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STARTING AND OPERATING A BUSINESS IN MICHIGAN Copyright © 2000, Michael D. Jenkins
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION I. INTRODUCTION [NOTE: THE DEPARTMENT OF CONSUMER AND INDUSTRY DEVELOPMENT HAS BEEN RENAMED AND REORGANIZED, AS THE NEW DEPARTMENT OF LABOR AND ECONOMIC GROWTH, IN 2003. NEED TO CHANGE ALL REFEFERNCES TO CONSUMER & INDUSTRY DEVELOPMENT.] Michigan has a somewhat unusual tax and legal structure under which businesses must operate. Like most states, Michigan imposes a personal income tax, a sales and use tax, various excise taxes, with property taxes imposed at the local level. The state has also adopted a limited liability company (LLC) law, and a limited liability partnership (LLP) law, so that businesses operating in Michigan in LLC or LLP form may obtain the advantages of limited liability, without incorporating or becoming subject to corporate federal income taxation, generally. However, unlike most other states, Michigan has no income tax or franchise taxes on corporations. Instead, it has a unique "single business tax" (SBT) that applies to both corporations and to unincorporated businesses alike. While this tax is somewhat like an income tax, it has also been compared to a "value-added tax," or VAT, like those imposed in Canada and many European countries. This tax has long been highly unpopular among businesses, and Michigan enacted legislation in June, 1999, that would phase out and abolish the SBT entirely over a 23-year period. More recently, in 2002, additional legislation provides for complete repeal of the SBT after December 31, 2009. Unincorporated businesses, such as sole proprietorships and partnerships are not only subject to the SBT, but sole proprietors and partners in partnerships must also report the business income on their individual income tax returns, and pay state personal income tax, which makes Michigan the only state to impose a burden of double taxation on the income of unincorporated businesses. S corporations are also at somewhat of a disadvantage in Michigan, as they are fully subject to the SBT, but the shareholders must still pay state income tax on their respective shares of the S corporation's taxable income. Fortunately, substantial small business exemptions and credits are allowed under the SBT, and the state income tax on individuals is imposed at a very low rate. At present, the state's economy is relatively robust, in terms of the level of unemployment and other economic measures, and the state has made a remarkable recovery from the "Rust Belt" days of the 1980s. For example, in April, 2000, the state's unemployment rate was only 3.0%, down from 3.8% a year earlier. This compares to a national unemployment rate of 3.9%. To view the latest federal Bureau of Labor Statistics unemployment rate data for Michigan or any other state, visit the BLS website. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Michigan can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. However, unlike most other states, Michigan taxes the income of S corporations, under its "single business tax," which is the Michigan equivalent of a corporation income tax. Michigan also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in Michigan can be formed with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. Unlike most other states, Michigan imposes a business income tax, the Single Business Tax ("SBT") on the business activity of sole proprietorships. This very complex tax is not really an income tax, although the starting point in calculating the SBT is federal taxable income. The SBT applies to all forms of businesses, including corporations, S corporations, limited liability companies, partnerships, and sole proprietorships. See the discussion of corporate taxation in Section IV(c) for more information on the SBT. In addition to paying the single business tax, your income as a sole proprietor is subject to Michigan personal income tax. No separate tax form filing is required, generally, for a sole proprietorship, under the Michigan income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on the Michigan income tax and filing requirements for individuals. (c) Partnerships. As a rule, general partnerships in Michigan can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Michigan law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with the Corporation Division of the Michigan Department of Consumer and Industry Services, together with a filing fee of $10. Foreign limited partnerships must also register before being allowed to do business in Michigan, and must pay a registration fee of $10. For information on limited partnership filing requirements, see the contact information for the offices of the Corporation Division of the Michigan Department of Consumer and Industry Services, listed in Section VI(a). Limited liability partnerships (LLPs) are a new form of partnership permitted under the laws of Michigan. