Do you need to collect and remit sales tax in Michigan?
Navigating the complexities of Michigan sales and use tax regulations is crucial for businesses operating within the state, and perhaps even for businesses operating remotely. Per the Michigan Department of Treasury, businesses are typically responsible for collecting and remitting sales tax on transactions involving retail sales of tangible personal property. Additionally, rentals and leases, telecommunications and lodging are subject to use tax at the same rate of 6%.
Some exemptions to sales and use tax in Michigan exist; here are a few examples:
- Machinery or equipment used in industrial processing, as well as the repair and maintenance of this equipment.
- Purchases made for agricultural production, (this exemption excludes any tangible personal property which is to become a structural part of real estate).
- Church vans or buses
- Nonprofit organizations
You can find more information on Michigan exemptions and how to claim them here.
Do you have sales tax nexus in Michigan?
Sales tax nexus refers to the connection between a business and the state, which determines the business’s obligation to collect and remit sales tax. In Michigan, an individual or a business that sells tangible personal property to the final consumer will have sales tax nexus. Why is the term “final consumer” important? Some businesses, like wholesalers or contractors, are not actually making retail sales to the consumer. For example, wholesalers sell to other wholesalers or retailers, not the final customer. Opposite this, contractors are considered the final consumers of the materials they use and have already paid sales tax on these purchases.
There are two types of sales tax nexus: physical and economic. We will give definitions and examples of these below.
Physical sales tax nexus in Michigan
Physical sales tax nexus refers to having a physical presence in a state. Examples of physical nexus in Michigan include:
- Having employees, agents, representatives, or independent contractors in Michigan to facilitate sales.
- Maintaining, occupying, or using an office, distribution facility, warehouse, storage place, or similar place of business in Michigan.
You can find a thorough list of businesses and activities that comply with physical nexus in this excerpt of Michigan’s General Sales Tax Act.
Economic sales tax nexus in Michigan
Economic nexus is based on economic activity in a state, primarily gross revenue or transaction count. For a business to have economic nexus, they must have enough presence in a state to constitute the need for sales tax collection and remittance. Each state has their own economic nexus thresholds, which is why retailers may struggle to know where and when they are liable for sales tax.
There are two economic nexus conditions set in Michigan:
- Exceeding $100,000 in gross sales in the previous calendar year.
- Exceeding 200 transactions in the previous calendar year.
If an out-of-state business sells product to Michigan customers and meets either of these thresholds, they must begin to collect and remit sales tax.
Determining nexus for your business can be a complex and daunting task. With many factors to consider, businesses struggle to navigate the intricacies of nexus determination, and even end up paying thousands of dollars to accounting firms to get answers. That’s why we offer nexus determination as an a-la-carte or package deal for businesses at affordable prices. With over 20 years of experience in federal and state tax and accounting laws, we’re a trusted partner for many businesses in need of nexus review services. Contact us now for a consultation!
Are marketplace facilitators required to collect and remit sales tax in Michigan?
Marketplace facilitators are required to collect and remit sales tax in Michigan if, like any other remote retailer, they have economic nexus with the state. Marketplace facilitators are companies that provide a platform or service for third-party sellers to sell their products to customers. The facilitator collects payment from the customer, processes the transaction, and may also manage shipping and returns. If a marketplace facilitator has nexus with Michigan, they are required to collect and remit tax on all taxable sales, regardless of whether the seller using their platform has nexus. If your business sells through a marketplace facilitator, it is important to know whether that facilitator is registered with Michigan so that you can be aware of your tax responsibilities. You can request proof of registration with your facilitator or, (in some cases), you can find the information online.
What platforms are marketplace facilitators?
Filing Michigan Sales Tax
Sales tax filing is a critical responsibility for businesses operating in Michigan. Accurate and timely filing ensures compliance with state laws, which in turn helps you to avoid penalties and fines. We’re here to make it easier. The tables below break down the process for registering with and filing sales tax returns in Michigan.
|1||Access the Michigan Treasury Online (MTO) system or download and fill out Form 518, Registration for Michigan Taxes.||Online Registration; Form 518|
|2||Follow the instructions from the Form 518 booklet or click Create My User Profile online and complete the registration.||New Business Registration Help|
|3||Once the form is submitted and approved, you can access your Michigan sales tax license on MTO.||MTO|
|4||Michigan will assign your business a filing frequency based upon the estimated level of activity. After the first year of filing, the frequency is determined by the previous year’s tax liability. Returns must be filed based on filing frequency even if no tax is due.||Filing Requirements FAQ|
|5||Log in to the MTO system to file online or file using a paper form. The paper form you use is dependent upon your filing frequency.||List of Paper Forms; MTO Online Filing|
|6||Keep your sales tax records for at least 4 years after the date of the last filed return.||Sales and Use Tax Record Retention Rules|
Tips for avoiding errors and penalties:
- Ensure all information entered is accurate and up to date
- File your returns on time to avoid late filing penalties
- Consult a tax professional (like us!) if you have questions or concerns about your specific situation
When are sales tax returns due in Michigan?
Michigan has two main filing frequencies it assigns to business taxpayers: monthly and quarterly. All businesses must file an Annual Reconciliation every year as well, and businesses with very large tax liabilities are also subject to remitting on an accelerated schedule.
|Monthly||Every month||On or before the 20th day of the following month|
|Quarterly||Quarter 1: January 1st – March 31st |
Quarter 2: April 1st – June 30th
Quarter 3: July 1st – September 30th
Quarter 4: October 1st – December 31st
|On or before the 20th day of the month following the quarter|
|Annual (All Businesses)||January 1st – December 31st||February 28th of the following year|
|Accelerated Electronic Funds Transfer (EFT)||Taxpayers who average $720,000 of sales or use tax annually are required to remit on an accelerated schedule. This prepayment must be 75% of the tax liability from the current year.||On or before the 20th day of the current month.|