Michigan Income & Tax for eCommerce Businesses

💡 Prior Year Only Rule for Sales Tax: Michigan is one of a small group of states (along with Florida and New Mexico) that measures sales tax economic nexus based solely on the prior calendar year — not the current year. This means your 2024 sales determine whether you have nexus in 2025. If your sales drop below the threshold in 2025, you lose nexus in 2026. This creates a unique planning window.

Part 1: Michigan Corporate Income Tax (CIT)

Michigan imposes a Corporate Income Tax (CIT) of 6% on the apportioned business income of C corporations that have nexus in the state. The CIT replaced Michigan's older business tax structure in 2012 and applies to C corporations only.

Pass-through entities — S corporations, LLCs taxed as partnerships — are not subject to the Michigan CIT. Their income passes through to individual owners, who pay Michigan's flat individual income tax rate.

What Creates Michigan Corporate Income Tax Nexus?

Michigan uses a factor-presence nexus standard for its CIT. An out-of-state business has Michigan income tax nexus if it actively solicits sales in Michigan AND generates gross receipts from Michigan sources of at least $350,000 during the tax year.

This is a lower threshold than many other states, and the combination of the "actively solicits" requirement with the $350,000 revenue figure can capture a wide range of eCommerce sellers who ship regularly into Michigan.

Physical presence also independently creates nexus regardless of the revenue threshold:

• Owning, renting, or using property in Michigan — including FBA inventory in Michigan warehouses

• Employing or contracting workers in Michigan

• Operating through Michigan-based agents or representatives

PL 86-272 Protection

Federal Public Law 86-272 protects C corporations from Michigan's CIT if their only Michigan activity is soliciting orders for tangible personal property approved and shipped from outside Michigan. If you meet this standard and don't exceed the $350,000 solicitation threshold, you may be protected. However:

• FBA inventory in a Michigan fulfillment center eliminates this protection

• Michigan employees or agents performing services beyond order solicitation eliminate this protection

• PL 86-272 does not protect against sales tax — that is a completely separate obligation

Part 2: Michigan Sales Tax

Michigan's Unique Prior-Year-Only Measurement

Michigan's sales tax economic nexus is measured on a prior calendar year only basis. This is different from most states, which use either a rolling 12-month window or a current-or-prior-year rule. Specifically:

• If you had $100,000 or more in gross revenue from Michigan customers in the prior calendar year, you have nexus for the entire current year

• If you had 200 or more separate transactions into Michigan in the prior calendar year, nexus also applies

• Marketplace sales through certified facilitators count toward the threshold calculation in Michigan

• If your sales drop below the threshold in the current year, you will lose nexus the following year — a planning opportunity for sellers whose volumes fluctuate

Michigan Sales Tax Rate

Michigan has one of the simplest sales tax structures in the country: a flat 6% state sales tax rate with no local sales taxes added by counties or cities. This makes Michigan significantly easier to administer from a collection standpoint than states like Illinois, Georgia, or Ohio, where local rates vary by jurisdiction.

FBA Sellers in Michigan

Amazon operates fulfillment centers in Michigan, including facilities in the Detroit area. FBA inventory stored in Michigan creates immediate physical nexus for both sales tax and (if you are a C corporation with sufficient solicitation activity) CIT purposes. This is one of the more common overlooked nexus triggers for FBA sellers in the Midwest.

Michigan's Enforcement Posture

Michigan's Department of Treasury has been increasingly active in cross-referencing marketplace data with state tax filings — a trend that has accelerated across all major eCommerce states. Sellers who have had Michigan FBA inventory but have not registered for sales tax are at heightened audit risk.

What About Sales Tax?

Michigan's prior-year measurement rule creates a unique planning dynamic — and its flat 6% rate (no local taxes) makes it one of the simpler states to administer once registered.

At Tall Oak Advisors, we put together this guide as a resource for our eCommerce community. Tax rules vary significantly from state to state, and we want sellers to have the information they need to make informed decisions. More info at talloakadvisors.com

Disclaimer: The information in this article is for general informational purposes only and does not constitute legal or tax advice. Tax laws change frequently. Consult a qualified tax advisor or CPA regarding your specific situation.

Sources: Michigan Corporate Income Tax Act (MCL 206.601 et seq.); Michigan Dept. of Treasury; Michigan Sales Tax Economic Nexus (eff. Oct. 1, 2018); Pub. L. No. 86-272; Wolters Kluwer CCH — Factor Presence Nexus Standards.