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal income tax purposes. There is generally no state tax advantage of being a partnership in Michigan, since the Michigan Single Business Tax ("SBT") applies equally to corporations and unincorporated businesses alike, and since the partners must also pay state income tax on each partner's share of the LLP's taxable income. Unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. To form an LLP in Michigan, you must register your partnership as an LLP and pay a filing fee of $100 to the secretary of state. Foreign LLPs, those created under the laws of another state, must also register with the secretary of state and pay a fee of $100. Every LLP doing business in Michigan, including both domestic and foreign LLPs, must renew its registration annually, on the anniversary date of its initial LLP registration in Michigan, and pay an annual renewal fee of $100. For more information on LLP registration and reporting requirements, see the contact information for the offices of the secretary of state, listed in Section VI(a). Note that one potential drawback of LLPs, if you will do business in other states besides Michigan, is that some states may not treat your LLP the same as would Michigan, so that you may not enjoy limited liability with regard to creditors of the LLP if you do business in such a state. Such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. For example, California and New York only recognize certain types of professional partnerships as LLPs. A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
Unlike most states, which do not tax the income of a partnership at the partnership level, Michigan imposes a tax, based on income, directly on the partnership. The tax imposed is the Single Business Tax (SBT), which, while not an income tax, is partly based on taxable income, as a starting point. In addition to paying the SBT at the partnership level, each partner in a partnership is required to report his or her share of the partnership's income or loss on his or her Michigan personal income tax return. However, the partnership is not required to file an income tax information return. For more on Michigan partnership tax requirements, see Section IV(c). (d) Corporations. To form a corporation in Michigan, you must file articles of incorporation with the Corporation Division of the Michigan Department of Consumer and Industry Services and pay a filing fee of $10, plus an additional fee based on their capital stock, which is $50 for the first 60,000 authorized shares, and $30 for each additional 20,000 shares, up to a maximum of $5,000 on the first 10 million shares (or up to $200,000 if more than 10 million shares). A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Michigan, by filing an application for a certificate of authority and paying a filing fee of $10, plus a $50 fee based on the assumption that it has 60,000 authorized shares of stock. Both domestic and foreign corporations may have to pay additional fees subsequently, if they increase the number of shares of authorized stock. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Michigan, see the contact information for the offices of the Corporation Division, listed in Section VI(a). In addition, once your corporation is formed, it will be required to file annual reports and a filing fee of $15 with the Corporation Division of the Michigan Department of Consumer and Industry Services each year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter. In addition to paying federal income taxes on its income, a corporation that does business in Michigan must also file Single Business Tax (SBT) returns with the state. There is no state corporate income tax, as such, in Michigan. See Section IV(c) for a discussion of SBT tax rates and tax return filing requirements. For tax forms and more information on the SBT and other business taxes in Michigan, see the contact information for the offices of the Michigan Department of Treasury, listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. While Michigan does not have a corporate income tax, the income of an S corporation is used as the starting point for the Michigan Single Business Tax (SBT), which is imposed on S corporations, the same as on any other corporation or any unincorporated business. In addition, each shareholder of the S corporation reports his or her share of the S corporations income or loss on his or her individual Michigan personal income tax return. (f) Limited Liability Companies. Michigan, like every other state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Michigan may also choose to operate in the form of an LLC. In most states, LLCs are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes. See Section IV(c) for a discussion of the income tax treatment of LLCs under Michigan tax laws. To form an LLC under the laws of Michigan, one or more persons who will be members of the LLC must file articles of organization with the Corporation Division of the Michigan Department of Consumer and Industry Services, which must be accompanied by a filing fee of $50. Michigan's LLC law was amended to recognize the validity of one-member LLCs, in the wake of changes in federal tax regulations that now allow one-member LLCs to be treated as sole proprietorships for federal tax purposes, in 