Michigan Business Tax 2026: What Actually Applies

You searched for “Michigan business tax,” and the first result is a State of Michigan page that opens by telling you the tax “imposes a 4.95% business income tax and a modified gross receipts tax at the rate of 0.8%.” If you run a business in Grand Rapids, there is a very good chance neither of those numbers has anything to do with you. The Michigan Business Tax was replaced for almost every taxpayer in the state on January 1, 2012.

That is the first thing worth clearing up, because the confusion is not your fault — it is baked into the search results. What follows is the actual list: which Michigan taxes your business files, what each one costs for tax year 2026, when they are due, and the one change that took effect for tax year 2025 that is quietly costing West Michigan contractors more than the rate ever did.

Is the Michigan Business Tax still a thing?

Technically yes. Practically, almost certainly not for you.

The Michigan Business Tax (MBT) was signed into law in 2007 and replaced the Single Business Tax in 2008. It lasted four years. Under Public Act 39 of 2011, the Corporate Income Tax replaced the MBT for most taxpayers effective January 1, 2012. Since that date, the only businesses that may still file an MBT return are those holding a certificated credit — a specific credit that was awarded years ago and has not yet been fully claimed. Those taxpayers may elect to keep filing under the MBT until the credit is used up. It is a closed group, and it is not accepting new members.

Treasury’s own Michigan Business Tax page does say this. The trouble is where it says it: the repeal appears part-way down the page, in a quoted block, underneath a notice about an e-file mandate for tax year 2010 and a paragraph describing the tax in the present tense. Google indexes the top of the page. So the highlighted answer millions of searches receive is a rate from a tax that was closed to new filers before the current version of the iPhone existed.

Which Michigan taxes your business actually files

Michigan does not have a single “business tax.” It has a short list of separate obligations, and which ones apply depends almost entirely on how your business is organised for federal purposes. Start here.

Then, regardless of entity type, three more can apply to any of the above:

• Sales and use tax — if you sell goods at retail, or buy materials without paying tax on them.
• Withholding tax — if you have employees.
• City income tax — if you operate in one of the Michigan cities that levies one, which in our area means Grand Rapids and Walker.

Notice what is missing from that list: there is no Michigan franchise tax, no annual entity-level tax on a plain LLC, and no state gross-receipts tax. A single-member LLC that does no retail sales and has no employees may owe Michigan nothing at the entity level at all — the profit simply shows up on the owner’s personal return at the flat 4.25% individual rate.

Corporate Income Tax: the 6% and who escapes it

The Corporate Income Tax (CIT) is a flat 6%, and it applies to C corporations and to any entity taxed as a corporation federally. That is the number people are usually reaching for when they search “Michigan business tax rate.”

Two thresholds keep most small businesses out of it entirely. Per Treasury, taxpayers with less than $350,000 in allocated or apportioned gross receipts, and/or $100 or less in annual liability, are not required to file or pay the CIT. (Financial institutions and insurance companies do not get the gross-receipts threshold.) Above those lines, the CIT has exactly one credit — the small business alternative credit, which substitutes an effective rate of 1.8% of adjusted business income for qualifying filers.

If you expect your CIT liability to exceed $800 for the year, quarterly estimated payments and returns are required, each for the quarter’s tax or 25% of the annual figure. A Research and Development credit also became available to CIT filers for tax years beginning on or after January 1, 2025.

The flow-through entity tax and the OB3 election trap

Michigan’s flow-through entity (FTE) tax is elective. A partnership or S corporation can choose to pay Michigan tax at the entity level — 4.25% for tax year 2026, the same rate as the individual income tax, which it is tied to — and the owners then claim a credit on their personal returns. The point was never to change the total. It was to convert a personal state tax into a business deduction that survives the federal cap on state and local tax deductions.

Two things about it deserve more attention than they get.

The election is binding for three tax years. You make it by paying, on or before the last day of the ninth month after your tax year ends. There is no form to file first and no way to undo it next year because the numbers came out differently.

And the federal ground moved underneath it. The One Big Beautiful Bill Act, signed July 4, 2025, changed the federal state-and-local deduction limits that made the election worth making in the first place. Treasury responded with limited relief: an entity that paid into the first year of a three-year election may request a refund of those payments and be treated as never having elected at all. The conditions are narrow — first year of the election period only, the annual FTE return must not yet be filed, and the request has to arrive before the election window closes for that year. It is a written request to Treasury’s FTE Unit, not a checkbox.

There is also a trap on the receiving end. Beginning with 2025 returns, the members — not the entity — must report the FTE credit information on Form 6072 and Form 6074 and attach them to their MI-1040 or MI-1041. Treasury’s wording is blunt: without that information, the credits will be denied. The entity paid the tax; the owner loses the credit for a missing attachment.

Sales use and withholding: the ones that catch contractors

Sales, use and withholding are reported together on one Michigan return and share one filing frequency, which Treasury assigns you rather than letting you choose. For the trades, the one that causes the most trouble is use tax, because a contractor is treated as the final consumer of the materials affixed to real property — so the tax is owed on what you bought, not collected from what you billed. The full mechanics, including the registration question and what happens when you have fallen behind, are in our guide to Michigan sales and use tax.

