquent Tax Debts - The Department of Treasury and the Unemployment Insurance Agency (UIA) may both file tax liens against any taxpayer's real and personal property and issue a tax warrant or levy to seize and sell the property to satisfy a delinquent tax debt. Corporate officers may also be held liable for Treasury tax debts incurred by their corporations.
A business owner may request that the Department of Treasury conduct a review of the business tax account for tax clearance purposes. The Department's review will provide the taxpayer with information regarding any outstanding tax liabilities. If there are no outstanding liabilities, the Department will issue a Tax Clearance Certificate stating that no taxes are due. This certificate should be provided to the buyer of a business.
To request a Tax Clearance Certificate, use the following form:
To obtain clearance statements related to unemployment taxes, contact the Unemployment Insurance Agency - www.michigan.gov/uia.
For questions related to obtaining a Tax Clearance certificate, contact the Collection Division, Tax Clearance Unit at 517-636-5260.
For other inquiries related to tax obligations, contact the Sales, Use and Withholding area at TreasSUW2@michigan.gov