In Michigan every retailer must pay a tax for the privilege of carrying on a retail business based on eligible gross sales proceeds. The eligible gross sale proceeds are those from:

• retail sales or transactions in the ordinary course of business in Michigan, including those in which title is retained for security purposes, or
• sales of electricity and gas for heat and light to consumers
• sales of prepaid telephone calling cards
• computer software offered for general sale to the public
• sales of tangible personal property by an industrial laundry under a sale, rental, or service agreement

Sales and use tax rate. The Michigan sales and use tax rate is 6 percent on retail sales and 4 percent on sales of electricity and gas for heat and light to consumers. Certain qualified local governments are allowed to assess a hotel sales tax. The sales and use tax does not apply to services in Michigan unless it is specifically made subject to tax.

Tax-exempt items. Michigan has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Michigan sales tax. You'll want to check and see if you are exempt from the sales tax.

Responsibility for paying sales tax. In Michigan although the sales tax is levied on the gross proceeds of retail sales, sellers are required to reimburse themselves by adding the tax to the amount of sale.

Use tax. Use tax is imposed on the privilege of using, storing, or consuming tangible personal property in the state based on the price of the property used. The use tax is also imposed on lodging for one month or less, telephone, telegraph, leased wire, and similar communications. The use tax does not apply to a transaction subject to the sales tax.

Responsibility for collecting use tax. Use tax is imposed on the privilege of using, storing, or consuming tangible personal property in Michigan. Because the use tax usually falls on sales made outside the state of Michigan, responsibility for its payment lies with the consumer.

Obtaining tax permits in Michigan. Every person engaged in the business of selling tangible personal property at retail must obtain a sales tax license before engaging in business. The annual license is obtained from the Department of Treasury and the license fee is one dollar.

Leases. In Michigan a lessor may choose either to pay the sales tax on the purchase of tangible personal property to be leased or to purchase the property free of tax under a sales tax exemption and then collect use tax on all rental receipts.

The following discussions address additional sales and use tax issues that many small business owners face:

• sales and use tax obligations of a purchaser
• sales and use tax obligations of a seller