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The Michigan HVAC Contractor's Money Guide

Michigan Specific HVAC Bookkeeping

Most of what trips up an HVAC contractor's books isn't complicated accounting. It's Michigan-specific rules nobody hands you with your license. They're the kind of thing you find out about during an audit, when a rebate check never shows, or when your CPA asks a question you can't answer. This is the guide I wish every Michigan HVAC owner had on day one.

Michigan Sales & Use Tax

This one surprises people. When you install equipment into a home or building, Michigan treats you as the consumer of that equipment not a retailer. You pay the 6% when you buy the materials and don't charge the homeowner sales tax on the install. The tax is a cost of goods, baked into your price.

But the moment you sell something that isn't going into real property, like a filter over the counter, a part, a freestanding portable unit, then you're a retailer and you collect and remit sales tax on it. Buy equipment out of state or online with no Michigan tax charged? You still owe use tax. Scenarios shown here.

Michigan sales & use tax by transaction type (HVAC)
What you're doing	Who pays the 6%	On your books
Installing a system into a home or building	You do, at purchase (you're the consumer)	Tax is part of material cost - don't charge the customer tax
Selling parts or filters over the counter	The customer does - you collect it	Retail sale - collect & remit sales tax
Selling a freestanding / portable unit	The customer does - you collect it	Retail sale - collect & remit sales tax
Buying equipment out of state / online (no MI tax charged)	You do - self-assess use tax	Accrue 6% use tax so it doesn't surface in an audit

Misclassifying which side of this line a job falls on is one of the most common findings in a Michigan contractor audit. This is general information, not tax advice - your filing is between you and your CPA.

City Income Tax

Where your crew works changes what you withhold
Job location	Resident	Non-resident
Detroit	2.4%	1.2%
Other MI taxing cities (Highland Park, Hamtramck, Pontiac, Lansing, etc.)	up to 1%*	up to 0.5%*
Most suburbs, Ann Arbor	None	None

*Most Michigan cities are capped near 1% resident / 0.5% non-resident; a few (Detroit, Highland Park) are grandfathered higher. Verify the current rate for any city before you rely on it. If you're a suburban shop sending crews into a taxing city, you apportion each employee's pay by the share of work performed there.

If you run trucks anywhere near Detroit, this is on your books whether you set it up or not. Detroit levies a city income tax, 2.4% on residents, 1.2% on non-residents, and if your business is physically in the city, you withhold on every employee. If you're a suburban shop sending crews in, only the pay tied to work performed inside Detroit is taxable, so you apportion each paycheck by where the work actually happened.

Detroit isn't the only one. Others like Highland Park, Hamtramck, Pontiac, and Lansing levy city income tax too. Most suburbs, and Ann Arbor, don't. For a shop working across the metro along I-696 and M-59, that's a real payroll-setup problem, and one you want handled before a crew spends a summer in the city, not after.

What changed for 2026

A few things shifted going into 2026 that directly touch your books and your sales floor.

The 25C change is the big one. For three years the federal Energy Efficient Home Improvement Credit was a quiet closing tool with up to $2,000 back on a qualifying heat pump. Under the One Big Beautiful Bill Act it expired for equipment placed in service after December 31, 2025, with no grandfather clause. The trigger is the placed-in-service date, so a system you sold in December but didn't fire up until January missed the window. Be careful how you booked any late-2025 job that slipped into January.

25C credit ended 12/31/2025

The federal Energy Efficient Home Improvement Credit is gone for equipment placed in service in 2026. Stop quoting it, and watch any December job that went operational in January.

Refrigerant phasedown

R-410A is being phased down for R-454B and R-32. Equipment prices and what is on your shelf are shifting - inventory and job costing have to keep up.

What is left

State and utility rebates, plus the IRA-funded HEAR and HOMES programs, are now the incentives worth discussing with customers.

Utility rebates on your books (DTE & Consumers)

DTE and Consumers both run rebate programs your customers want, and many contractors offer them as instant rebates where you knock the rebate off the price at the sale, then file the paperwork and wait for the utility to pay you back. That reimbursement commonly takes six to eight weeks. Which means:

Every instant rebate you offer is a short-term loan you're making to the utility

So they belong on your books as a receivable that is tracked, aged, and reconciled like any other money owed to you. Contractors who treat it casually either lose reimbursements to missed paperwork or misstate revenue. Neither is a rounding error when you're doing volume.

Licensing & insurance basics that hit the books

Quick hits, because they show up in your numbers.

Michigan issues one statewide Mechanical Contractor license through LARA requiring three years of documented experience and a designated Qualifying Officer, with boiler work licensed separately.
Workers' comp is required once you employ others.
As covered in our Metro Detroit cost breakdown, Michigan's commercial auto insurance is the priciest in the country.

None of these are optional, and all of them belong in your overhead math.

Frequently Asked Questions

Do HVAC contractors charge sales tax in Michigan?

For installed work, generally no. You pay the 6% when you buy the equipment, as the consumer. The exception is retail-style sales like parts and filters over the counter, where you collect it from the buyer.

Do I collect sales tax on parts I sell over the counter?

Yes. Parts, filters, or a freestanding unit that stays personal property are retail sales, and Michigan requires you to collect and remit sales tax. Mixed operations are where contractors slip because the two sides follow different rules and the books have to keep them separate.

Does my HVAC crew owe Detroit city income tax?

If your business is in Detroit, you withhold on all employees. If you're outside the city but crews work in it, only the share of pay for work performed in Detroit is taxed. Detroit is 2.4% resident / 1.2% non-resident; most suburbs and Ann Arbor don't tax.

Is there still a federal tax credit for HVAC in 2026?

No. Section 25C expired for equipment placed in service after December 31, 2025 under the One Big Beautiful Bill Act. The trigger is the placed-in-service date, so a December 2025 sale that went operational in January doesn't qualify. State and utility rebates, plus HEAR and HOMES, remain.

How do I account for a DTE or Consumers Energy rebate?

If you offer an instant rebate, you front the discount and wait six to eight weeks for the utility to pay you back. That's a rebate receivable. Record and reconcile it like any money owed to you, or you'll lose reimbursements or misstate revenue.

Do I need a license to run an HVAC business in Michigan?

Yes, a statewide Mechanical Contractor license through LARA, requiring three years of documented experience and a designated Qualifying Officer. Boiler work is licensed separately, and workers' comp is required once you employ others.

Author

Austin Wendel

Founder, Accounting 4 Trades

Austin runs a trades-only bookkeeping and CFO firm working with HVAC, electrical, and plumbing contractors across Metro Detroit and nationwide. More about Austin ->

Related Resources

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HVAC Bookkeeping: https://acc4t.com/hvac
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Free Resources for all HVAC Owners: https://acc4t.com/resource-5908
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