Michigan in the Spotlight: History, Business Climate, Tax Incentives and Credits

This month takes us to the Wolverine State of Michigan. The origins of this name are obscure, but may be derived from a busy trade in Wolverine furs during the 18thCentury.

Its largest city, Detroit, is famed as the seat of the U.S. auto industry, which inspired Diego Riviera’s murals at the Detroit institute of Arts. Also in Detroit is Hitsville U.S.A., the original headquarters of the Motown Record Company. Michigan is home to many great musicians including The Supremes, The Temptations, Stevie Wonder, Smokey Robinson, Bob Seger, Kid Rock and Alice Cooper.

Michigan is the only state to consist of two peninsulas. The Lower Peninsula, to which the name Michigan was originally applied, is often noted to be shaped like a mitten. The Upper Peninsula (often referred to as “the U.P.”) is separated from the Lower Peninsula by the Straits of Mackinac, a five-mile channel that joins Lake Huron to Lake Michigan.

The heavily forested Upper Peninsula is relatively mountainous in the west. The Porcupine Mountains, which are part of one of the oldest mountain chain in the world, rise to an altitude of almost 2,000 feet above sea level and form the watershed between the streams flowing into Lake Superior and Lake Michigan.

A wide variety of commodity crops, fruits, and vegetables are grown in Michigan, making it second only to California among U.S. states in the diversity of its agriculture. Michigan is a leading grower of fruit in the U.S., including blueberries, apples, tart cherries, grapes, and peaches.

Business Climate

Although Michigan has come to develop a diverse economy, it is widely known as the center of the U.S. automotive industry, being home to the country’s three major automobile companies (whose headquarters are all within the Detroit metropolitan area).

Products and services in the state include automobiles, food products, information technology, aerospace, military equipment, furniture, and mining of copper and iron ore. Michigan is the third leading grower of Christmas Trees with 60,520 acres of land dedicated to Christmas tree farming. The beverage Vernors was invented in Michigan in 1866, sharing the title of the oldest soft drink with Hires Root Beer. Two of the top four pizza chains were founded in Michigan and are headquartered there: Domino’s Pizza by Tom Monaghan and Little Caesars Pizza by Mike Ilitch.

Kellogg’s cereal is based in Battle Creek, Michigan and processes many locally grown foods. Thornapple Valley, Ball Park Franks, Koegel Meat Company, and National Hebrew Sausage Companies are all based in Michigan.

While sparsely populated, the Upper Peninsula is important for tourism thanks to its abundance of natural resources, while the Lower Peninsula is a center of manufacturing services, and the high-tech industry. Hunting and fishing are significant industries in the state. Charter boats are based in many Great Lakes cities to fish for salmon, trout, walleye and perch.

Michigan is home to very fertile land in the Saginaw Valley and “Thumb” areas. Products grown there include corn, sugar beets, navy beans, and soy beans. Michigan’s largest sugar refiner, Michigan Sugar Company, is the largest east of the Mississippi River and the fourth largest in the nation. Potatoes are grown in Northern Michigan, and corn is dominant in Central Michigan. Alfalfa, cucumbers, and asparagus are also grown in the state.

Tax Climate  

The top individual income tax rate is 4.25%. The top corporate income tax rate is 6%. The state sales tax rate is 6% and unlike most states, Michigan has no local or county sales tax. Items such as food and medication are exempt from sales tax. The property taxes paid as a percentage of owner-occupied housing value is 1.43%, which ranks 13th in the nation.

Other taxes that are of interest to consumers are the gasoline tax and cigarette tax. Michigan’s gasoline tax is $0.40 per gallon, which ranks 5th in the nation. The state cigarette tax rate per 20-pack is $2.00, which ranks 12nd in the nation.

Michigan is moderate in its approach to taxation of technology products for sales tax purposes. All digital products, including digital books, audio works, audio visual works, magazines and newspapers in Michigan are exempt from taxation. Prewritten software is taxable while custom software is exempt from tax. Software-as-a-Service is also exempt from taxation, as are all cloud services. How products are produced, sold and delivered is critical to determining its tax status.

Tax Incentives and Credits

Businesses in Michigan, and those considering moving to Michigan, may be able to take advantage of several tax credits. Some of these include:

Agribusiness Financing Programs- The Michigan Economic Development Corporation (MEDC), in partnership with the Michigan Department of Agriculture and Rural Development (MDARD), offers multiple programs to help support the financing and growth of agricultural businesses. Michigan is a leader in the agricultural industry, and MDARD and MEDC are committed to supporting the continued growth of the industry within the state. MDARD and the MEDC offer loan assistance to help businesses gain access to financing through private lenders, including banks and credit unions. The programs are designed to enhance a borrower’s financial position to meet standard loan requirements. For more information on these on these programs, click here.

Capital Access Program- The Capital Access Program (CAP), administered for the Michigan Strategic Fund (MSF) by the Michigan Economic Development Corporation (MEDC), is an innovative program available to assist businesses with capital needs. The CAP uses small amounts of public resources to generate private bank financing, providing small Michigan businesses access to capital that might not otherwise be available.  For more information on this program, click here.

Michigan Skills Enhancement Fund- Great funding may be used as a financial incentive to provide assistance to companies for expenses related to skills enhancement of an existing or newly hired workforce. Funding consideration will focus on those projects that demonstrate a significant economic impact and provide transferable skills to trainees. The talent or training gap can be the primary business case for incentive need. For more information on this fund, click here.

Random Facts

  • With its position in relation to the Great Lakes and the countless ships that have been used as a transport route for people and bulk cargo, Michigan is a world-class scuba diving location. The Michigan Underwater Preserves are 11 underwater areas where wrecks are protected for the benefit of sport divers.
  • Michigan has 64,980 inland lakes and ponds. A person in the state is never more than 6 miles from a natural water source or more than 85 miles from a Great Lakes shoreline.
  • Michigan has more fresh water coastline than any province of any country in the world (3,126 miles)
  • Michigan has the world’s only floating post office. It delivers mail to ships as they pass under the Ambassador Bridge.
  • Michigan has about 150 lighthouses, more than any other state in the United States.
  • Michigan grows about 70% of tart cherries (sour cherries) produced in the United States (Washington state is the leading producer of sweet cherries in the United States). Traverse City, Michigan claims to be the “Cherry Capital of the World,” hosting a National Cherry Festival and makes the world’s largest cherry pie.
  • Battle Creek, Michigan, is called the cereal capital of the world as it is home to Kellogg’s.

Have a question? Contact Monika Miles

Your comments are welcome!

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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