Types of business taxes in Michigan
There are many types of business taxes that you may be responsible for managing in Michigan. From federal to state to payroll to local, it’s important to understand the different programs and how they could affect your bottom line.
Federal taxes
You'll be responsible for federal taxes in whatever state you open a business in. There are dozens of federal tax forms with unique due dates and requirements, so using an accountant or small business accounting software can help you avoid mistakes that could lead to overpayment or penalties.
As a business owner, you have both personal and business tax filing obligations. Here’s what you need to know:
Personal tax filing
Federal income tax returns:
Every individual is required to file and pay federal personal income tax. This forms the foundation of your overall tax responsibility.
Business tax filing
Business owners have additional filing requirements, depending on the business structure:
- Sole proprietorship: Income and expenses are reported on your personal tax return using Schedule C (Form 1040).
- Partnership: A partnership must file an information return (Form 1065) to report income, deductions, and other relevant details, while each partner reports their share of income on their personal return.
- Corporation: A corporation files a corporate tax return (Form 1120), paying taxes on its profits.
- S Corporation: An S corporation files an informational return (Form 1120S). Its income, losses, and deductions pass through to shareholders, who report them on their personal returns.
- Limited Liability Companies (LLCs): LLCs are not classified separately for federal tax purposes and are taxed based on their ownership structure. Single-member LLCs default to sole proprietorship taxation or may elect corporate taxation, while multi-member LLCs default to partnership taxation or may elect corporate taxation.
Self-employment tax
If you work for yourself and earn more than $400 a year, you pay toward Social Security and Medicare programs through a self-employment tax. The Social Security system provides retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Employment taxes
As an employer, you are responsible for withholding and depositing federal income tax and the employee contribution to Social Security and Medicare taxes. You must also pay the employer portion of Medicare and Social Security and pay federal unemployment tax (FUTA).
State taxes
Michigan has various state taxes, including two types of business income taxes. It’s important to know which kinds of taxes your business may be liable for based on your structure and business activities.
Michigan Corporate Income Tax (CIT)
Michigan has a flat Corporate Income Tax rate of 6%. This tax applies to C corporations and taxpayers taxed as corporations federally. It does not apply to other entity structures.
How is the Corporate Income Tax calculated in Michigan?
Michigan calculates CIT tax starting with a corporation's federal taxable income. This figure is then adjusted with Michigan-specific additions and subtractions to determine the taxable base.
For multistate corporations, the state uses an apportionment formula based on the portion of business activity conducted within Michigan. After any applicable business loss deductions are applied, the resulting taxable income is taxed at Michigan’s flat corporate income tax rate of 6%.
Example:
If a corporation has federal taxable income of $1 million, apportions 30% of its activity to Michigan, and has $50,000 in allowable deductions, the Michigan taxable income would be $250,000. This amount would then be taxed at 6%, resulting in $15,000 in Michigan CIT liability.
Who may be liable for Corporate Income Tax?
In Michigan, C corporations are subject to the Corporate Income Tax if they establish nexus within the state. Nexus is determined by any of the following criteria:
- Physical presence: The corporation is physically present in Michigan for more than one day in a tax year.
- Economic presence: The corporation actively solicits sales in Michigan and has gross receipts of $350,000 or more sourced to the state.
- Ownership interest: The corporation holds an ownership or beneficial interest in a flow-through entity that has substantial nexus in Michigan.
It's important to note that pass-through entities, such as S corporations, partnerships, and LLCs treated as partnerships, are generally not taxed at the entity level under Michigan's CIT. Instead, income from these entities is passed through to individual owners or shareholders, who report and pay taxes on their share of the income on their personal state tax returns.
Premiums tax for insurance companies and financial institutions
Instead of a Corporate Income Tax, insurance companies and financial institutions pay an alternative tax. Insurance companies pay a premiums tax calculated at 1.25% of gross direct premiums written on property or risk located in Michigan. Financial institutions are taxed at .29% of net capital in lieu of the corporate income tax. For more information on taxes for insurance companies and financial institutions, consult the Michigan Department of the Treasury.
Flow-through entity tax
In 2021, Michigan introduced a flow-through entity tax (FTE). The Michigan FTE tax allows a flow-through entity (S corporation, partnership, or LLC treated for federal tax purposes as a partnership) to elect to pay tax on certain income at the individual income tax rate. If this election is made and the entity pays the tax, members of the entity are eligible to receive a refundable income tax credit.