1997 and subsequent years. Foreign LLCs, those formed under the laws of another state, must obtain a certificate of authority to do business in Michigan, by filing an application for a certificate of authority with the Corporation Division and paying a filing fee of $50. In addition to the initial filing fees, an LLC formed in Michigan must subsequently file annual reports and pay an annual report filing fee of $5 with each such annual report, or $50 in the case of a professional LLC. Foreign LLCs are also required to file annual reports and pay the applicable filing fee of $5. All domestic and foreign LLCs must file an annual statement of resident agent and registered office, together with a filing fee, which was increased from $15 to $25 for the period from October 1, 2003 until September 30, 2007, at which time it will once again be $15. In theory. For more information on filing articles of organization for an LLC, see the contact information for the offices of the Corporation Division of the Michigan Department of Consumer and Industry Affairs, listed in Section VI(a). III. BUSINESS ACQUISITIONS (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Michigan is one of the states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in Michigan, effective as of January 4, 1999. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In Michigan, the tax laws instead require that a seller file a final sales tax return within 15 days after quitting business and you, as buyer, are responsible for withholding enough of the purchase price to cover any unpaid sales tax liability of the seller, releasing the funds only when the seller provides you with a receipt or certificate from the tax commissioner showing the amount of taxes to be withheld or that all taxes have been paid. If the seller gives you written waiver of confidentiality, the Department of Treasury will notify you in advance of the amount of tax you should withhold, if any. Similar rules apply to all other state taxes administered by the Department of Treasury, including SBT, excise taxes and income tax withholding. In addition, a seller of a business must also file all state unemployment tax returns within 20 days after the sale, and you must also escrow a sufficient portion of the sales price to cover any such unpaid unemployment tax. You may request from the Michigan Unemployment Agency, at least 10 days before the sale, the amount of tax owed by the seller, so you will know how much, if any, to withhold. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. If you acquire a business, or 75% or more of the assets of an ongoing business, you will automatically succeed to the seller's unemployment tax experience rating, whether you wish to or not. Otherwise, if you acquire part of a business, but less than 75% of all its assets, you have the option of whether or not you will elect to succeed to the seller's rating. In that case, to obtain the seller's favorable experience rating as a successor employer, you will need to apply on a timely basis to the Michigan Unemployment Agency, and make a request that you be treated as a successor employer. IV. MICHIGAN TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
Michigan was formerly
known as a high-tax state, but this perception has changed
significantly in recent years, with cuts in the Single
Business Tax (SBT) to only 2.3%, a cut in the already low
personal income tax rate for 4.6% to 4.4%, and drastic cuts
in local property taxes under Proposition A (financed by a
2% rise in the sales tax rate). In addition, business
inventories are exempted from the personal property tax,
and the personal property tax on intangibles has been
phased out, effective as of January 1, 1998.
More personal income tax rate cuts went into effect,
beginning in 1999. The already low 4.2% tax rate in 2000
was to be reduced as follows over the next few years:
The above rate reductions have all gone into effect
as scheduled, except for the January 1, 2004 reduction to
3.9%, which was postponed until July 1, 2004.
On June 17, 1999, the legislature, at the urging of Governor
Engler, enacted legislation that would gradually phase out
the SBT over a 23-year period, by reducing the current 2.3%
tax rate by 0.1% each year until it is zero. The SBT tax
rate was reduced to 2.2% in 1999, to 2.1% in 2000, 2.0% in
2001, and 1.9% in 2002 through 2004, under the phase-out. No
reduction occurred in 2003 and 2004, since the state's Budget
Stabilization Funds fell below $250 million for both years.
However, in 2002, the legislature enacted a total repeal of
the SBT, which will occur after December 31, 2009.
(b) State and Local Licensing. Nearly any
business, operated anywhere in the United States, will have
to have at least one government license of some kind. In most
cases, this will be a local license, issued by your city or
county. Before you open your business, contact your local city
or county hall and find out if your particular business needs
one or more local licenses. Most kinds of local business
licenses are granted upon payment of a fee, with no further
requirements, except possibly for annual or other periodic
renewal fees.
