The sales tax rate in Ann Arbor is 6%. That’s the statewide Michigan rate, and it’s the only sales tax you’ll pay at the register, because Michigan does not allow cities or counties to add their own percentage on top. Whether you’re shopping downtown, at a grocery store on Washtenaw Avenue, or at a dealership on Jackson Road, the math is the same: price plus 6%.
Why There’s No Separate Ann Arbor or Washtenaw County Tax
Article IX, Section 8 of the Michigan Constitution caps the sales tax at 6% and gives no authority to local governments to impose their own.1Justia. Michigan Constitution Article IX 8 – Sales and Use Taxes That’s a real difference from states like Texas or Colorado, where stacked local rates can push the combined total past 8%. In Michigan, the rate in Ann Arbor is the rate in every other city, township, and county.
The 6% is made up of two pieces: a 4% base rate and an additional 2% that voters approved by constitutional amendment in 1994. Because the cap lives in the constitution, changing it would take another amendment, not an ordinary act of the legislature.1Justia. Michigan Constitution Article IX 8 – Sales and Use Taxes
What the 6% Applies To
Michigan sales tax applies to retail sales of tangible personal property, meaning physical items you can hold, wear, drive, or plug in. The tax is calculated on the gross proceeds of the sale.2Michigan Legislature. Michigan Compiled Laws 205.52 – Sales Tax Rate The “sales price” that figure is applied to includes the full consideration the buyer pays, whether in cash, credit, or trade-in value.3Michigan Legislature. Michigan Compiled Laws 205.51 – Definitions
Services are generally not taxed. A plumber, a car detailer, or a consultant isn’t collecting 6% on top of the bill. The two exceptions most people run into are telecommunications and hotel or short-term lodging, which do carry the 6% use tax.4State of Michigan. Sales and Use Taxes Visitors in town for a football weekend often notice the lodging charge for the first time on the hotel folio.
What’s Exempt
Two of the biggest exemptions are written directly into the Michigan Constitution: grocery food and prescription drugs.1Justia. Michigan Constitution Article IX 8 – Sales and Use Taxes
Groceries
Food and food ingredients for home consumption are exempt. That covers the staples you’d pick up at Meijer, Trader Joe’s, or the Ann Arbor Farmers Market: produce, dairy, meat, canned goods, baking ingredients. The exemption ends as soon as the food qualifies as “prepared food,” which Michigan defines as food sold heated, two or more ingredients combined by the seller into a single item, or food sold with eating utensils provided by the seller.5Michigan Legislature. Michigan Compiled Laws 205.54g – Sales Exempt from Tax A rotisserie chicken from the deli case, a made-to-order sandwich, or any restaurant meal is taxed at 6%.
Prescription Drugs
Prescription drugs for human use are exempt from both sales and use tax. The exemption also reaches over-the-counter drugs when they’re dispensed by prescription in a particular case.5Michigan Legislature. Michigan Compiled Laws 205.54g – Sales Exempt from Tax
Online Purchases
If you buy something online from a retailer that doesn’t collect Michigan sales tax, you owe a 6% use tax on it. The use tax applies to taxable tangible personal property brought into Michigan or bought through the internet, by mail, or by phone from out-of-state sellers that don’t charge Michigan tax, with credit for any sales tax already paid to another state.4State of Michigan. Sales and Use Taxes The rate matches the sales tax at 6%.6Michigan Legislature. Michigan Compiled Laws 205.93 – Use Tax Rate
Most online shopping already has the tax collected at checkout. Michigan requires marketplace facilitators like Amazon, eBay, and Etsy to collect and remit the tax on sales to Michigan buyers, regardless of where the individual third-party seller is located.7Michigan Legislature. Michigan Compiled Laws 205.52d – Marketplace Facilitators Remote sellers operating outside a marketplace must register and collect once they exceed $100,000 in gross sales or 200 separate transactions with Michigan customers in the prior calendar year.8State of Michigan. Remote Seller FAQ
Where self-reporting still comes up is purchases from small independent sellers, private-party transactions, or items picked up while traveling in a state that didn’t charge tax. Michigan residents can report use tax on the annual state income tax return.
Delivery Charges and Software
A rule change effective April 2023 made most delivery and installation charges exempt from sales tax, but only when two conditions are met: the charges have to be separately itemized on the invoice, and the seller’s books have to show how the tax was calculated for those transactions. If a retailer rolls shipping into the item price without breaking it out, the whole amount stays taxable.9State of Michigan. Delivery and Installation Charges Asking an Ann Arbor furniture or appliance seller to list delivery as its own line can trim the final total.
Software splits two ways. A program you download and install on your computer counts as “prewritten computer software” and is taxed at 6%. Cloud software you use through a browser without downloading anything is not taxed, because nothing tangible is delivered into Michigan. Most software-as-a-service subscriptions fall on the non-taxable side. Streaming video, downloaded e-books, and MP3 purchases are generally not taxed either, because digital goods that aren’t prewritten software fall outside the sales tax.10Michigan Department of Treasury. Revenue Administrative Bulletin 2023-10
If You’re the One Collecting It
Any business making retail sales in Ann Arbor needs a Michigan sales tax license before its first transaction. Registration goes through Form 518, the Michigan Business Taxes Registration Booklet, which also handles use tax, withholding, and other business tax accounts in a single application.11Michigan Department of Treasury. Michigan Business Taxes Registration Booklet Sellers who only appear at one or two events a year use a separate Concessionaire’s Sales Tax Return.
Returns and payments go through the Michigan Treasury Online portal.12Michigan Department of Treasury. Michigan Treasury Online The Department of Treasury assigns filing frequency (monthly, quarterly, or annual) based on expected volume. Monthly returns are due by the 20th of the following month, and late filing triggers penalties and interest.4State of Michigan. Sales and Use Taxes Businesses have to keep sales tax records for at least four years after the tax they relate to was due, which is also the window an audit can reach back through.13Michigan Legislature. Michigan Compiled Laws 205.68 – Record Retention