Michigan is a state of many wonders. It is the car capital of the world and the cereal capital of the world, and it also boasts famous residents such as William Boeing, Sr., Francis Ford Coppola, Gerald Ford, and Malcolm X. Composed of two peninsulas and surrounded by the Great Lakes, Michigan is the eighth most populated state in the country (with a little over 10 million people).
There are things that only Michigan residents understand: the Big Mac is a bridge, summer means three months of bad sledding, your hand serves as a map of the state, and there’s almost nothing as exciting as the U of M vs. MSU game.
Over the past few years, Michigan’s tax system has been reformed and restructured to lower tax burdens and encourage job growth. There has been more focus on Green Energy development and an overall effort to increase the state’s economic competitiveness.
Whether you call yourself a Michiganian, Michiganite, or Michigander, it is important to stay educated about the taxes that affect you. The following article provides information about Michigan’s tax laws, with helpful links and details on filing your taxes.
TABLE OF CONTENTS
General Information About Michigan Tax Laws
- • Individual Income Tax
- • Sales and Use Tax
- • Business Tax
- • Property Tax
- • Other Taxes
Notable Changes In Policy/Legislation
Information About Filing Your Michigan Taxes
Tax Tips & Helpful Facts
GENERAL INFORMATION ABOUT MICHIGAN TAX LAWS
The Michigan Department of Treasury administers several major taxes, including the State Income Tax, Sales and Use Tax, and Business Tax. Other taxes, such as Uniform City Income Tax and Property Tax, are enforced by local governments.
Individual Income Tax
State Income Tax
The State of Michigan has a flat 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. Although Michigan has a flat rate, it is considered somewhat progressive because of various deductions and credits that result in effective rates rising with income.
The State Income Tax was adopted in 1967 (at a rate of 2.6%) and today it is the second largest source of revenue for Michigan. It contributes to about 50% of the State’s General Fund and about 15% of the School Aid Fund.
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 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, for which a separate form must be submitted to the appropriate municipality. These rates are generally 1% for residents and 0.5% for nonresidents, with the revenue going to the city’s General Fund. Exceptions to those rates are the cities of Detroit, Grand Rapids, Highland Park, and Saginaw. In 2007, revenue from city income taxes totaled over $472.5 million. The following list provides rates for the participating cities and a link to each city’s website (by clicking on the city name).
- Albion: 1% for residents, 0.5% for nonresidents
- Battle Creek: 1% for residents, 0.5% for nonresidents
- Big Rapids: 1% for residents, 0.5% for nonresidents
- Detroit: 2.5% for residents, 1.25% for nonresidents
- Flint: 1% for residents, 0.5% for nonresidents
- Grand Rapids: 1.3% for residents, 0.65% for nonresidents
- Grayling: 1% for residents, 0.5% for nonresidents
- Hamtramck: 1% for residents, 0.5% for nonresidents
- Highland Park: 2% for residents, 1% for nonresidents
- Hudson: 1% for residents, 0.5% for nonresidents
- Ionia: 1% for residents, 0.5% for nonresidents
- Jackson: 1% for residents, 0.5% for nonresidents
- Lansing: 1% for residents, 0.5% for nonresidents
- Lapeer: 1% for residents, 0.5% for nonresidents
- Muskegon: 1% for residents, 0.5% for nonresidents
- Muskegon Heights: 1% for residents, 0.5% for nonresidents
- Pontiac: 1% for residents, 0.5% for nonresidents
- Port Huron: 1% for residents, 0.5% for nonresidents
- Portland: 1% for residents, 0.5% for nonresidents
- Saginaw: 1.5% for residents, 0.75% for nonresidents
- Springfield: 1% for residents, 0.5% for nonresidents
- Walker: 1% for residents, 0.5% for nonresidents
A major issue surrounding Michigan’s State Income Tax concerns the preferential treatment of senior citizens and the many exemptions they are allowed. This causes a lag in revenue for a state where 13% of the population is over 65 years old. In addition, Michigan has one of the highest rates of people moving out ― studies say that a family leaves the state every twelve minutes. The majority of people leaving are young and educated, with high income-earning potential ― the kind of people who are needed to help rebuild Michigan’s economy. This emigration leaves Michigan with a growing elderly population and an estimated loss of $3.7 billion in revenue. For further discussion on this subject, see the following article:
Sales and Use Tax
The Sales and Use Tax is the largest source of revenue for the State of Michigan. In 2007, it accounted for 28.4% of the total tax revenue collected.
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. Most of the revenue collected from the sales tax goes to the School Aid Fund, and most of the remaining revenue is shared among local governments.
The rate for this tax can be broken down into two parts: a 4% tax established by the state Constitution and a 2% tax that was approved by voters in 1994. The latter is an additional tax (at the minimum rate of 2%) that must be levied by legislature according to the state Constitution.
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 (food considered as “grocery items” for consumption at home are exempt), including bottled water
- • 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,” depending on their population and the size of the facility; more information can be found at the CRC Michigan website
- • 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%)
For a list of goods/services that are exempt from the Michigan sales tax, visit the following website:
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. Most of the revenue collected from the use tax goes to the State’s General Fund, and the rest goes to the School Aid Fund.
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. 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.
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).
For a list of goods/services that are exempt from the Michigan use tax, visit the following website:
