Starting a business in Michigan: twenty-four cities, and what they cost
Twenty-four Michigan cities levy their own income tax under the City Income Tax Act of 1964, and that is the whole list — it is not a moving target, and if your city is not on it there is no local income tax to think about. Michigan is otherwise one of the cheaper and simpler states to run a company in: $50 to form, $25 a year for the annual statement, one 6% sales tax rate at every address in the state, and one form that covers sales tax, use tax and payroll withholding together. This page is about the twenty-four, and about the three thresholds that switch on when you hire.
Here is the list, in full: Albion, Battle Creek, Benton Harbor, Big Rapids, Detroit, East Lansing, Flint, Grand Rapids, Grayling, Hamtramck, Highland Park, Hudson, Ionia, Jackson, Lansing, Lapeer, Muskegon, Muskegon Heights, Pontiac, Port Huron, Portland, Saginaw, Springfield and Walker.
That closed list is the good news and it is worth appreciating properly. Ohio has around 600 taxing municipalities and Indiana taxes through all 92 of its counties; Michigan has twenty-four named cities, and you can check yours in ten seconds. Most of them sit at the statutory ceiling of 1% for residents and 0.5% for non-residents. Four do not, and Detroit is more than double.
- Sales tax
- 6% state + None — no Michigan city or county may add a local sales tax local · typically 6% at every address in the state
- Local income tax
- Yes — 1.0% resident / 0.5% non-resident in most cities; Detroit 2.4% / 1.2%
- State business licence
- Not required statewide
- Workers' comp from
- 3 or more employees at one time, OR 1 employee working 35+ hours a week for 13 weeks or longer
- Formation approved in
- Online filings through LARA's Corporations Division are typically processed in a few business days; paper filings take several weeks
- First 90 days, all in
- $50–$900 · $50 of it to the state
Official portals: LARA Corporations Division — Corporations Online Filing System · Michigan Treasury Online (MTO) — business tax registration and SUW filing · Michigan LARA — licensing and regulatory affairs. Figures checked September 2026; the portal always wins.
The formation side is unremarkable in the best way — the fee tables for all fifty states are on the LLC hub, and Michigan sits near the cheap end. What follows is the operating side.
It binds you twice, and the second one is the expensive mistake
People read "city income tax" and think of it as something an employee has deducted from their wages. In Michigan it lands on a business in two separate ways, and they are governed by different rules.
- The entity pays on net profit
- An LLC or partnership files a city return on the profit earned from work done inside the city. That is a filing you make once a year, in each taxing city you worked in.
- The business withholds from payroll
- Separately, and monthly or quarterly, you are a withholding agent for the city. This is where the real administrative load sits, and it starts with your first employee — not with some threshold of size.
| City | Resident | Non-resident |
|---|---|---|
| Detroit | 2.4% | 1.2% |
| Highland Park | 2.0% | 1.0% |
| Grand Rapids | 1.5% | 0.75% |
| Saginaw | 1.5% | 0.75% |
| The other twenty cities | 1.0% | 0.5% |
The resident/non-resident split is the mechanical heart of it. A city taxes its own residents on everything they earn, wherever they earn it, and taxes everyone else only on what they earn inside the city limits — at half the rate. So a Grand Rapids resident on your payroll is withheld at 1.5% even if they never set foot in Grand Rapids for you, while someone who lives elsewhere and works at your Grand Rapids office is withheld at 0.75%.
Detroit's city tax is administered by the Michigan Department of Treasury, which at least puts it in the same place as your state filings. Most of the other twenty-three administer their own — their forms, their portal, their remittance schedule.
Detroit follows the work to you
Detroit's 2026 withholding guide is the document to read if there is any chance of your business touching the city, because it is drawn wider than most people expect. It requires withholding from every employer with a Detroit location or merely doing business in Detroit, and it says explicitly that an out-of-state firm performing work in Detroit must withhold too.
Read that against a normal week. A contractor based in Warren sends a two-person crew into Detroit for a fortnight's job. Those two are non-residents working in the city, so 1.2% of what they earned there is Detroit's, withheld and remitted by the employer. Nobody at the Secretary of State mentioned this when the LLC was formed; the obligation was created by driving down the road.
None of this is expensive in itself. What it is, is a registration and a return you did not budget administrative time for. If you are hiring in south-east Michigan, ask the question at the offer stage — where does this person live, and where will the work happen — rather than at the first payroll run.
Workers' comp: three people, or one person for thirteen weeks
Michigan's Workers' Disability Compensation Agency sets two alternative tests, and either one makes cover compulsory. A private employer must carry it if it regularly employs 3 or more employees at one time, part-timers included — or if it regularly employs one or more employees for 35 hours or more a week for 13 weeks or longer in the preceding 52 weeks.
So two part-timers can be legal without cover indefinitely. A single full-time hire is legal without cover for about three months and then is not. That second test is the one people misread, because it is the ordinary case: you hire one person properly, full time, and roughly three months later the duty switches on with no letter, no invoice and no reminder from anybody.
- A sole proprietor working alone
- Never an employee of their own sole proprietorship. No cover needed for yourself.
