Michigan
Taxes and business formation • USA 2025–2026
Corporation in Michigan
Tax system of Michigan
Income Tax
Michigan has a single flat personal income tax rate — in 2024 it is 4.25%. This tax applies to most types of income — wages, business income, rental income, capital gains, and dividends. In addition, most counties and cities, including Detroit, also levy a local income tax: from 1% to 2.4% for residents and slightly lower for non-residents working in those jurisdictions.
Sales Tax
Michigan's base sales tax rate is 6%, and local jurisdictions are not authorized to add additional taxes. Sales tax is charged on most goods and certain services, including rentals, telecommunications, and digital content. The tax does not apply to groceries, prescription drugs, and certain medical items. Determining the taxable base and the correct sales tax rate can be quite complex and requires a professional approach and knowledge of state law. Our firm provides services for obtaining a Sales Tax Certificate and for preparing and filing the Sales and Use Tax Return. We advise business owners on all matters related to this tax, including registration, calculation, and reporting.
Property Tax
Property tax in Michigan is administered at the local level (city, county, school district). The average effective rate is about 1.32% of assessed value, which is above the national average. Commercial and investment real estate is taxed in full, while owners of a primary residence can access the Principal Residence Exemption program, which lowers the tax base. Properties are reassessed upon sale or renovation, and the tax can rise significantly after a change in ownership.
Business Taxes
Michigan uses a unique approach to corporate taxation through the Corporate Income Tax (CIT), which is 6% of taxable income for C-corporations. S-corporations, LLCs, and partnerships are not subject to the corporate tax. All businesses operating in the state must file an Annual Report by February 15 each year for LLCs and May 15 for corporations. Our firm provides services for LLC and corporation registration, Annual Report preparation, and consulting on tax optimization and the choice of tax structure.
Tangible Personal Property Tax
Businesses owning tangible personal property (equipment, furniture, etc.) file a Property Statement by February 20 each year.
Excise Taxes
Michigan levies excise taxes on gasoline, alcohol, tobacco products, electronic cigarettes, and marijuana (as part of legal retail sales). There is also a tax on car rentals, short-term accommodations, and ferry transportation. Activities involving regulated goods require special licenses and monthly reporting.
Favorable Tax Conditions
Michigan offers a stable and predictable tax system with a flat personal income tax, no local surcharges on sales tax, and a relatively low corporate tax rate. The state actively supports industrial, technology, and research businesses through tax credit programs, grants, property tax exemptions, and workforce initiatives.
Compared to Other States
Compared with other industrially developed states (for example, Illinois or Pennsylvania), Michigan offers a transparent and stable tax environment. There are no progressive personal income tax brackets, which is favorable for business owners and investors. Also, unlike New York or California, Michigan has no franchise tax or minimum tax on capital. However, it should be noted that property tax and business tangible personal property obligations here are higher than in most Southern states. In addition, local income taxes in cities such as Detroit or Flint can significantly increase the tax burden on individuals.
Starting a business in Michigan?
I'll help you form an LLC, navigate taxes, and avoid overpaying
Ask a question →