However, if you are engaging in any kind of food business,
you will usually need to also obtain a health department
permit and show that you are in compliance with health
department food-handling requirements. In addition, be
sure to check with an attorney or local government zoning
or planning department officials to determine if your
business will be in compliance with all local zoning and
planning restrictions. If you own or rent any type of
facility, you will generally need fire department permits,
showing that you meet fire safety codes and any
construction or improvements to an existing structure
will usually require a building permit. If you intend to
simply operate your business from your home, you may be
in violation of local zoning requirements, but this is
less likely to be a concern if you don't have clients,
customers, suppliers, or employees coming to your house on
business, on a regular basis.
State governments have also traditionally required special
licenses for many kinds of professionals, such as physicians,
dentists, lawyers, and accountants. To further protect
consumers, Michigan has expanded the list of occupations
that must be licensed by the state to include many other
occupations. Most state licenses not only require payment
of fees, but are only issued for a given profession or
occupation upon showing that you have completed certain
educational or experience requirements, or passed certain
tests, or some combination of the foregoing. The following health professions are regulated by the
Office of Health Services, Licensing Division:
For information on state licensing and business registration requirements in Michigan, see the contact information for the offices of the Division of Consumer and Industry Services, listed in Section VI(a). You will also need to file an Application for Registration with the Michigan Department of Treasury, to register for sales and use tax, SBT, and income tax withholding. (c) Income and Franchise Taxes. Michigan has both an individual income tax and a corporate tax that is largely based on income, the Single Business Tax. The Michigan individual income tax is imposed at a flat tax rate of 4.2% in 2000. Individual taxpayers generally pay state income tax on their business earnings from a sole proprietorship, or on their share of the earnings of a pass-through entity, such as a partnership or S corporation or LLC. The Michigan personal income tax return must be filed with the Michigan Department of Treasury. Since October 1, 2003, all "flow-through entities" (partnerships, LLCs and S corporations) are required to withhold and pay over state income tax on the Michigan-source income of the entity that is attributable to any "nonresident member." A nonresident member is a partner in a partnership, a member of an LLC, or a shareholder of an S corporation, if the member is a nonresident individual, a nonresident estate or trust, or another flow-through entity with a nonresident member. Payment of the withheld tax must be made on a quarterly basis, by the 15th day of the month following the end of each calendar quarter. Sole proprietorships, like all other business entities, including corporations and unincorporated entities, are also subject to the Michigan Single Business Tax (SBT). While not an income tax as such, it is a tax that is based in part on income. Thus, in a sense, all unincorporated businesses and S corporations in Michigan are double-taxed, since the entity itself must pay the SBT, and the sole proprietor, partners, LLC members, or S corporation owners must report their share of the entity's taxable income (all of its income, for a sole proprietor) on their individual state income tax returns. The SBT is a very complex tax to understand. Its calculation begins with federal taxable income, but there are a large number of adjustments, plus or minus, some of which can be very large, to arrive at the SBT "tax base" to which the 1.9% tax rate (in 2002-2004) is applied. Thus, a business's federal taxable income will usually be far different from its SBT tax base, after all adjustments. The SBT requires that certain deductions, such as for compensation, be added back to the tax base. Since this is a major expense item for most businesses, even a business that has a loss for federal income tax purposes may have a large SBT "tax base" after adding compensation expenses back to the taxable income (loss) that was the starting point. Also, the SBT requires that depreciation deductions be added back to the tax base, another major item of expense for many companies, which is not allowed under the SBT tax base calculation. On the other hand, for depreciable assets located in the state of Michigan, the SBT allows a company to write off the entire cost in the year of acquisition, instead of having to depreciate it over a period of years. Thus, while you might have substantial taxable income from a business, if you make major capital expenditures for equipment or buildings, you may zero out your SBT tax base (and tax liability) for that year. However, under legislation enacted in 1999, this capital acquisition deduction was replaced in 2000 by a new Michigan investment tax credit. The SBT also provides for a number of often complex but important exemptions and credits:
UNINCORPORATED SMALL BUSINESS CREDIT: Note that under 2002 legislation, small businesses with gross receipts of less than $350,000 are now fully exempted from the SBT or even from having to file a return. This legislation relieved an estimated 13,000 small firms from paying SBT. In addition to the SBT on a sole proprietor's business activity, and the state personal income tax on taxable income, city income taxes of 1% apply in a number of cities, or 2.5% in Detroit and 2% in Highland Park. Detroit also has a 1.5% corporate income tax, which is being phased out over a number of years. Partnerships, or entities taxable as partnerships, such as LLCs, are not subject to state income taxation in Michigan. However, like other businesses, the partnership is subject to the SBT, and each partner must report his or her share of the taxable income of the partnership on his or her state income tax return. Unlike most other states, however, Michigan does not require partnerships to file income tax information returns. Individual taxpayers doing business as sole proprietors, or who are partners in partnerships, or members of LLCs, are required to pay estimated income taxes if their net tax liability (not covered by withholding) exceeds $500. Payments are due in four installments, on the 15th day of the 4th, 6th, and 9th months of the taxable year, and the 15th day of the first month of the following year. There is no Michigan corporate income tax, as such, but corporations (including S corporations) pay the SBT, as described above. The SBT tax return must be filed with the Department of Treasury by the last day of the fourth month following the end of the taxable year, or by April 30th in the case of a corporation whose taxable year is the calendar year. Corporations are required to make estimated tax payments of the SBT in advance, if their tax liability for the year equals or exceeds $600, generally. Estimated tax payments are due in four equal installments on the last day of the 4th, 7th, 10th, months of the taxable year and first month of the next year. Penalties will be imposed for failure to make the required estimated tax payments on a timely basis. In addition to paying the SBT, corporations are subject to city income taxes in a number of cities, generally at a rate of 1%, but 1.9% in Detroit and 2% in Highland Park. In Michigan, a limited liability company (LLC) is taxed in the same manner as a partnership. That is, it is subject to the SBT, and its members must each pay state income tax on their distributive shares of the LLC's taxable income. Note that under IRS regulations, effective since 1997, an LLC will be able to elect to be treated as a partnership if it has more than one owner, or as a sole proprietorship if it does not, for federal tax purposes. Michigan law formerly required an LLC to have two or more members, but was amended to permit one-owner LLCs. (d) Sales and Use Tax. Michigan imposes a general sales tax on retail sales of tangible personal property and certain types of services at the statewide rate of 6%. There are no local sales and use taxes in Michigan. Sellers are required to obtain a seller's permit for each place of business and to collect and pay over the state sales and use taxes to the Department of Treasury. Larger businesses must prepay the tax by electronic funds transfer (EFT). There are numerous exemptions from the sales tax, the most important of which is the resale exemption. If you are a wholesaler or retailer who purchases goods that you will resell, your purchase of such goods may qualify as an exempt sale for resale. Similarly, if you sell goods to wholesalers or retailers for resale by them, your sale may also qualify as an exempt sale for resale. In any such transaction, the exemption is ordinarily available only if the purchaser gives the seller a valid resale certificate, certifying that the items are being purchased for resale, and not for use or consumption by the buyer. A shadow tax, the use tax, is also imposed at the same rate as the sales tax. It is primarily intended to tax property that is acquired from sources outside of the state, in transactions not subject to sales tax, when such property is used or consumed within Michigan. Use tax may also apply to items purchased on an exempt basis, such as for resale, if such items end up being used or consumed, instead of being resold. Before making any taxable sales, you will need to register with the Michigan Department of Treasury, on Form 518, Application for Registration. It will also serve as your registration for other taxes, including registration with the Michigan Unemployment Agency. For more information on Michigan sales tax registration and compliance, see contact information for the offices of the Department of Treasury in Section VI(a). (e) Real and Personal Property Taxes. In Michigan, as in every other state, any business real estate you own will be subject to real property taxes. In general, there is little that you must do, unless you wish to challenge your assessed valuation, since the assessor will bill you for each year's property taxes as they come due. Note that Michigan real property taxes rates, which were formerly some 30% higher than the national average, were reduced to