- An LLC member who is a manager
- Treated as an employee of the LLC, and counts towards the three. This is a real difference between the two structures in Michigan and it is easy to miss.
- Where you buy it
- Private insurers, or approved self-insurance. Michigan is not a monopolistic state, unlike Ohio next door — you can shop the premium.
$1,000 in a year — the lowest unemployment trigger around
Most states make you liable for unemployment tax once you have paid $1,500 of wages in a single calendar quarter. Michigan does not use that test. The Unemployment Insurance Agency's employer liability toolkit sets the line at $1,000 in wages paid in a calendar year, or one worker in 20 different weeks of a calendar year, whichever comes first.
A thousand dollars across a whole year is almost nothing — a single part-time helper at eight hours a week crosses it inside two months. Treat it as: if you pay anyone at all, register with the UIA through the Michigan Web Account Manager and get the account open before the first quarterly report is due, rather than working out whether you have crossed a threshold.
One honest gap. Michigan's taxable wage base was $9,000 for qualified employers in 2025; the 2026 wage base and the current new-employer contribution rate could not be confirmed against a UIA primary source when this page was checked. Do not budget payroll tax off the 2025 figure — pull the current rate from your MiWAM account, where it is stated for your business specifically rather than as a range.
The part Michigan makes genuinely easy
Having spent five sections on what Michigan takes, here is what it gives back, and it is more than a consolation.
- One form for three taxes
- Form 5080 combines sales tax, use tax and payroll withholding into a single monthly or quarterly return on Michigan Treasury Online. Three separate filings in most states; one here.
- 6% everywhere, full stop
- No Michigan city or county may levy a local sales tax. There is no rate lookup by address, no district boundaries to police, no local return. In Missouri two shops on the same street can owe different rates; in Michigan every address in the state is 6%.
- The sales tax licence is free
- No application fee and no renewal fee. It is reissued each year automatically for businesses whose returns are current.
- Services are mostly untaxed
- Michigan taxes tangible personal property and does not tax most services, so a consulting, design or repair-labour business generally has nothing to collect. Prepared food and rentals of goods are taxable, and there is a companion 6% use tax that catches equipment bought from untaxed out-of-state sellers.
The one recurring state charge is the $25 annual statement, due 15 February, and it is not due until the February after the year you formed. That is a long enough gap to forget in, and it is the ordinary way Michigan LLCs get dissolved. Put it in the calendar the day you file.
Common questions
Which Michigan cities have an income tax?
Twenty-four: Albion, Battle Creek, Benton Harbor, Big Rapids, Detroit, East Lansing, Flint, Grand Rapids, Grayling, Hamtramck, Highland Park, Hudson, Ionia, Jackson, Lansing, Lapeer, Muskegon, Muskegon Heights, Pontiac, Port Huron, Portland, Saginaw, Springfield and Walker. If your city is not on that list, there is no local income tax on your business or your payroll.
What are the Detroit city income tax rates?
2.4% for residents and 1.2% for non-residents. Detroit's tax is administered by the Michigan Department of Treasury rather than by the city itself. Most other Michigan taxing cities are at the statutory ceiling of 1% resident and 0.5% non-resident; Grand Rapids and Saginaw are 1.5% and 0.75%, and Highland Park is 2% and 1%.
Do I have to withhold Detroit tax if my business isn't in Detroit?
Possibly, in two situations. Detroit's 2026 withholding guide requires withholding from all Detroit residents on your payroll wherever they physically work, so hiring one Detroit resident creates the obligation. It also requires withholding from non-residents whose predominant place of employment is Detroit, and states that an out-of-state employer performing work in Detroit must withhold too.
When does workers' compensation become compulsory in Michigan?
On either of two tests, whichever happens first: regularly employing 3 or more employees at one time, counting part-timers, or regularly employing one or more employees for 35 hours or more a week for 13 weeks or longer within the preceding 52 weeks. So two part-timers may not trigger it, but one full-time hire does after roughly three months. An LLC member who is a manager counts as an employee; a sole proprietor working in their own sole proprietorship does not.
Is there a local sales tax anywhere in Michigan?
No. No Michigan city or county may levy one, so the rate is 6% at every address in the state. That removes the rate-lookup problem and the local returns that businesses in Missouri, Kansas and Illinois deal with, and it is one of the genuinely simplifying things about operating here.
When do I have to register for Michigan unemployment tax?
Once you have paid $1,000 in wages in a calendar year, or employed at least one worker in 20 different weeks of a calendar year — whichever comes first. That $1,000 annual figure is much lower than the $1,500-per-quarter test most states use, so in practice registering when you first pay anyone is the safe approach. Registration is through the Michigan Web Account Manager.
What does a Michigan LLC cost each year?
$50 to file the Articles of Organization online, then $25 a year for the annual statement, due 15 February. The sales tax licence and the UIA registration are both free. The first annual statement is not due until the February after the year you formed, which is the gap most people forget in.
Twenty-four cities. Check yours in ten seconds, then get on with it.
Describe your business and Velofound lays out Michigan's real list — the MTO registration, the 15 February statement, the city question for every hire — beside a live website taking card payments into your own Stripe account. Free to start.
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