Should you collect sales tax in Michigan?
Sales tax is levied on the retail sale of tangible personal property to your customers, including leasing or renting tangible property. However, you will collect the sales tax if you create the nexus in Michigan. Nexus is the presence that may come physically or economically.
You create a physical nexus when your business has a store, warehouse, or office location in Michigan. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds can be on a revenue or some other transactional basis.
Let us explore if your business has a Physical nexus in Michigan.
A physical nexus is integrated when your business is engaged in the following in Michigan:
- Servicing tangible personal property in Michigan.
- Maintaining, occupying, or using a place of business or an office in Michigan.
- Employing or retaining any contractor, including an agent, representative, or salesperson, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- Having a stock of goods in Michigan.
Here is what the state of Michigan says about the presence and businesses that need to register there.
Is it constituting an Economic nexus in Michigan?
You must comply with and register under sales tax rules if you are a remote seller (i.e., you do not have a physical presence in the state). Your business sales in Michigan exceed $100,000 during the current or previous calendar year or if you make 200 or more separate retail transactions or deliveries into the state.
You may also refer to the Michigan Taxation Department advisory to know more about business activities that may create an economic nexus within the state.
How can you Register for Sales tax in Michigan?
To get the sales tax permit, you need to apply online by visiting the Michigan Treasury Online (MTO) solution. Otherwise, you can submit the licensing application using form 518 and send it to their mailing address. Applying online will process your application in 15-20 minutes, whereas a paper application may take up to 4-6 weeks.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- EIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Michigan.
- Contact information.
- Estimated total monthly sales.
- Nature of business.
Is your product or services liable to Sales tax in Michigan?
Tangible Property: Sales tax in Michigan is imposed primarily on the retail sale of tangible personal property, such as Furniture, giftware, toys, etc.
Services: Although services are not subject to sales tax in Michigan, a few exceptions include service or labor costs leading to the creation of tangible personal property, laundry, hotel lodging, etc. For more information, click here.
Digital Product: Michigan does not charge sales tax on digital products such as software, streaming services, e-books, etc.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. It is non-taxable in Michigan. For official guidance on computer software and digital goods, click here (pg. 33).
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, newspapers/ magazines, and manufacturing equipment. To see what exemptions are covered, please click here.
Click here for a sales tax guide issued by the Michigan Department of Revenue. The guide provides detailed instructions on the taxability of products and services.
How should you collect and calculate state taxes in Michigan?
Collecting and computing accurate sales tax to be remitted to the state may involve stratospheric efforts, especially when you are not in Michigan, as the sales tax is destination-based in Michigan, which means you must collect taxes on tangible property sold to buyers based in Michigan.
However, sales tax calculation is easy in Michigan as it does not charge local rates. However, complexities are involved when you have a business nexus, even if it is not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Michigan has a base sales tax rate of 6%.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6%)
Do you need to collect sales tax on Shipping Charges?
Shipping charges can be delineated separately in sale invoice raised to customer or dissipated within selling price of items sold. There will be no tax applicability if shipping charges are separately stated on the invoice, however you need to collect the tax on the full sales price including shipping charges if not stated separately. Read through the official guidance here.
How should you file sales tax in Michigan?
There are multiple options available to you for reporting your sales tax.
E-file: You can e-file your return using Michigan Treasury Online (MTO).
File by Mail or In-person: Complete Form 5080 and mail it to their address or submit it in person.
Filing frequencies and due dates
You are assigned a filing frequency, which can be Monthly, Quarterly, or Yearly based on your reported sales tax or estimated taxable sales. According to your filing frequency, the due date for filing sales tax would be the 20th day of the month following the relevant reporting period, except in the case of annual filing frequency, you can file until 28 February of the following year.
Note: If the due date happens to be a holiday or weekend, the next business day will be considered the final due date. This link will take you to the official website of the State of Michigan, where you can see what the state has to say about sales tax filing due dates.
Are there any fines or penalties for default when filing or paying sales tax?
The state levies a penalty of up to 5% of sales tax due if returns are filed after the due date. Also, interest is charged at 0.5% per month for delay in paying the sales tax. The penalty for fraud is 25% of the tax due.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Please review the comprehensive guide to penalties and interest issues by the State of Michigan.