Michigan Taxes & questions

[cl10Greg]

Hello everyone,

New business owner here. This company is a side project between myself and two of my friends. We're working toward product and service type business. I have a background in electrical engineering, another owner is an aviation technician and knows about mechanical aspects, and the last owner is management background. So we filled as an LLC and everything has been moving along as you expect a side project would. We're starting to get there but we have run across a few questions while doing this that I am having a hard to finding answers to (I do all the paperwork).


Do we need to file for a sales tax license?
Do we apply sales taxes based on services (component repair, software design, etc...)?
One owner lives out of state, do we need to do flow witholding on said sales tax?
Do we not need a license and just claim it all through the LLC structure at the end of the year?


We're prepping to do our first project (it's a service to rebuild some parts for a company and to test them) so the soon the better on these. In the meantime, I did apply for a sales tax license through Michigan one stop business but I am not sure if that was the right approach. Thoughts and comments are appreciated.

[Freelancier]

Generally speaking, in Michigan, only tangible/physical asset sales are taxable. If you're engaged in selling something that's a physical product (even if that product is a CD containing bits, because the CD is physical property), the sale is taxable. Services are not taxable. Out of state of goods where possession is taken out of state is not taxable. Yes, you need to register for the sales tax number when you are ready to start selling your physical product. before that, you don't need it.

Taxes - Sales and Use Tax (http://www.michigan.gov/taxes/0,4676,7-238-43529---,00.html)

[cl10Greg]

I am hoping that you are correct about the service but I guess let me be more specific about our situation and relate to Taxes - Sales Tax (http://www.michigan.gov/taxes/0,1607,7-238-43529-155505--,00.html). We're looking to receive a failed product from our customer where we're going to tear down the part, replace the parts, test it, and provide it back for use. It sounds like for that it would include sales tax. Correct?

My other questions are, that if the paperwork comes through before the license does (I hate Michigan One Stop Business) can I just include the sales tax? For sales tax, do they take it out per month based on how much we make or is it a set rate? How often do we have to file for them to take sales tax from us?

[Freelancier]

If all you're doing is repairing someone else's part, the repair labor costs would be exempt. I'm not clear on the replacement parts you purchase, but if you buy them using your tax number to avoid paying sales tax on them, then use them in the finish product, you probably will have to charge sales tax on the value you assign to the part as part of the sale.

If it gets too cloudy, just call your Dept of Revenue Sales Tax Division office. I've found that the people who work in those types of offices are very helpful and have heard all the different scenarios and can give you good advice.

Sales tax is usually remitted back to the state monthly for your first year and then some states allow you to adjust to quarterly if you don't collect much sales tax. Not sure what you're asking, though.