Michigan Sales Tax: What Your Business Actually Owes

If you sell anything in Michigan, the sales tax question usually arrives one of two ways: a customer asks why you charged it, or a letter from Treasury asks why you didn’t. Michigan sales tax is 6%, and unlike most states there is no city or county rate to look up on top of it — the rate in Grand Rapids is the rate in Detroit is the rate in Marquette. That part is genuinely simple. What catches business owners out is everything around it: whether you need a license at all, what use tax is and why you almost certainly owe some, and — if you work in the trades — the rule that says you pay the tax yourself and are not allowed to bill it to your customer.

Here is what applies for tax year 2026, with the Michigan statute or Treasury page behind each figure, and the places where the guidance you will find online is out of date.

What the Michigan sales tax rate is in 2026

The Michigan sales tax rate is 6% of the total price of taxable retail sales, charged by anyone selling tangible personal property to the final consumer. That rate is set in the General Sales Tax Act at MCL 205.52.

The detail worth knowing — and the one that trips up out-of-state accountants and national tax software alike — is that there is nothing to add to it. The Department of Treasury states it flatly on its own sales tax license page: “Michigan has no city, local, or county sales tax. The state sales tax rate is 6%.”

If you have ever used a national “sales tax rate lookup” tool and wondered why it wanted your ZIP code, that is why it feels wrong here. In Colorado or Louisiana the ZIP code changes the answer. In Michigan it never does. A Walker contractor, a Kentwood retailer and a Comstock Park caterer all charge exactly the same rate.

There is one lower rate worth knowing:

Michigan also does not tax most services. If you sell only labor — consulting, therapy, photography sessions with nothing handed over — you are generally outside the sales tax system entirely. The moment you sell a physical product alongside that labor, you are back in it. More on that below.

Sales tax vs use tax and why the difference matters

Use tax is the one that generates the surprise assessment, because most owners have never heard of it and Treasury describes it in a single blunt sentence: “Almost every business has a use tax liability.”

The two taxes are the same 6% and are designed to cover for each other:

• Sales tax is what a Michigan seller collects from you at the point of sale and remits to the state.
• Use tax is what you owe directly to Michigan when you acquire something taxable and nobody collected the 6% from you. It is set at 6% by MCL 205.93.

Treasury calls use tax the “companion tax” to sales tax, and the logic is straightforward: without it, every Michigan business would simply buy everything from an out-of-state supplier and the 6% would never be paid. Use tax closes that door.

In practice, two things trigger it for a small business:

1. You bought from an out-of-state seller who didn’t charge Michigan tax. Equipment ordered online, tools shipped from a supplier in another state, software delivered on a disc. If no Michigan tax appeared on the invoice, you owe 6% use tax on it.
2. You pulled something out of your own resale inventory and used it. You bought it tax-free by giving your supplier an exemption certificate because you intended to resell it. You then installed it on a job, or took it home. That conversion creates a use tax liability on what you paid for it.

The second one is the one that shows up in audits. A shop that buys inventory exempt and then quietly consumes some of it has an unrecorded liability building month over month.

Two mitigating rules are worth knowing. First, Michigan gives you credit for sales or use tax legally due and paid to another state, so you are not taxed twice on the same purchase — if you paid 6% or more elsewhere, nothing is owed here. Second, use tax also reaches certain services that sales tax does not, specifically telecommunications and hotel or motel accommodations.

Who needs a Michigan sales tax license

Not everyone selling something needs a license, and the exceptions are less obvious than you would expect. Treasury’s own breakdown:

That last row catches more Grand Rapids businesses than owners expect. A repair shop that fixes a customer’s equipment and supplies a replacement part has made a retail sale of that part. A salon that sells shampoo at the counter needs a license even though the haircut itself is not taxed. Treasury’s phrasing is that “any property which goes with the customer in connection with the repair or service is considered a sale at retail.”

The license itself is undemanding: there is no application fee, it runs January 1 through December 31, and it renews automatically each year unless you ask Treasury to cancel it. You register through Michigan Treasury Online.