approximately 9% below the national average after passage of Proposition A by the voters several years ago. Before 2005, Michigan counties levied property taxes in December of each year and the bills were generally due in February. Beginning in 2005, 1/3 of the tax for the year will be levied in the summer, and the remaining 2/3 on the winter property tax bill. In 2006, 2/3 of the tax will be levied in the summer, and the remaining 1/3 in winter. By 2007, the entire property tax for the year will be levied in the summer. Michigan also imposes personal property taxes on tangible personal property. However, certain business personal property, such as business inventories, are exempt from personal property tax in Michigan. Personal property tax also formerly applied to certain types of intangible personal property in Michigan, but this tax was fully phased out on January 1, 1998. (f) Other Business Taxes. Michigan imposes a number of other taxes on businesses, including:
(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. Michigan law requires any business that uses an assumed name, other than a corporation, limited partnership, or LLC to file an assumed name registration in each county where doing business, paying a $6 fee to each county. Corporations, limited partnerships, or LLCs can instead file statewide with the Corporation Division of the Michigan Department of Consumer and Industry Services, if the name chosen is available. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Michigan imposes a state income tax on the income of individuals, you will need to also withhold Michigan income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the Michigan Department of Treasury. For more information on Michigan income tax withholding and registration requirements for employers, see the contact information for the offices of the Department of Treasury, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year or if your payroll amounts to $1,000 in any calendar quarter, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the Michigan unemployment tax are required to register with the Michigan Unemployment Agency. New employers are required to pay tax at a rate of 2.7% in 2000 on the first $9,500 of wages paid to each employee. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. All state unemployment taxes are imposed upon you as the employer, and, under Michigan law, cannot be charged to your employees or withheld from their wages. For more information on your Michigan unemployment tax obligations as an employer, see the contact information for the offices of the Michigan Unemployment Agency, listed in Section VI(a). (c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In Michigan, businesses that employ three or more persons at one time or employed one person for at least 35 hours a week for 13 weeks during the preceding year are required by law to have workers' compensation insurance, except those able to self-insure. Note, however, that a sole proprietor or a partner in a partnership is generally not considered an employee. Similarly, an officer who is a 10% stockholder of a corporation, or an employee of an LLC who owns 10% or more of the LLC, if the corporation or LLC has 10 or fewer owners, may elect not to be covered for workers' compensation purposes. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. Thus, if you fail to obtain required workers' compensation insurance, and an employee is injured on the job, you will have opened yourself to unlimited liability and severe legal consequences, so it is very important to obtain workers' compensation insurance for your employees. Be aware that neither general liability nor health and accident insurance can properly substitute for workers' compensation insurance. For more detailed information regarding your obligations as an employer under the Michigan workers' compensation laws, including the booklet "An Overview of Workers' Compensation in Michigan," contact your insurance carrier or see the contact information for the offices of Bureau of Workers' Disability Compensation of the Michigan Department of Consumer & Industry Services, listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, if, for example, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the Michigan wage-hour laws, which provide for a state minimum hourly wage that is currently $5.15 an hour, the same as the federal minimum wage. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees are exempted from the Michigan wage-hour rules. Besides the federal wage-hour posters that you must display in the workplace, you must also display a state wage-hour poster, which you can obtain from the Michigan Department of Consumer & Industry Services. In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in Michigan. (e) State Occupational Safety and Health Laws. Approximately half of the states have their own OSHA-like agency, charged with administering the state's own occupational safety and health laws. The remaining states have no such enforcement agency, and thus rely instead on the federal Occupational Safety and Health Administration (OSHA) to administer the federal job safety rules within such states. Michigan is one of the states that has its own OSHA-type agency. To determine if