8 Michigan Specific Tax Rules

Michigan has a number of tax rules that are specific to the state. Here are 8 Michigan Specific Tax Rules:

1. Michigan Individual Income Tax

• Flat Income Tax Rate: Michigan imposes a flat income tax rate of 4.05% (as of 2023), which is applied to all residents regardless of income level.
• City Income Taxes: Some cities in Michigan, including Detroit, Grand Rapids, and Lansing, impose additional local income taxes. For example, Detroit’s tax rates are 2.4% for residents and 1.2% for non-residents who work in the city.
• Michigan Homestead Property Tax Credit: Residents with low to moderate incomes may qualify for a credit on their state income taxes to offset property taxes paid on their principal residence. This credit is subject to income and property value limits.

2. Michigan Sales and Use Tax

• Sales Tax Rate: Michigan has a 6% sales tax on most retail goods and services. Michigan does not have a local sales tax, so the 6% rate is uniform across the state.
• Exemptions: There are specific exemptions, including groceries, prescription drugs, and certain medical equipment.
• Use Tax: If a resident purchases goods from out of state and does not pay sales tax, they are required to report and pay Michigan’s 6% use tax.

3. Michigan Corporate Income Tax

• Michigan imposes a 6.0% Corporate Income Tax (CIT) on corporations with gross receipts over $350,000. S-corporations and partnerships generally do not pay the CIT but are subject to personal income taxes on their profits.

4. Michigan Small Business Tax

• Flow-Through Entity Tax: Michigan allows pass-through entities (like LLCs, partnerships, and S-corporations) to elect to pay an entity-level tax on behalf of its owners, which is at a rate of 4.05%. This helps business owners deduct Michigan taxes at the federal level under certain conditions.

5. Michigan Property Tax

• Principal Residence Exemption (PRE): Homeowners who occupy their home as their principal residence can exempt it from a portion of local school operating taxes, reducing property tax liability.
• Uncapping Property Taxes: Michigan has a “taxable value” system that limits increases in property tax assessments until the property is sold. After a sale, the property’s taxable value may “uncap” and increase to the current market value.

6. Michigan Retirement Tax Rules

• Tax on Pensions and Retirement Income: Depending on the taxpayer’s birth year, Michigan may or may not tax retirement income. People born before 1946 generally are exempt from Michigan tax on Social Security, private pensions, and public pensions. People born after 1952 may have limited or no exemptions.

7. Michigan Motor Vehicle Registration Tax

• Michigan levies an annual registration tax on motor vehicles, which is based on the vehicle’s list price and age rather than weight or horsepower.

8. Michigan Business Personal Property Tax

• Small Business Exemption: Small businesses with personal property (machinery, equipment, etc.) that have a combined value of less than $180,000 are eligible for an exemption from Michigan’s personal property tax.

9. Industrial Processing Exemption

• Businesses involved in manufacturing or industrial processing can claim an exemption on the sales and use tax for equipment and machinery used in the production process.

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