What contractors owe and what they must not bill

This is the section that matters most around West Michigan, and it is where the intuitive answer is wrong.

A contractor who builds, alters, repairs or improves real estate for someone else is treated as the consumer of the materials, not as a reseller of them. That is set out at MCL 205.92(1)(g)(i), and it drives everything else. Treasury’s plain-English version: “A sales tax license is not required for contractors or subcontractors, since they are the final consumers of the materials they affix to real property.”

Three consequences follow, and the third one is a compliance trap.

You pay the tax when you buy. When a Grand Rapids remodeler buys lumber, drywall and fixtures from a supplier, the supplier charges 6% sales tax and the remodeler pays it. That is the end of the tax on those materials. The rule extends past materials, too — a contractor owes tax on equipment, supplies and consumables as well, not only the things that end up nailed to the building.

You may not bill that tax to your customer. This is the part contractors get wrong on invoices. Because the contractor is the consumer, there is no tax to pass through, and Treasury is explicit that a contractor “may not break out the tax as though sales tax was being billed to their customer. The tax is merely a cost of doing business.” You are entirely free to recover the money — you simply build it into the contract price as an overhead cost, the same way you recover fuel or insurance. What you cannot do is add a line reading “Sales tax — 6%” at the bottom of the invoice. A contractor doing that is collecting something they have no authority to collect.

Buying exempt and then installing it creates a use tax bill. This is the trap. Suppose a contractor also runs a small retail counter and buys inventory tax-free for resale. They then pull a water heater off that shelf for a job. Because the contractor consumed the item rather than reselling it, they now owe use tax on the purchase price. Treasury works exactly this example in its current bulletin. The same applies if a contractor gives a supplier a resale exemption certificate for materials that were always destined for their own construction contract — the exemption was improper, and use tax is due on the whole purchase.

Only four exemptions ever flow through to a contractor, and they are narrow: materials affixed to and made a structural part of a qualified nonprofit hospital, qualified nonprofit housing, a church sanctuary, or a certified air or water pollution control facility. Claiming one requires both Form 3520 (the Contractor Eligibility Statement, which your customer gives you) and Form 3372 (the Certificate of Exemption, which you give your supplier). Neither form alone is enough.

Even then the exemption covers only what becomes part of the structure. Treasury’s own list of what stays taxable is refreshingly concrete: sandpaper, hammers, saws. And for a church, the exemption applies only to the sanctuary portion, apportioned by sanctuary square footage divided by total building square footage — a gymnasium, classroom, office or hallway is not a sanctuary.

Two more points that come up on real jobs:

• Landscapers are contractors for this purpose. All purchases by a landscaper are taxable, and a landscaper does not charge sales tax to the customer either.
• A general contractor is not on the hook for a subcontractor’s unpaid tax. If a sub affixes materials without paying its own sales or use tax, that liability stays with the sub, because the sub was the consumer. There is no joint and several liability running up to the GC.

The guidance Treasury still points you to is out of date

If you go looking for the official answer to the contractor question, Michigan’s own website will send you somewhere stale. This is worth knowing before you rely on what you find.

The bulletin that currently governs is Revenue Administrative Bulletin 2025-18, Sales and Use Taxation of the Construction Industry, approved December 10, 2025. Its own header notes that it replaces RAB 2019-15 — which had itself already replaced RAB 2016-18.

Now compare what Treasury’s public-facing pages tell contractors to read:

A contractor following Michigan’s own navigation therefore lands on guidance from 1988, 1999 or 2016, while the governing bulletin was issued in December 2025.

Here is the honest part, because this is where a lot of tax content would overreach: the rules you actually care about have not changed. RAB 2025-18 was issued mainly to absorb 2024 Public Acts 181 and 207, which extend Michigan’s qualified data center exemption to 2050 and add enterprise data centers. Unless you are building a data center, that is not your problem. The consumer rule, the no-billing-tax rule and the four narrow exemptions have been stable for decades.

