Michigan Contractor Taxes and Licensing: Use Tax, LARA Licenses and City Income Tax

Michigan treats a real property contractor as the consumer of its materials, so it owes use tax, generally 6% of the cost of materials used on the job, and doesn't charge customers sales tax. A contractor that makes no retail sales needs a use tax registration, not a sales tax license. Michigan has no local sales tax.

How Michigan taxes contractors: use tax, not sales tax

The Michigan Department of Treasury's Contractor Manual describes a real property contractor as a consumer of the materials it installs: "As a consumer, a real property contractor incurs use tax responsibilities. Its use tax obligation is generally 6% of the cost of materials used in the job." The customer doesn't see a sales tax line. If your supplier charged Michigan sales tax at purchase, that covers it; if not, you report use tax.

Michigan also takes a distinctive approach to registration. The manual says "where a contractor is exclusively engaged in the contracting business and makes no sales at retail, the contractor does not need a sales tax license. Non-licensed contractors are required to maintain a use tax registration." If you also work in Ohio or Indiana, check their registration rules separately; Indiana, for example, treats time-and-material contractors as retail merchants.

Contractors who also sell: itemize or pay on the total

The manual sorts contractors into categories. Contractor-retailers, such as a company with a showroom that also sells items over the counter, need a sales tax license and accrue use tax on materials they pull from inventory for real property jobs. When a contractor acts as a retailer, it may itemize labor and materials, but "a lump sum billing that does not separately itemize installation labor and materials is subject to sales tax on the total charge." If you sell and install, split the invoice.

For more on self-assessing tax on untaxed purchases, see use tax for contractors. For how Michigan's approach compares with states that tax labor, read sales tax on labor vs. materials.

Michigan's single 6% rate

Treasury says retailers "remit a 6% sales tax on the total price of their taxable retail sales" and that "Michigan does not allow city or local units to impose sales tax." Residential utilities and heating fuels are taxed at 4%. That makes Michigan one of the easier states for rate lookups: the same 6% applies whether the job is in Detroit or the Upper Peninsula.

Michigan contractor licensing (LARA)

Michigan licenses most building trades at the state level through the Department of Licensing and Regulatory Affairs (LARA), Bureau of Construction Codes. For residential work, the threshold is $600: MCL 339.2403(f) exempts only a person working on one project where "the aggregate contract price for which labor, material, and any other item is less than $600.00," and the exemption doesn't apply if the job is split up or is part of a larger operation. A residential builder license covers building complete homes and remodeling. A maintenance and alteration (M&A) license covers specific crafts: "carpentry; concrete; swimming pool installation; waterproofing a basement; excavation; insulation work; masonry work; roofing; siding and gutters; screen or storm sash installation; tile and marble work; and house wrecking."

More on how licensing works generally: contractor license.

Michigan income tax and city income taxes

Michigan's individual income tax rate is set by MCL 206.51 at 4.25%, with a revenue-based trigger that can lower it. For 2026 the rate is 4.25%: the 2026 MI-1040ES estimated tax worksheet tells you to multiply by "4.25% (0.0425)." C corporations pay Michigan's 6% corporate income tax, but businesses "with less than $350,000 in allocated or apportioned gross receipts and/or less than or equal to $100 in annual liability are not required to file or pay."

Cities add their own layer: "Twenty-four Michigan cities levy municipality taxes related to income," and Treasury administers Detroit's and Flint's. If you live or work in one of them, your quarterly estimates may need to cover city tax too. See quarterly estimated taxes for contractors and the quarterly estimated tax calculator.

Workers' comp in Michigan

Michigan's Workers' Disability Compensation Agency says coverage is provided "either through an insurance policy or through approved self-insurance." Under MCL 418.115, the Act covers private employers "who regularly employ 3 or more employees at 1 time," and also employers with fewer than 3 "if at least 1 of them has been regularly employed" 35 or more hours a week for 13 weeks or longer during the preceding 52 weeks. One full-time helper for a season can trigger it. Background: workers' compensation.

Local taxes in Michigan

There's no local sales tax to track. The local tax that matters is city income tax in the 24 cities that levy one. Check the Treasury list before taking long jobs in a new city.