Michigan's tax nexus rules determine when businesses must register for sales tax, income tax, and employment taxes in the state. Companies domiciled or incorporated in Michigan automatically have nexus and must register from the time of formation, while out-of-state businesses trigger registration requirements by crossing specific thresholds.
Understanding these thresholds is crucial because crossing them creates immediate compliance obligations and potential penalties for non-registration. Michigan uses economic thresholds for sales tax, factor-presence tests for income tax, and employee-based triggers for payroll taxes. Each operates independently, so you could owe one type of tax without owing others.
Michigan establishes sales tax nexus when businesses meet specific economic thresholds or maintain physical presence within the state, requiring immediate registration and tax collection once either standard is triggered.
Michigan's economic nexus rule requires businesses to register for sales tax collection if, during the previous calendar year, they either exceeded $100,000 in retail sales delivered to Michigan customers or completed more than 200 separate transactions with Michigan buyers. This threshold calculation encompasses all retail sales, including both taxable and nontaxable transactions, as well as sales made through marketplace facilitators and wholesale or resale transactions.
The 200-transaction threshold operates independently of the revenue requirement, meaning a business with 250 small transactions totaling $50,000 still meets nexus requirements. Michigan counts marketplace-facilitated sales toward your threshold calculation even when the platform handles tax collection.
Remote sellers crossing either threshold must begin collecting Michigan sales tax starting January 1 of the year following when they exceeded the limits, providing a grace period for compliance preparation.
Physical presence in Michigan creates immediate sales tax obligations regardless of sales volume:
Even temporary physical presence, such as attending trade shows, can establish a nexus requiring tax collection on all Michigan sales.
Businesses must register for a Michigan Sales Tax License through Michigan Treasury Online (MTO) as soon as they establish nexus. The state assigns filing frequency based on tax liability, typically monthly for high-volume sellers, quarterly for moderate activity, and annually for smaller obligations.
Sales tax returns and payments are generally due by the 20th day of the month following the month in which the tax was collected. Michigan's 6% statewide sales tax rate includes no local add-ons, simplifying compliance compared to states with varying local rates.
Michigan imposes Corporate Income Tax (CIT) on businesses with sufficient connection to the state, using business activity standards and physical presence to determine filing obligations.
Michigan establishes income tax nexus through physical presence (offices, property, employees, or agents) or substantial business activity within the state. Businesses actively conducting operations in Michigan are required to register and file Michigan corporate returns.
Flow-through entities (partnerships, S corporations, and LLCs not electing corporate treatment) may have different obligations, with owners potentially subject to Michigan individual income tax on their share of Michigan-sourced income.
Federal law protects some businesses from Michigan income tax even if they have substantial business activity. This protection applies only to soliciting orders for tangible personal property that are approved and shipped from outside the state of Michigan. The protection disappears when employees provide services, handle inventory, or perform activities beyond pure sales solicitation.
Businesses meeting income tax nexus requirements must register through Michigan Treasury Online and file annual Form 4891 (Michigan Corporate Income Tax Return). The return is due by the last day of the fourth month following the close of the tax year, typically April 30 for calendar-year taxpayers. Large taxpayers may be required to make quarterly estimated tax payments.
Employment tax nexus in Michigan is established immediately when any employee performs work within the state, creating withholding and reporting obligations, regardless of business size or revenue levels. Having employees working from Michigan locations, whether full-time staff, part-time workers, remote employees, or temporary assignments, also creates an employment tax nexus.
The location where work is performed determines nexus, not the employee's residence or the company's headquarters. A single employee working from a Michigan location triggers statewide employment tax obligations for wages earned during work periods in Michigan.
Employment nexus requires registration for multiple programs:
New hire reporting must be completed within 20 days of the employee's commencement date, and wage reports are due quarterly, with tax deposits required according to the accumulation schedules.
Michigan's tax framework captures modern business activities, including software-as-a-service offerings, digital product sales, and remote employee management.
Prewritten software downloads are taxable as tangible personal property, while most digital goods like e-books are generally not taxable. Cloud-hosted software (SaaS, PaaS, IaaS) typically avoids sales tax since no software transfer occurs to customers.
The $100,000/200 transaction economic nexus thresholds apply to remote sellers of tangible personal property. Remote employees working from Michigan addresses create immediate employment tax nexus and potentially contribute to income tax nexus.
Marketplace facilitators must collect Michigan sales tax when they have nexus, but individual sellers still count marketplace-facilitated sales toward their own threshold calculations. This dual counting means businesses must track total Michigan activity across all channels.
Affiliate marketing relationships, drop-shipping arrangements with Michigan-based partners, and third-party logistics arrangements can create a physical presence nexus requiring immediate registration.
Reaching a tax or employment nexus in Michigan may also result in the need for foreign registration with the Secretary of State. Although Michigan doesn't have specific secretary of state nexus thresholds, states are more likely to consider a company as "transacting business" if it's already paying taxes there. Understanding tax nexus thresholds helps identify when Secretary of State registration may also become necessary.
Once any Michigan nexus threshold is crossed, immediate registration and ongoing compliance become mandatory, with penalties and interest accruing from the date nexus was established.
Michigan expects comprehensive documentation supporting nexus determinations and ongoing compliance:
Late registration penalties accrue from the date the nexus was established, not when registration is finally completed. Michigan assesses interest on unpaid taxes from the original due dates and may impose additional penalties for willful non-compliance.
The state offers voluntary disclosure programs that allow businesses to limit lookback periods and reduce penalties when they proactively address past exposure before being contacted by an auditor.
Discern provides comprehensive registered agent services and automated compliance tracking to ensure your Michigan obligations are met without administrative burden. Our platform monitors compliance requirements across all jurisdictions where you operate, handling foreign registrations and ongoing filing requirements through a single dashboard.
Ready to streamline your Michigan compliance requirements? Book a demo with Discern today.
.png){kind=small}