So the risk is not that you are following a rule that was repealed. The risk is subtler: an old bulletin will not mention the 2018 safe harbor at MCL 205.94ee that can relieve you of use tax on property a customer bought and handed you, and if you ever end up citing authority in a dispute, citing a bulletin that has been superseded twice is a bad position to argue from. Read the current one.

When your Michigan sales tax return is due

You do not choose how often you file. Treasury assigns your filing frequency — initially from the estimated activity on your registration, and afterwards from your previous year’s liability. It reviews the assignment annually and writes to you if it changes. Sales, use and withholding taxes are reported together on one return, so all three share the same frequency.

Two rules catch people out here.

Everyone files an annual return. The February 28 annual return is not an alternative to monthly or quarterly filing — it is required of every registered filer regardless of the frequency they were assigned. A business that dutifully filed twelve monthly returns and then skipped the annual has filed late.

A zero month still needs a return. Treasury’s position is that if you are registered for a tax, you file within your established frequency “even if no tax is due.” Slow winter for a landscaper does not mean no filing.

The forms are Form 5080 for monthly and quarterly returns and Form 5081 for the annual return, filed through Michigan Treasury Online. If a due date lands on a weekend or a state holiday it moves to the next business day, per MCL 205.56(6). Very large filers — those whose prior-year liability reached $720,000 — go onto an accelerated electronic schedule with a prepayment and a reconciliation payment each month, which is a threshold almost no small business will meet.

The early payment discount most businesses miss

Michigan pays you a small amount to file early. Most businesses never claim it, and most articles about it quote the wrong number.

Under MCL 205.54(1)(a), a taxpayer may deduct:

• 0.75% of the tax due if the remittance reaches Treasury on or before the 12th of the month it is due — capped at $20,000 for that month.
• 0.50% if it arrives after the 12th but on or before the 20th — capped at $15,000.

Now the catch, which is buried in the statute’s wording. The deduction is 0.75% of “the tax due at a rate of 4%” — not 0.75% of the 6% you collected. The discount is computed on two-thirds of your tax, so the real saving against what you actually remit is closer to 0.5%. Sources that advertise a flat “0.75% Michigan sales tax discount” are overstating it by half again.

On $10,000 of sales tax collected in a month, filing by the 12th is worth about $50 rather than the $75 you might expect. Not life-changing, but it is free money for moving a task eight days earlier, and it compounds across twelve months.

One hard limit: there is no discount at all on a late payment. The statute disallows the deduction for anything remitted after the due date.

What happens if you fall behind

Sales tax arrears escalate faster than most owners assume, because the penalty stacks monthly.

Under the Revenue Act, the late penalty is 5% of the unpaid tax for the first two months, then an additional 5% per month after that, to a maximum of 25%. Interest runs on top at Treasury’s current rate. A business five months behind is looking at the full quarter-again on top of the tax itself.

The practical advice is unglamorous but it is the right advice: file the return even when you cannot pay it. The penalty is driven by unpaid tax, and filing preserves your discount eligibility going forward, keeps your account current for licensing, and gives you a real number to negotiate a payment arrangement against. Silence is the expensive option.

There is also a structural reason sales tax arrears feel different from an income tax bill. The money was never yours — you collected it from customers on the state’s behalf. When cash gets tight and that balance is sitting in the operating account, it is the easiest thing in the world to spend. Keeping it separate is the single most effective habit we recommend to Grand Rapids business owners who have been through it once.

If you are already behind, that is a conversation worth having with a CPA rather than a piece of software. We prepare and file Michigan sales and use tax returns as part of business tax preparation, including catching up returns that have gone unfiled.

Selling into Michigan from out of state

If your business is outside Michigan but sells to Michigan customers, you have a registration obligation once you cross an economic threshold. A remote seller has nexus with Michigan when, in the previous calendar year, it made either:

• more than $100,000 in gross sales into Michigan, or
• 200 or more separate transactions with Michigan customers.

