What Michigan expects from a new trade business

No license, no lawsuit and no lien

The Bureau of Construction Codes (under LARA) licenses residential work two ways. A Residential Builder license covers building homes and repairs. A Maintenance & Alteration Contractor license covers only the specific trades you're licensed in. You'll need at least 60 hours of pre-license classes unless you qualify through the military route. Licenses run 3 years, and if you were first licensed in 2009 or later you need 21 hours of continuing competency each cycle. Electrical, plumbing and mechanical contractors have their own licenses.

The small-job exemption is a project under $600 total for labor and materials. You lose it if your work is part of a larger job, and you can't split a bigger job into pieces to fit under it. Working only as a sub to a licensed residential contractor is also exempt.

The teeth are in section 2412: if you weren't licensed during the work, you can't sue to collect and you can't take a lien. An unlicensed contractor can also face a civil fine of $5,000 to $25,000. It's a crime too: a first offense is a misdemeanor, with a fine of $5,000 to $25,000, up to a year in jail, or both. A construction attorney can go over your contract and license status.

Source: MCL 339.2401 (definitions) · MCL 339.2403 (exemptions) · MCL 339.2412 (no suit or lien unlicensed; fines) · LARA: Residential Builder and M&A license requirements · MCL 339.601 (criminal penalty) · MCL 339.2404 (3-year license) · MCL 339.2404b (prelicensure and continuing competency)

Who to call: an attorney near you

One steady employee can trigger comp

Michigan's trigger has two doors. Comp applies if you regularly employ 3 or more people at one time, or fewer than 3 if even one of them worked 35 or more hours a week for 13 weeks or longer in the past 52. So one full-time helper can put you in. There's no construction-specific rule beyond that. And if you withhold federal income tax for someone, the law presumes they're an employee.

Owners can step out. An LLC manager-member owning at least 10%, in an LLC of 10 members or fewer, can elect out by written notice to the carrier. Same for an officer owning at least 10% of a corporation with 10 stockholders or fewer. Named partners and family members can be excluded by policy endorsement.

Hire a sub with no coverage and you can owe comp to his worker as if you'd hired him directly, unless that sub hires only people who wouldn't count as employees. Failing to carry coverage is a misdemeanor, up to $1,000 or 6 months, and each day counts separately. An insurance agent who writes contractors can walk you through this.

Source: MCL 418.115 (covered employers) · MCL 418.161 (employee, owner exclusions) · MCL 418.171 (uninsured contractors) · MCL 418.641 (penalties)

Who to call: an insurance agent near you

Getting paid: 20 days, 90 days, 1 year

Michigan's Construction Lien Act runs on three clocks:

• Notice of furnishing: subs and suppliers serve it on the designee and the general contractor within 20 days of first furnishing, in person or by certified mail. Contractors dealing directly with the owner don't need one. A late notice doesn't kill the lien outright, but you can lose ground on payments the owner already made. Laborers give notice within 30 days of unpaid wages, or lose the wage lien, and by the fifth day of the second month after unpaid fringes.
• Claim of lien: record it with the register of deeds within 90 days of your last furnishing. Subs, suppliers and laborers attach proof of serving that notice. Then serve a copy within 15 days.
• Foreclosure: sue within 1 year of recording, and record a lis pendens.

In this law a residential structure is a condo unit or a building of up to 2 units where the owner who hired you lives or will live. There, a contractor has no lien without a written contract with the owner, changes in writing too. It has to say residential builders, maintenance and alteration contractors, electricians, plumbing and mechanical contractors must be licensed, plus your number if you need one. The owner gives a notice of commencement within 10 days of your certified-mail request. If not, your notice deadline extends.

A contractor gets no payment and can't sue on the lien without giving a sworn statement. And no license means no lien. A construction attorney can build these into your forms.

Source: MCL 570.1109 (notice of furnishing) · MCL 570.1111 (claim of lien) · MCL 570.1114 (residential written contract) · MCL 570.1117 (foreclosure) · MCL 570.1106 (residential structure) · MCL 570.1108 (notice of commencement) · MCL 570.1108a (residential notice of commencement) · MCL 570.1110 (sworn statement)

Who to call: an attorney near you

You're the consumer, and you can't itemize the tax

In Michigan, a contractor building, altering, repairing or improving real estate is the consumer of the materials. You pay tax on materials, equipment and supplies when you buy them. You don't charge sales tax to your customer.

Here's the part that catches people: you can bill the customer for all your costs, including that tax, but you can't break it out on the invoice as if you were charging sales tax. It's part of your material price.

Exemptions that pass through to you are narrow: certain nonprofit hospitals and nonprofit housing, church sanctuaries, and pollution control facilities, and they need Treasury's forms. A CPA who works with contractors can set up your bids and invoices the right way.

Source: Michigan Treasury: Construction FAQ

Who to call: a CPA or tax pro near you

A $50 LLC with a small yearly bill

Articles of organization cost $50 with LARA's Corporations Division. Ask LARA about processing time and what a late filing costs. The annual statement is $25, due February 15, and you skip the first one if you formed after September 30. Under current law that fee drops to $15 if paid after September 30, 2027. No franchise tax and no publication.

Pass-through profit lands on your personal return at Michigan's 4.25%. A formula in the statute can lower that rate in some years, so check the current rate with the Department of Treasury.

When an S-corp starts saving money is a numbers question. A CPA who works with contractors can run yours.

Source: MCL 450.5101 (LLC fees) · MCL 206.51 (income tax rate) · MCL 450.4207 (annual statement)

Who to call: a CPA or tax pro near you