The detail worth carrying away here is the one businesses miss most often: Treasury states that all businesses are required to file an annual return each year, and the annual return is due February 28. A quiet year does not excuse the filing. A zero return is still a return.

Michigan decoupled from the federal OB3 — what it costs you

This is the part almost nothing written about “Michigan business tax” mentions, and for a contractor buying equipment it matters far more than the rate does.

Michigan Public Act 24 of 2025, signed October 7, 2025, updated Michigan’s conformity to the Internal Revenue Code and deliberately decoupled from several provisions the federal One Big Beautiful Bill Act had just introduced. Michigan normally follows the federal starting figure. Where it decouples, you compute the number twice — once for the IRS and once, differently, for Michigan — and report the difference as an adjustment. This generally starts with tax year 2025.

Treasury’s own worked example makes the size of it concrete. A taxpayer buys $10,000 of qualifying property in 2025 and deducts the full $10,000 federally. Under Michigan’s rules the same purchase yields 40% bonus depreciation — $4,000 — plus $600 of regular depreciation, for $4,600. The taxpayer reports the $5,400 difference as an addition on the Michigan return.

Scale that to a work truck and a trailer and you can see the problem: the federal return says the equipment is paid for and the Michigan return says most of it is not, in a year you may have already spent the refund. The adjustment goes on Form 4891 line 13 for CIT filers, Schedule 1 line 8 on the MI-1040, and Form 5772 line 11 for flow-through entities. If you are a member of a partnership or S corporation, the entity has to tell you your share — and you have to put it on your own return.

Michigan acknowledged how hard this made estimating. For the 2025 Corporate Income Tax year, Treasury will waive penalty and interest on underpaid second-, third- and fourth-quarter estimates on request, provided the annual liability was paid in full by the annual return due date. Note two limits: you should not request the waiver until Treasury sends you a notice, and the relief does not automatically extend to flow-through filers or to individuals reporting business income, who have to ask for a reasonable-cause waiver on their own facts.

Michigan business tax deadlines

Dates below are for calendar-year filers. Fiscal-year filers shift to the equivalent month after their own year end.

Miss one and the Revenue Act penalty is 5% of the unpaid tax for the first two months, then a further 5% per month, capped at 25% of the unpaid amount, with interest running on top. An extension to file has never been an extension to pay.

When to bring in a CPA

Most of the list above is mechanical once you know which line you are on. The parts that are not mechanical are the ones that cost money: whether the flow-through election still earns its keep now that the federal deduction limits have moved, whether your equipment buying should be timed differently when Michigan only recognises part of it, and whether the entity you set up years ago is still the right one for the profit you make today.

Those are judgement calls, and they are the reason to have a CPA read the situation rather than a form. Our Grand Rapids business tax preparation service covers the federal and Michigan returns together, which is the only way the decoupling adjustments get caught before they become an amended return. If you would like a straight answer about which Michigan returns your business actually owes — and whether anything on this page changes what you filed last year — we are happy to look at it with you.

FAQ

What is the business tax rate in Michigan?

It depends on how your business is taxed. Michigan's Corporate Income Tax is a flat 6%, but it applies only to C corporations and entities taxed as corporations federally. Most small businesses are pass-throughs, so their profit is taxed on the owner's personal return at Michigan's flat 4.25% individual rate for tax year 2026. The elective flow-through entity tax is also 4.25%. There is no single Michigan business tax rate.

Who has to pay Michigan business tax?

Almost no one pays the tax literally named the Michigan Business Tax. It was replaced by the Corporate Income Tax on January 1, 2012, and only businesses holding an unexpired certificated credit may still elect to file it. What Michigan businesses do pay depends on structure: C corporations file the Corporate Income Tax, pass-throughs report profit on their owners' personal returns, and any business may owe sales, use or withholding tax.

How much tax does an LLC pay in Michigan?

A Michigan LLC pays no entity-level state income tax by default. A single-member LLC's profit is taxed on the owner's MI-1040 at 4.25% for tax year 2026, and a multi-member LLC passes profit to its members the same way. An LLC only pays the 6% Corporate Income Tax if it elected to be taxed as a C corporation federally. Sales, use and withholding tax can still apply on top.

Does Michigan still have the Michigan Business Tax?

Only for a closed group. Public Act 39 of 2011 replaced the Michigan Business Tax with the Corporate Income Tax for most taxpayers effective January 1, 2012. After that date, only taxpayers holding a certificated credit that has not been fully claimed may elect to keep filing MBT returns, and only until that credit is used up. No new business can opt in.

When are Michigan business taxes due for tax year 2026?

For calendar-year filers, the Corporate Income Tax annual return is due April 30, the flow-through entity tax return is due March 31, and the combined sales, use and withholding annual return is due February 28. Individual returns carrying pass-through profit are due April 15. Late payment costs 5% of the unpaid tax for the first two months, then 5% per month, capped at 25%.