How to Register for a Sales Tax Permit in Michigan

For years you have been working as an employee, earning a steady income month after month. But working for someone else was never your goal. You always wanted to be your own boss. With that in mind, you have spent years figuring out all the aspects of running a business, making sure you understand how everything works. You studied the market dynamics, you have learned all the tricks of the trade, you know where to find suppliers, you know what the market gaps are and where the demand is outgrowing supply. You have all this in your back pocket. But you have never started a business before, and this is an idea that intimidates you.

What you need to do as a first step is actually ask yourself whether you are suited for the role of owning and running a business. Taking time to self-evaluate is essential because any doubt you have might hinder you further down the line. Such a question will open a floodgate to many more questions: why do you want to start a business, what is it that you actually want to do and whether there is any sustainability in that business? All these questions should be the foundations of your business plan.

The Importance of Having a Business Plan

Answering each and every question that comes to your mind should add up to a checklist towards creating a business plan. And this is essential for several reasons. First, it keeps you heading in the right direction. Secondly, if you ever consider looking for external funding, having a business plan is a must. With a well-conceived business plan, banks and possible investors will be able to take a closer look at your idea, you’re the development plans, potential expenditures and estimated revenue.

So, if you are certain that you want to start your own business, the next thing to know is what you would actually do. Do you plan on opening a competitor company to the one you left and in which you learned your trade, or would you go in a completely opposite direction? To answer this question, make a list of products, markets, business types you would be happy dealing with or working in. Once you have the list, put all the pros and cons of every item on paper and then ask yourself if that business is sustainable in the current market conditions, what experience do you have in it and how can you apply it to your newly formed business, and ultimately what is your goal with the business.

Sometimes, starting small is the best answer. Researching the market and looking for a niche segment could be the smartest thing to do. This is so not because the market is specific, but because usually in such markets demand outweighs the supply and you would not have to worry so much about the competition and could slowly grow your customer base as well as your reputation. Very often, jumping into a competitive market requires a sizeable investment at the beginning and your chances of success are certainly lower compared to the first option.

Business Financing Options in Michigan

If you decide to search for financing, the state of Michigan provides several options for start-ups and existing businesses seeking to expand their operations. The state government has highlighted several options to obtain additional finances such as crowdfunding. This is a relatively new form of funding that enables individuals or interested parties to make contributions or provide loans for the business through a public platform.

You could also find more details about debt financing. This is an option that will require a complete business plan, as this is usually an essential requirement that banks have. This means that you can search for additional funds through banks, U.S. Small Business Administration that can guarantee for loans obtained through a private lending institution. For larger operations, you might consider equity investment, which is essentially stakeholders buying a share in your company.

You could also browse potential angel investor groups, which are actually groups of private investors or individuals that invest in new companies. These groups often focus on growing the business through providing funding, expertise, industry contacts, however, they are highly likely to request in-depth due diligence process with the target company.

Whichever option you choose, you will have to find either a supplier for the goods you plan on selling or you’ll have to find a way to provide services you plan on providing. In any case, entrepreneurs looking to start a business in Michigan can count on the services of the Michigan Small Business Development Center, who provides training, counseling advocacy and can help you with your market research as well as with the steps you have to take in order to set up your business.

After you have completed the business plan, the next step is the one you might not have been familiar with previously as an employee. It is time to take care of all the legal requirements in order to set up your business the right way.

Registering a New Business in Michigan

With all the aspects of a business plan covered, your market research done and financing secured, your next step is to cover all the legal bases and register your business with the state of Michigan. The first step in this process is to choose the legal structure of your business. This is an important step because the type of structure you chose will further dictate and determine the potential risks and liabilities of your business. You can choose between a sole proprietorship, partnership, corporation or a Limited Liability Company (LLC). Each of these legal structures has its own advantages and disadvantages, but we will cover the basics in short. However, before doing that, it should be noted that the process can be complicated and it is advisable to consult an attorney or the mentioned Michigan SBDC for assistance.

A sole proprietorship is the most simple business structure and this is the option chosen by the majority of small businesses in the United States. There is no paperwork you are required to file to register a business as a sole proprietorship unless you chose to operate a business under a name that is not your own. In that case, you would have to file for an assumed name or Doing Business As (DBA) certificate. In any case, setting up a sole proprietorship does not cost much and is easily done, and all the profits are taxed at the owner’s rate. However, since there is only one owner and employee, and that there is no legal distinction between the business and the owner, the owner has unlimited personal liability for business actions or debts.

In case you are not starting your business alone and would like to bring in a partner, a partnership is the option to choose. You can opt for General Partnership or a Limited Partnership. The first option is similar to the sole proprietorship except that it is not limited to one owner and registering it requires no paperwork unless you need a DBA certificate. General Partnership can have one or more partners that control and operate the business and are liable for its debts. In short, a limited partner is an investor in the business. To register it in Michigan you must file a certificate of limited partnership with the Michigan Department of Licensing and Regulatory Affairs (LARA).

