Michigan Proposes Expanding Sales Tax to Services

Executive Summary

Michigan lawmakers are discussing legislation that would extend the state’s 6% sales tax to certain services that are currently exempt. If enacted, the proposal could require many service providers—including professional, consulting, IT, and digital businesses—to begin collecting and remitting sales tax. Businesses should begin reviewing: (1) Whether their services could become taxable, (2) Contract provisions addressing tax pass-through, (3) Billing system readiness, and (4) Nexus exposure for out-of-state providers. The proposal is not yet law, but companies may benefit from early planning. Please contact us if you would like to discuss potential impact or compliance planning.

---

Michigan lawmakers are considering drafting legislation that would expand the state’s 6% sales tax to include certain services that are currently exempt. While the proposal is still in the drafting stage and has not yet been presented to the legislature, the scope of the potential expansion could materially affect service providers, business-to-business transactions, and companies with multistate operations.

Current Law

Michigan presently imposes a 6% sales tax primarily on the sale of tangible personal property and certain enumerated services. Most professional and service-based transactions are not subject to sales tax.

What the Proposal Would Do

The basis of the proposal is to generate approximately $4.7 billion of revenue to offset nearly $5 billion in proposed state property tax cuts. According to Michigan House Speaker Matt Hall (R-Kalamazoo Co.), the state’s 6% sales tax would be expanded to include “discretionary” services, while maintaining an exemption for “essential” services. According to The Detroit News,[1] services to be targeted for the tax include private jets, limousines, club memberships, newspapers, and tourist attractions. Exempt services include professional legal services, healthcare, child care, dry cleaning, home and car repair, and personal care services.

Although the tax is intended to target consumers of luxury and discretionary services, critics of the proposal contend that expansion of the tax to those specific categories will not generate even a fraction of the $4.7 billion proposed. A 2022-23 study by the Michigan Department of Treasury found that $5.4 billion of tax revenue could be generated if all consumer services were included in a sales tax expansion. This figure grew to $16.9 billion if business-to-business services were included. Since the proposal is intended to only include a portion of the consumer services in this untapped potential tax revenue resource, opponents of the proposal argue that it will be necessary to expand the categories of taxed services in order to generate the revenue needed.

Although draft language may evolve, proposals under discussion would:

• Expand the tax base to include specified services
• Apply the existing 6% rate
• Modify sourcing rules for services delivered remotely or across state lines
• Potentially include marketplace facilitator collection obligations
• Impose new registration and reporting requirements for service providers

If enacted, the proposal would represent one of the most significant structural changes to Michigan’s sales tax framework in decades. Depending on final language, the proposal may raise constitutional sourcing and apportionment issues under the Commerce Clause of the U.S. Constitution, particularly for multistate service providers. Economic nexus thresholds and marketplace facilitator provisions may further expand collection obligations beyond traditional physical presence standards.

Who May Be Affected

Businesses targeted by the proposal include:

• Tourism-related services (including marina, skiing, and golfing)
• AI services
• Environmental consulting services
• Newspaper publishing
• Performing arts
• Political advertising
• Country club memberships
• Private jet and limousine services
• Eye services

Depending on potential expansion and the final form of the law, businesses that may be impacted include:

• Professional service providers (legal, accounting, consulting, marketing)
• IT and SaaS providers
• Repair and maintenance businesses
• Construction and trade contractors
• Digital service providers
• Out-of-state companies providing services to Michigan customers

Companies not currently registered for Michigan sales tax may need to register, update billing systems, revise contracts, and assess pricing strategies.

Aside from businesses and organizations subject to any potential new tax, public authorities are also registering concern about the impact of the accompanying property tax elimination and whether the resulting new sales tax will be sufficient to replace lost revenue. School districts rely heavily on property tax revenue and are being assured that any change to the tax structure will be revenue neutral, but administrators advocate for additional tax revenue as opposed to replacement of diminished revenue. Similarly, local government units are fearful of the impacts to their budgets, especially since funding of school districts will likely take priority in an election year.

Key Compliance Considerations

If enacted, businesses should evaluate:

• Taxability Determination – Whether specific services fall within newly taxable categories
• Sourcing Rules – Where services are deemed delivered
• Contract Review – Whether contracts permit tax pass-through
• System Updates – Billing and accounting system changes
• Nexus Analysis – Whether economic nexus standards trigger registration
• Exemption Documentation – Resale and business-use exemptions, if available

Failure to properly collect and remit sales tax can result in penalties, interest, and audit exposure.

Planning Considerations

Businesses may consider:

• Reviewing service classifications now
• Updating taxability matrices
• Modeling pricing impacts
• Evaluating contract language regarding tax allocation
• Monitoring Michigan legislative developments closely

Status and Next Steps

The legislation remains proposed and subject to amendment. Effective dates, grandfathering provisions, and transition rules will be critical in determining implementation timelines.

Dykema will continue to monitor developments and provide updates as the proposal advances.

If you would like assistance assessing how this proposal may affect you or your business, please contact your Dykema relationship attorney.

---

[1] LeBlanc, B. & Mauger, C. (2025, February 25). Michigan House speaker proposes new $4.7B tax on certain services. The Detroit News. https://www.detroitnews.com/story/news/politics/2026/02/25/michigan-house-speaker-matt-hall-6-percent-sales-tax-on-services-jets-limos-country-club-memberships/88859410007