The FTE is levied on income attributable to members of the entity who are individuals or flow-through entities. It isn't applicable when direct members are C corporations. This tax is also not levied on sole proprietorships or single-member LLCs.
The FTE tax rate is set to match the individual income tax rate for the same tax year, which for 2025 is 4.25%. Flow-through entities that elect to pay the tax must make quarterly estimated payments if their annual tax liability is anticipated to exceed $800.
Franchise taxes in Michigan
Franchise (or privilege) taxes are imposed on certain companies based on their privilege to operate within a specific state. Michigan does not have a franchise tax.
Excise taxes
Excise taxes are special taxes imposed on specific goods or services. In Michigan, these taxes apply to a wide range of products and activities, including:
- Cigarettes: Cigarettes have an excise tax of $2 per pack.
- Alcohol: Excise taxes for various alcoholic beverages include: liquor, 12% of sale price; beef, $6.30/barrel; and mixed spirits $0.48/liter.
- Gasoline and diesel: Excise tax is $0.263/gallon.
It’s important to review which special taxes or fees may apply to your Michigan business.
Employment taxes
If your business has employees, you will need to pay employment or payroll taxes. While some are federal, others are payable to the state of Michigan. Contributions may be employee-only, employer-only, or shared.
Every employer in Michigan who is required to withhold federal income tax under the Internal Revenue Code must also be registered for and withhold Michigan income tax. Michigan personal income tax withholding for each employee is set at a fixed rate of 4.25%.
Unemployment taxes
In Michigan, employers pay the state unemployment compensation tax on each employee's wages up to a maximum annual amount, known as the "taxable wage base." In 2025, the UI taxable wage base is $9,000. Rates range from .06% to 10.3% based on a business's rating.
Sales and use tax
Michigan has a statewide 6.0% state sales tax. That is the only sales tax levied in the state. Michigan has no city, local, or county sales tax.
Businesses that sell tangible personal property to the final consumer are required to remit a 6% sales tax on the total price of their taxable retail sales to the state of Michigan. Sales of electricity, natural or artificial gas, and home heating fuels for residential use are taxed at a 4% rate.
Michigan also has a use tax of 6%. This tax must be paid on taxable items brought into Michigan or purchased through the internet, by mail, or by phone from out-of-state retailers that don’t collect Michigan state sales tax. Use tax is also applied to certain services, such as telecommunications and hotel/motel accommodations.
All businesses that sell tangible personal property to the final consumer need a sales tax license. You can apply for a sales tax license on the Michigan Department of Treasury website.
Remote seller tax considerations
In Michigan, remote sellers—businesses without a physical presence in the state—are required to collect and remit sales tax if, in the previous calendar year, they either:
- Exceeded $100,000 in gross sales to Michigan customers, or
- Conducted 200 or more separate transactions with Michigan customers
Once a remote seller surpasses either threshold, they must register for a Michigan sales tax license and begin collecting sales tax starting January 1 of the following calendar year. For instance, if a seller exceeds the threshold in 2025, they are obligated to start collecting Michigan sales tax on January 1, 2026.
To register for a sales tax license, remote sellers can utilize the Michigan Treasury Online (MTO) platform. After registration, sellers will receive a Michigan sales tax license along with instructions on filing and paying the tax online.
Marketplace facilitators, those platforms that facilitate sales on behalf of third-party sellers, are responsible for collecting and remitting sales tax on sales made through their platforms. Therefore, if a remote seller operates exclusively through a marketplace facilitator that complies with Michigan tax laws, the seller may not need to register separately.
For comprehensive details on remote seller obligations, including registration and filing requirements, refer to the Remote Seller FAQ provided by the Michigan Department of Treasury.
Local taxes
In addition to federal and state taxes, many cities, counties, and other jurisdictions in Michigan levy other kinds of local taxes to fund essential services and infrastructure such as schools, roads, police, and fire protection. These taxes often include property taxes and specific use taxes.
City income taxes
About two dozen cities in Michigan levy local income taxes on their residents in addition to their state personal income taxes. Rates for these taxes vary by location, but the state’s Department of Treasury has a dedicated City Income Tax Forms page with more information for each area.
Property taxes
Money raised through property taxes goes toward financing local services, such as police and fire protection, public education, the operation of city, village, township, and county governments, and special projects such as sewers, streets, and parks. Each local assessor determines the tax rate and assessments, which vary depending on the location of the property.
