Michigan Sales Tax Penalties and Interest Checklist
Introduction
Michigan sales tax is collected by sellers and remitted to the state on behalf of customers. The
Michigan Department of Treasury administers sales tax compliance and enforcement under Act
122 of 1941, also known as the Revenue Act. When sales tax returns are filed late, payments are made late, or taxes remain unpaid, the state adds penalties and interest to your account.
These additional charges accumulate quickly and can substantially increase the amount owed.
Understanding what penalties and interest are, why they apply, and what steps are available helps you respond appropriately and prevent escalation.
What This Issue Means
Sales tax penalties are charges the state adds when a taxpayer fails to comply with sales tax laws. Interest is a daily charge calculated on unpaid taxes at the interest rate established semiannually by the state treasurer. Penalties may apply for late filing, late payment, underpayment, or non-filing under Section 205.24 of the Michigan Compiled Laws. Michigan law specifies different penalty rates and conditions depending on the type of violation. These charges appear on notices from the Revenue Division and accumulate until the underlying tax debt is resolved.
Why the State Issues Penalties and Interest
Michigan assesses penalties and interest to encourage the timely filing and payment of sales tax. Late filings and unpaid taxes delay the revenue the state depends on for services.
According to the Revenue Act and administrative procedures, penalties are a standard enforcement tool that is automatically applied based on specific violation types and timing.
Payment delays trigger daily interest charges calculated using the Rate Days methodology, regardless of whether the underlying tax was reported accurately on Form 5080 or other required returns.
Understanding Penalties and Interest
Failure to File Penalties: The state assesses a 5 percent penalty for the first two months and an additional 5 percent for each month thereafter, with a maximum of 25 percent of the unpaid tax. This penalty applies when returns are not filed by the deadline or authorized extension date.
Failure to Pay Penalties: Late payment penalties follow the same structure as late filing penalties, starting at 5 percent for the first two months. Additional penalties may apply if filing frequency requirements are not met or if a late return is submitted without full payment of the tax due.
Interest Rate: Interest accrues daily on unpaid taxes at one percentage point above the adjusted prime rate, recalculated semiannually based on six-month periods. The current interest rate information is available on Michigan Treasury Online and applies from the original due date through the date the balance is paid in full.
Step-by-Step Checklist: What to Do After Receiving a
Penalty and Interest Notice
Step 1: Locate and Review the Official Notice
Confirm you have the original notice from the Michigan Department of Treasury, not a third-party letter or scam connection attempt. Identify the tax period, penalty type, interest amount shown in dollar amounts with dollar sign, and payment deadline specified on the notice.
Step 2: Record Key Information
Write down the account number or reference number listed on the notice. Note the tax periods to which the penalties and interest apply, along with the total amount due, including penalties, interest, and original tax liability for taxes.
Step 3: Gather Your Business Sales Tax Records
Locate your filed sales tax returns, such as Form 5080, Form 5082, or Form 5089, for the periods mentioned. Collect receipts, invoices, sales tax exemption certificates, including Form
3372, and payment documentation for those periods showing when you filed or paid.
Step 4: Verify the Accuracy of the Notice
Compare the tax period on the notice with your filed return to determine whether you filed a late return or paid the tax late. Identify whether you filed but did not pay, or did not file at all, and confirm the amount reflects the correct assessment of deficiency.
Step 5: Contact the Michigan Department of Treasury
Call the Sales, Use, and Withholding Tax line at 517-636-6925 during business hours, typically
3-5 business days per week. Provide your account number and notice date, ask for a detailed explanation of the penalty calculator methodology, and request clarification on any errors.
Step 6: Request Written Clarification if Needed
Ask the Revenue Division to send you a written explanation if the phone explanation is unclear or if you need documentation for tax tribunal proceedings. Document the name and date of the state treasurer representative you spoke with, and retain all written correspondence.
Step 7: Determine if the Penalty Was Applied Incorrectly
Review Section 205.24 and Section 205.27a to understand the specific penalty that was assessed. Compare the notice to your records to identify any discrepancies related to filing frequency, sales tax collection, or payment timing, and document evidence supporting your claim.
Step 8: Explore Penalty Abatement Options if Applicable
Determine if you qualify for reasonable cause relief under Revenue Administrative Bulletin
2022-24, which may apply to responsible person circumstances. Note that Michigan may waive penalties for serious illness, death, fire, natural disaster, or criminal acts, but interest calculated using Rate Days is generally not subject to waiver.
Step 9: Prepare Payment or Payment Arrangements
Confirm the dollar amounts due and the payment deadline stated on the Reminder of Tax Due notice. Determine whether you can pay in full before the deadline through Michigan Treasury
Online, or contact the Department to discuss payment plans and installment options.
Step 10: Submit Payment or Installment Agreement Request
Pay by the deadline, including all penalties and interest accrued to date at the current interest rate. If requesting payment plans, submit a written request with your account number and proposed payment schedule, keeping proof of payment or submission.
- Missing the payment deadline: Unpaid balances continue to accrue interest daily at
- Ignoring notices from the Revenue Division: Collection action may proceed even if
- Sending payment to the wrong address: Confirm the correct address on the notice
- Failing to include your account number with payment: Always reference your
- Assuming penalties will be automatically cancelled after paying tax: Failure to File
- State tax notice review and response
- Penalty and interest reduction options
- Payroll and trust fund tax assistance
- Payment plan and relief eligibility review
- Representation with state tax agencies
Step 11: Maintain All Documentation
Keep copies of the original notice, all correspondence with the state, Form 518 if applicable, and proof of payment. Store these records for at least three years from the resolution date for future reference, potential tax tribunal proceedings, or federal tax liability coordination.
Common Mistakes to Avoid the rate established semiannually by the state treasurer under the Revenue Act. The state may escalate collection efforts without additional notice if the deadline on the
Reminder of Tax Due passes. you do not respond to official correspondence from the Michigan Department of
Treasury. Enforcement actions such as liens, wage garnishment, or final return requirements may occur without further communication from the state. before mailing payment to avoid processing delays of 3-5 business days or more.
Sending payment to an incorrect address delays posting to your account and results in additional interest charges calculated using Rate Days. account number on any check or correspondence submitted through Michigan Treasury
Online or by mail. Payments without proper identification may be delayed in posting to your account balance and can affect payment plans.
Penalties and Failure to Pay Penalties are separate from the underlying tax liability for taxes and must be addressed separately. Paying the tax does not automatically remove additional penalties or interest owed on your account.
Received a State Tax Notice?
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