Question:
What state taxes does a Canadian business pay in Michigan?
Answer:
Sales Tax
The Michigan state sales tax rate is currently 6%.
Use Tax
The Michigan state use tax rate is currently 6%.
Unemployment Insurance (Payroll Tax)
If you have employees working in Michigan, you must pay unemployment taxes on their gross wages up to the taxable wage base ($9,500 as of 2021). The tax rate varies from 0.06% – 10.3%. Michigan’s new employer rate is 2.7% for 2 years.
Withholding (Payroll Tax)
If you have an employee earning income while in Michigan, you must withhold a certain percentage of their income from each payroll. The amount of tax you withhold from an employee depends on the length of your pay period, the employee’s gross pay and the number of withholding allowances/exemptions claimed on their MI-W4.
Corporate Income Tax
Michigan’s corporate income tax is at a flat rate of 6% of taxable income.
Business Tax
Michigan imposes a 4.95% business income tax and a modified gross receipts tax at a rate of 0.8%.
If you remain under certain thresholds in this state, you are not responsible for taxes.
| Tax | Threshold |
|---|---|
| Sales | $100,000 or 200 separate transactions |
| Use | $100,000 |
Availability of Treaty Benefits
Use taxes are often treated as income taxes by the Canadian government when calculating income in Canada and applying for foreign tax credits. Meaning, if you pay use tax in the USA but have no net profit, you will not benefit from a tax credit theoretically. The actual application is a bit more complex.
Income taxes in the USA are almost always treated as income taxes by the Canadian government. Thus, in the majority of cases, if you pay tax in the state, you don’t pay tax again in Canada unless the Canadian rate is higher.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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