Michigan State Taxes
The Michigan Department of Treasury administers several major taxes, including Individual Income Tax, Sales/Use Taxes, and Business Tax. Other taxes, such as the Uniform City Income Tax and Property Taxes, are enforced by local governments.
Michigan State Tax ― Individual Income Tax
Michigan has a flat state income tax rate of 4.35% on federal adjusted gross income, with modifications. It is typically withheld from paychecks for individuals, and it also applies to estates and trusts.
Income tax returns are due with payment by April 15th. If a taxpayer has already been approved for a federal extension, their due date for filing a Michigan return will correspond with the federal extension date. Otherwise, the Department of Treasury will allow for a 180-day extension once Form 4 (Application for Extension of Time to File Michigan Tax Returns) has been submitted. Payments are still due by April 15th, whether or not an extension has been approved.
Estimated income tax declarations are due on the 15th of April, June, September, and January, with payments. The remaining balance is then paid on April 15th.
Michigan has a reciprocal agreement with the following states: Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin. This agreement allows Michigan residents to pay only Michigan income tax on their wages earned from the above states. Individuals may file a withholding form with their employer of the reciprocal state to be exempt from that state’s withholding.
Uniform City Income Tax
Some cities are permitted to impose additional income taxes, meaning that a separate tax form must be submitted to the appropriate municipality. These tax rates are generally 1% for residents and 0.5% for nonresidents, with the revenue going to the city’s General Fund.
Michigan State Tax ― Business Tax
The Michigan Business Tax (MBT) became effective on January 1, 2008, replacing the Single Business Tax (SBT). The MBT has 2 major components:
- Income Tax component ― a direct tax on business income with a rate of 4.95%, after allocation or apportionment
- Modified Gross Receipts component ― a privilege tax with a rate of 0.8% on gross receipts less purchases from other firms
The MBT uses a single sales factor. It applies to all corporations that conduct business activity in the state and have Michigan-sourced gross receipts over $350,000. Certain small businesses may qualify for an alternative tax of 1.8% on adjusted business income. There are also separate provisions for financial institutions (a tax of 0.235% on net capital) and insurance companies (a tax of 1.25% on gross direct premiums).
There are a number of business tax credits that have been created and maintained by the MBT, including the following:
- Compensation credit
- Investment credit
- Research and development credit
- Industrial personal property credit
- Entrepreneurial credit
- Credit for large contributions to art, historical, or zoo institutions
- Start-up business credit, small business credit, venture capital investment
- Next Energy alternative energy credit
- Historical preservation credit
In addition, a temporary surcharge rate of 21.99% (23.4% for financial institutions) is in effect until January 1, 2017. It has a $6 million cap for any one taxpayer, and it is designed to replace the “use tax” on services.
Michigan State Tax ― Sales & Use Tax
Michigan has a sales tax rate of 6% ― there are no additional county, city, or municipal sales taxes. This tax is imposed on the retail sale of tangible goods (not including real property) and services.
The rate for the sales tax can be broken down into 2 major parts ― a 4% tax established by the State Constitution, and a 2% tax that was approved by voters in 1994.
The sales tax applies to goods and services, including, but not limited to the following:
- Antiques and works of art
- New and used automobiles
- Prepared foods and drinks, including bottled water (food considered as “grocery items” for consumption at home are exempt)
- Computers, computer software, and computer parts
- Prepaid telephone calling cards
- Rental or lease of tangible personal property
- Delivery and shipment charges incurred prior to transfer of ownership of personal tangible property
- Transient rentals of hotel and motel rooms (certain counties may impose an additional “accommodations tax”)
- Certain conditional and installment lease sales
- Sales to persons in real estate construction and improvement businesses
- Repairs, improvements, and alterations of tangible personal property
- Sales to consumers of electricity, gas, and heating fuels for residential use (at a tax rate of 4%)
The “use tax” is a companion of the sales tax. Sometimes referred to as the “remote sales tax,” it is imposed when the appropriate sales tax has not been charged. It has the same rate of 6% ― if less than 6% sales tax has been paid, the difference is owed to the State of Michigan.
The use tax often applies to Internet and mail-order purchases for items that are brought into Michigan. For most individuals (who have less than $720,000 in annual sales/use tax liability), it is a personal responsibility to report and pay this tax. Payments for the use tax are due by the 20th day of the month following the sale. Use Tax can be filed using Form 48 (Individual Purchase Use Tax Return).
The use tax is a method for ensuring fair competition among businesses located in Michigan and businesses that are out-of-state or out-of-country.
Michigan State Tax ― Property Tax
Property tax in Michigan is assessed on the state level and the local level by counties, townships, villages, cities, and school districts. It is imposed on all real and personal property (not otherwise exempted), and it is a major source of financing for schools and local governments. Real property includes land and buildings, while personal property includes equipment, machines, and furniture.
All taxable property is assessed at 50% of its true cash value (i.e. its usual selling price). The resulting amount is called the State Equalized Valuation (SEV). Property assessment is done annually (either in the summer or winter) in three steps:
- Step 1 ― A local assessor determines the assessed value (based on a property’s condition as of December 31st of the previous year).
- Step 2 ― The assessment is equalized by the county (the county board of commissioners applies an adjustment factor to properties that have been assessed below or above the required level).
- Step 3 ― The assessment is equalized by the state (the State Tax Commission applies an adjustment factor to county assessments that did not meet the required level).
Property owners will receive notification by mail of increases in the tentative SEV (also known as the “tentative taxable value”) for the year. Tentative values may be appealed to the local governmental board of review if an assessment is considered unfair. Property taxes are collected by county, township, village, and city treasurers.
Homestead Property Tax Credit
There is a Homestead Property Tax Credit for qualified Michigan homeowners and renters. To apply, fill out and submit Form MI-1040CR (Property Tax Credit Claim). More information about this tax credit can be found at the following web address:
Michigan State Tax Forms
Form MI-1040 (Michigan Individual Income Tax Return)
Form MI-1040CR (Michigan Homestead Property Tax Credit Claim)
Schedule NR (Michigan Nonresident and Part-Year Resident Schedule)
Form MI-1040ES (Michigan Estimated Individual Income Tax Voucher)
Form MI-1040-V (Michigan Individual Income Tax e-file Payment Voucher)
Form MI-1040X (Michigan Amended Income Tax Return)
Form 4 (Application for Extension of Time to File Michigan Tax Returns)
Form 48 (Individual Purchase Use Tax Return)
Michigan State Tax Resources
State of Michigan Department of Treasury: www.michigan.gov/taxes
All individual income tax forms can be found at the Michigan Department of Treasury’s website: www.michigan.gov/taxes/forms
Michigan E-file allows taxpayers (individuals and businesses) to file and pay their state taxes online:
To check the status of your tax refund and other account history, visit the Department’s “Self-Service” portal: www.michigan.gov/taxes/taxrefundstatus
Contact the Michigan Department of Treasury (by phone, email, or paper mail): www.michigan.gov/treasury/contact
“Michigan Business One Stop” resource center for Michigan businesses: www.michigan.gov/business
Michigan Department of Treasury, Property Tax Estimator: treas-secure.state.mi.us/ptestimator
State of Michigan, Business and Economic Growth/Development: www.michigan.gov/som/business
Michigan Association of Counties: www.micounties.org
Michigan’s Tax Freedom Day is April 10th.