Two details matter. The count is on gross sales — taxable, nontaxable and exempt sales all count toward the $100,000. And the obligation begins on January 1 of the year after you cross the threshold, not the moment you cross it.

Coming back under the threshold does not release you immediately either: you must go a full calendar year below it before the obligation lifts. And if a marketplace facilitator is already registered and collecting Michigan tax on your behalf, you generally do not need to register separately for those sales.

What changed for fuel in 2026

One genuine change took effect on January 1, 2026, and a great deal of published material has not caught up with it.

Public Acts 17 through 20 of 2025 — the road funding package that became law on October 7, 2025 — exempted “eligible fuel” from both sales tax and use tax beginning January 1, 2026. Sellers exclude those sales from gross proceeds entirely. The prepaid sales tax on motor fuel also ceased for fuel purchased on or after that date, and Treasury has confirmed it will issue no further prepaid sales tax bulletins.

In plain terms: Michigan no longer charges 6% sales tax on gasoline and diesel. Any page still saying it does is describing the law as it stood through the end of 2025.

Fuel is not untaxed, though — the tax moved rather than disappeared. The Motor Fuel Tax Act rate was rebased to $0.51 per gallon and indexed, giving an inflation-adjusted rate of $0.524 per gallon for 2026. That rate is recalculated every January 1 from the prior year’s figure, so it will be different in 2027.

“Eligible fuel” is broad but not unlimited. It covers motor fuel, alternative fuel, leaded racing fuel and LPG sold for motor vehicle use. It excludes aviation fuel, and it excludes fuel used for residential, commercial or industrial heating, ventilation or cooling — so the propane in a building’s furnace is treated differently from the diesel in a truck. Treasury’s updated notice on the fuel tax changes works through the edge cases in detail, including refrigerated trailer units, which land on the taxable side.

For most trades businesses the practical effect is small but real: fuel invoices from 2026 onward should not carry Michigan sales tax, and if one does, it is worth querying.

FAQ

What is the sales tax rate in Michigan?

Michigan’s sales tax rate is 6% of the total price of taxable retail sales, and there is no city, county or local add-on anywhere in the state. A lower 4% rate applies to electricity, natural or artificial gas, and home heating fuel for residential use.

What is the difference between Michigan sales tax and use tax?

Both are 6%. Sales tax is collected by a Michigan seller at the point of sale and remitted to the state. Use tax is what you owe directly to Michigan when you acquire something taxable and no Michigan tax was charged — most often on out-of-state purchases, or when you take an item out of tax-free resale inventory and use it yourself. Michigan gives credit for sales or use tax legally due and paid to another state.

Do contractors charge sales tax to their customers in Michigan?

No. A Michigan contractor is treated as the final consumer of the materials it affixes to real property, so it pays sales or use tax when it buys those materials and cannot bill that tax to the customer as a separate line. The contractor may recover the cost by building it into the contract price as overhead, but may not break it out as though tax were being charged.

Do I have to file a Michigan sales tax return if I owe nothing?

Yes. If you are registered for the tax, you must file a return within your established filing frequency even if no tax is due for that period. A month with no taxable sales still requires a return.

When is the Michigan annual sales tax return due?

February 28 of the following calendar year, on Form 5081. This annual return is required of every registered filer regardless of whether they were assigned monthly, quarterly or annual frequency — it is in addition to periodic returns, not instead of them.

Does Michigan charge sales tax on gasoline?

Not since January 1, 2026. Public Acts 17 through 20 of 2025 exempted “eligible fuel,” which includes gasoline and diesel sold for motor vehicle use, from both Michigan sales tax and use tax. Fuel is instead taxed under the Motor Fuel Tax Act, at an inflation-adjusted $0.524 per gallon for 2026.

Do I need a Michigan sales tax license if I only sell services?

Generally no, because Michigan does not tax most services. But if you hand the customer any physical product in connection with that service — a replacement part, a retail item at the counter — that portion is a retail sale and you need a license.