your workplace is in compliance with federal and Michigan job safety requirements, you may wish to contact the Safety Standards Division (MIOSHA) of the Michigan Department of Consumer & Industry Services and request a free on-site safety consultation. You will not be cited for any violations detected, provided that you promptly correct the unsafe conditions. This differs from the rules for consultations by federal OSHA inspectors, who are required to cite you for any violations they find. For information on your job safety and health obligations as an employer, required posters, and possible on-site safety consultations, see the contact information for the Michigan Department of Consumer & Industry Services, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Michigan labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to terminated employees. Employers must generally pay wages once a month or more frequently. If you pay wages monthly, you must pay all wages for a given month no later than the first day of the next month, however. When you discharge an employee, or an employee voluntarily quits your employment, you must pay all wages owed as soon as the amount due can reasonably be determined. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Michigan, a heavily unionized state, does not have such a right-to-work law and allows union shop or agency shop contracts between an employer and a union. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Michigan, and display a poster informing employees of their rights. You can obtain this poster from the Michigan Department of Civil Rights, at the address listed in Section VI(a). Michigan law not only bans discrimination on the same bases as the federal law (race, religion, gender,) but also prohibits discrimination in employment based on height, weight, or familial status (having custody of one or more minor children). Sexual harassment is specifically defined as discriminatory. (4) Reporting new hires. Under new federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a designated state agency (the Michigan Family Independence Agency's New Hire Operations Center for Michigan employers) within 20 days after the date of hire. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Unlike most other states, Michigan does not have a single agency to whom you can go to handle all your licensing and permit requirements for your business under the laws of Michigan. Accordingly, you will need to contact the various agencies that are mentioned in this book or listed below on an individual basis, to obtain needed forms, official posters, information and other assistance from each such agency. A list of addresses and other contact information for such key agencies is set forth below for your convenience. BUSINESS STARTUP INFORMATION. A key agency, that can provide helpful information on getting your business up and running in Michigan is:
DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES, CORPORATION DIVISION. Contact the offices of the Corporation Division, which is part of the Corporation Securities and Land Development Bureau of the Department of Consumer and Industry Services, for information on:
STATE UNEMPLOYMENT TAX. Contact the following state agency to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer if you are subject.
STATE ANTI-DISCRIMINATION LAWS. Contact the following state agency for more detailed information on Michigan civil rights laws that may apply to your business, and to obtain anti-discrimination notices you are required to post in the workplace:
(b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Michigan to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you.
(c) Internet Sites. If you have access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Michigan. Since new sites are appearing constantly, you might also want to search for other Michigan government Web sites by using one of the popular Internet search engines, such as Excite! or Yahoo. To start your Internet search for Michigan government information, you may want to begin with the following Internet sites: Michigan state government page (with links to various state agencies): Michigan Access to Government Information Center (MAGIC) index of Michigan state government links on the Web: Corporation Division, of the Corporation, Securities and Land Development Bureau of the Department of Consumer and Industry Services (information on corporate, partnership and LLC filings, plus downloadable forms): Michigan Department of Treasury (download state tax forms): Michigan Department of Consumer and Industry Services, Wage and Hour Division: Michigan Economic Development Corporation (information and assistance in starting, financing or relocating a business in Michigan): Michigan Department of Civil Rights (anti-discrimination regulations and information): Michigan New Hire Reporting:(d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in Michigan, or contact the Michigan Economic Development Corporation, at the address listed in VI(a) for that agency. Contact the U.S. Small Business Administration District office in Michigan at:
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Copyright c 2000 Michael D. Jenkins
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