Michigan Business Taxes (2026): 6% Corporate Income Tax, 4.25% Income Tax and City Taxes

Michigan's business tax system is simple at the state level. C corporations pay a flat 6% Corporate Income Tax, individuals pay a flat 4.25% and the 6% sales tax is the same everywhere. What makes Michigan different is local income tax: 24 cities, led by Detroit, tax the wages and business profits of people who live or work there. Small businesses also benefit from generous personal property tax exemptions.

This guide covers Michigan's business taxes for 2026, with worked examples and comparisons against its neighbors.

Michigan business taxes at a glance

For most small businesses, Michigan's taxes are moderate and predictable. Pass-through owners pay a flat 4.25% on profit, plus a city income tax if they live or work in one of the cities that levy it. C corporations pay 6% on Michigan income, but those with less than $350,000 of gross receipts in the state don't file at all. Customers pay 6% sales tax with no local add-ons. LLCs pay $50 to form and $25 a year to stay in good standing, among the lowest fees in the country. Personal property tax on business equipment is waived for many small businesses and most manufacturers. Overall, Michigan sits near the middle of state tax rankings.

Corporate income tax

• Apportionment: Single sales factor.
• Unitary groups: Required to file combined returns.
• Small business alternative credit: Corporations with gross receipts below a threshold of about $20 million and limited officer compensation can reduce their tax, sometimes to an effective rate of 1.8% of adjusted business income.
• Research and development credit: Michigan enacted a new R&D credit for tax years beginning in 2025, with higher rates for businesses with fewer than 250 employees.
• Returns: Form 4891 is due on the last day of the fourth month after year-end.

Personal income tax and pass-through owners

Michigan's flat 4.25% applies to wages, business profit and investment income. The personal exemption is about $5,800 per person for 2026.

• LLC owners, partners and sole proprietors pay 4.25% on profit.
• S corporation shareholders pay on their share. Michigan does not tax S corporations at the entity level.
• Flow-through entity tax: Partnerships and S corporations can elect to pay tax at 4.25% at the entity level. The election is made by paying estimated tax or filing the return and lasts three years.

City income taxes

Twenty-four Michigan cities levy their own income tax under the Uniform City Income Tax Ordinance. Residents pay the full rate, nonresidents who work in the city pay half and corporations pay a separate rate on income apportioned to the city.

Businesses with employees working in these cities must withhold city tax from wages and file city returns. Unincorporated businesses pay city tax on profit earned in the city.

Sales and use tax

Michigan's 6% sales tax applies statewide, with no local sales taxes.

• Use tax of 6% applies to hotel and motel stays, intrastate telephone service and some other services.
• Groceries and prescription drugs are exempt.
• Most services are not taxed.
• Remote sellers with more than $100,000 of Michigan sales or 200 transactions must collect.
• Software: Prewritten software is taxable, whether delivered physically or electronically, but remotely accessed software as a service is generally not taxable.

Payroll and property taxes

• Unemployment insurance: Employers pay on the first $9,500 of each employee's wages. New employers start at 2.7%.
• Earned sick time: Michigan's Earned Sick Time Act took effect in 2025, with smaller employers phased in during 2025 and 2026.
• Minimum wage: Rises to $13.73 in 2026 under the 2025 law, with further increases planned.
• Property tax: Real property is taxed locally, and commercial property doesn't receive the homestead exemption. The small business taxpayer exemption removes personal property worth less than $180,000 per jurisdiction, and the eligible manufacturing personal property exemption covers most manufacturing equipment.

Forming a business in Michigan: fees and ongoing costs

Worked example: $500,000 of profit

A corporation in Detroit would also owe 2% city corporate income tax on its Detroit income. For a single LLC owner with $150,000 of Michigan income, state tax is about $6,375. At $75,000 it is about $3,188. A Detroit resident would add 2.4% city tax, about $3,600 at $150,000.

How Michigan compares with its neighbors

Ohio and Indiana have lower state income taxes, but both have widespread local income taxes. Michigan's local taxes apply only in 24 cities, so a business located outside those cities pays only the state rate. Wisconsin's corporate and personal rates are both higher than Michigan's.

Choosing an entity in Michigan

• LLC: Low fees and pass-through treatment at 4.25%.
• S corporation: Same 4.25%, with federal payroll tax savings once profit is high enough.
• C corporation: 6% at the state level plus 21% federally. Corporations under the $350,000 receipts threshold owe no Michigan CIT, which makes the C corporation unusually attractive for very small Michigan businesses that retain earnings.

Who pays the most in Michigan

Businesses inside Detroit carry the heaviest load. A Detroit-based C corporation pays 6% state tax plus 2% city tax, and its Detroit-resident owner pays 4.25% plus 2.4% on salary and dividends. Detroit also has some of the highest property tax rates in the state. Businesses in suburbs outside the 24 taxing cities avoid city tax entirely, which is one reason so many companies locate in Oakland and Macomb counties. Retailers benefit from a single statewide sales tax rate, and manufacturers benefit from the personal property exemptions.

Tax planning tips for Michigan businesses

File your personal property exemption claim. The small business exemption isn't automatic. You must file Form 5076 with your local assessor by February 20 each year. Missing the deadline means paying tax on equipment that would otherwise be exempt.

Track where employees work. City income tax depends on where work is performed, so remote and hybrid employees can change withholding obligations. Keep records of days worked inside each taxing city.

Consider the flow-through entity tax. If you own a profitable partnership or S corporation, the entity-level election can save federal tax by making state tax deductible. Remember that the election lasts three years.

Check the small business alternative credit. Small C corporations with modest officer pay can sometimes cut their CIT significantly. Run the calculation before filing.

Recent changes for 2025 and 2026

• Personal income tax set at 4.25% for 2025 and 2026.
• New research and development credit for tax years from 2025.
• Earned Sick Time Act and minimum wage increases phased in during 2025 and 2026.
• Personal property exemption threshold at $180,000.

Is Michigan a good state for business?

Advantages

• Flat, moderate state income tax rates
• No CIT for corporations under $350,000 of receipts
• Single statewide sales tax rate
• Low LLC fees and broad personal property exemptions
• Deep manufacturing and engineering talent

Drawbacks

• City income taxes in Detroit and 23 other cities
• High property taxes in some cities
• Rising labor costs from minimum wage and sick leave changes
• Economy concentrated in the automotive industry

Compliance checklist

1. File Articles of Organization or Incorporation with LARA.
2. Register with the Michigan Department of Treasury for sales tax, withholding and CIT.
3. Register with each city where you have employees or business activity.
4. Register with the Unemployment Insurance Agency if you hire.
5. File Form 5076 for the personal property exemption by February 20.
6. File the annual statement or annual report with LARA.
7. File Form 4891 or pass-through returns each year.

Compare Michigan with its neighbors below or estimate your taxes in the United States calculator. See LLC taxes for more.