Your next option is the LLC, which combines the advantages of partnerships and corporations and provides limited liability for business debts. It is created by filing Articles of Organization with LARA. The last option is a Corporation, which has its own rights, privileges, and liabilities from its members. This means that shareholders are not personally responsible for the business debts. The ownership percentages can vary from one person or a company holding 100 percent ownership or several entities owning certain stakes in the corporation. Compared to other structures it is the most complex to set up and maintain. Articles of incorporation have to be filed with LARA to establish a corporation.

Once you have selected the legal structure, you move on to choosing a name for your business, unless you decide to use your own name. You must make sure the name you chose is not used by another entity or that is not reserved. This can be checked through the US Patent and Trademark Office. In the state of Michigan, this process is completed in parallel to the selection of a business structure.

Your next step is to acquire all the relevant licenses and permits to run a business in the state of Michigan. According to the Michigan laws and regulations, not every business requires a state license, but in any case, if you think your business might need specific permits, you can check that online at the State License Search website.

Navigating the permits and licenses field can be complex as you might have to learn more about environmental considerations, zoning rules and ordinances, trademarks, and copyrights. This process can be simplified by working with a counselor or an attorney.

Michigan Sales Tax Permits

The next step is considered to be the most complex one and it covers tax obligations. The first link in that chain is the Federal Employer Identification Number (EIN), which is acquired through the Internal Revenue Service. A sole proprietorship could instead use the Social Security Number and is not required to apply for an EIN to reduce possible issues such as identity theft.

Once you have acquired an EIN, you should check whether you are required to apply for a sales tax permit. The general rule is that anyone engaging in retail sales of tangible personal property from a location within the state of Michigan requires a sales tax permit. The Michigan sales tax is 6 percent of retail sales receipts, according to state law.

Further information on who needs a Michigan Sales tax Permit can be found on the Department of Treasury website. Pay close attention to the tax requirements and make sure that your business, the products you are selling or the services you are providing are actually taxable. In general, services are not taxable unless they include manufacturing a product. Tangible goods are taxable with several exceptions which we will cover later.

If you have established that you are required to file for a sales tax permit, the Michigan Department of Treasury has simplified the process. By registering online you are significantly speeding up the registration process. The online registration can be done by completing the e-Registration at the Michigan Unemployment Insurance Agency. According to the UIA’s website, the process eliminates the need to mail in Form 518, Michigan Business Taxes Registration Booklet. For the online registration, you are advised to use the Federal EIN instead of the Social Security Number. In addition, you will have to provide major business activity, your business entity type, and all the office locations. The registration is free of charge and it will take 8 to 10 days for you to receive your sales tax permit.

Sales Tax Exemptions in Michigan

Like many states, the state of Michigan has certain tax exemptions. These include sales to agricultural producers or industrial processors, as well as sales to governmental entities, nonprofit institutions such as schools, hospitals or churches, and other nonprofit organizations.

However, one specific exemption is interesting for businesses engaging in the resale of cheap wholesale merchandise. According to the Department of Treasury, retailers acquiring property for subsequent resale can claim tax exemption. Retailers in the state of Michigan are issued sales tax license numbers that have to be included in the Michigan Sales and Use Tax Certificate of Exemption.

To qualify for tax exemption, the buyer must complete the certificate of exemption and present it to the seller. You can either claim a single purchase exemption by providing the seller with an exemption certificate or, you can deliver a blanket exemption certificate for multiple purchases. In any case, the Certificate of Exemption has to be filled in completely.

You have to understand that as a seller you can also be presented with a certificate of exemption. The Department of Treasury requires all taxpayers to maintain complete and accurate inventory records as well as records of accepted exemption certificates. This is specifically essential in the case of an unpaid tax after Department establishes that a sale did not qualify for an exemption.

Since the exemption certificate is accepted ‘in good faith’ if you keep the complete records and accept the certificate prescribed by the department you are not liable for collection of the unpaid tax.

Contact Details

The Michigan Department of Treasury

Lansing, Michigan 48922
Phone: 517-636-6925
Fax: 517-636-4520

Additional Contact Details

Michigan Unemployment Insurance Agency

3024 W. Grand Blvd., Detroit, MI 48202
Phone: 1-866-500-0017

The Michigan Small Business Development Center

Grand Valley State University
1020 L William Seidman Center
50 Front Avenue SW
Grand Rapids, MI 49504
Phone: 616.331.7480
Fax: 616.331.7485

Michigan Department of Licensing and Regulatory Affairs

Ottawa Building
611 W. Ottawa
P.O. Box 30004
Lansing, MI 48909
Phone: 517-373-1820

Additional Contact Details

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