Most businesses starting in Michigan that are selling a product or offering certain services, even a hookah lounge, are required to register for a sales tax license. This license is commonly referred to as a seller’s permit, sales tax license, sales tax number or sales tax registration.
Tobacco tax is a tax imposed upon the consumer of tobacco products at the time of purchase, but a hookah lounge in Michigan does not need a tobacco license, as long as you purchase all the cigarettes and tobacco products from a wholesaler licensed with the State of Michigan who affixes the tobacco tax stamp to the cigarettes and remits the appropriate tax to the State.
How Much Does It Cost to Start and Run a Hookah Lounge in Michigan?
Starting a hookah lounge in Michigan will cost about $40,000. This price includes having a nice retail space. It also includes licensing and insurance. The other costs include sourcing useable hookahs and shisha. But normally, a lounge will carry between 10 and 30 hookahs. Each can cost as much as $150.
Other ongoing expenses include rent, utilities, cleaning, hookah and shisha replacement. Typically, a hookah lounge will cost about $2,000 to $3,000 per month to run. A 50-gram container of shisha can cost as little as $10 to buy. The same container can be split across multiple hookahs, resulting in a profit of about $100.
Importance of Having a License and Permit in Michigan
When it comes to licensing and permits, you have to first understand that Michigan implements very strict regulations and policies. Your ideal customers are those who aren’t rowdy. Because hookah lounge customers in Michigan need to be at least 18 years old, the hookah-smoking culture can be chaotic.
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down. A sales tax license for your Hookah Lounge can be obtained by registering the E-Registration for Michigan Taxes or by submitting Form 518.
This registration will also let you register for your Employer Account Number. Remember that any business or lounge making sales at fewer than 3 events or own 3 or more locations in Michigan is expected to file the Concessionaire’s Sales Tax Return and Payment (Form 2271) instead.
7 Steps to Get a Hookah Lounge Sales Tax License in Michigan
Michigan requires you to have a sales tax license if you “sell or lease tangible personal property in Michigan to the final consumer”. Note that every business with a taxable presence within Michigan is considered to have sales tax nexus within the state. Nonetheless, you will need to pay an application fee when you apply for a Michigan Sales Tax License, and you will receive your permit 8-10 days after filing your application.
- Michigan’s “Business One Stop” web portal allows you to register for most necessary state business tax accounts, including your Sales Tax permit. You must have an EIN to register, and will be able to manage your tax payments and reporting through the website once you have an account.
- Enter all information requested. Create a “Login ID” which is your last name, first initial and four numbers. Other necessary information includes your first and last names, mailing address and email address. Click “Submit.”
- Wait for your temporary password, which will be sent to the email address provided in a few moments. Open the email and click “Michigan Business One Stop Users click here to login” located at the top of the message.
- Insert your user credentials in the Registered Users section on the right side of the screen. Click “go.”
- Insert the required information including your mother’s maiden name, your father’s middle name, the city you were born in and the last four digits of your Social Security number. Click “Continue.” There are security questions you will need to provide the answers to if requested in the future.
- Read the Terms and Conditions and choose either “Accept” or “Decline.” If you choose “Decline” you will be unable to continue the process.
- Insert all requested information about your business and choose “Sales Tax License” when asked what type of license you are applying for. After the online application has been submitted, your Sales Tax License will be mailed to the address provided within eight to 10 days.
Note that Michigan Sales Tax License expires on September 30 of each year, regardless of when your license was issued, and will be renewed automatically. You will be able to get a copy of your new license under the Correspondence tab of your account on the Michigan Treasury Online website.
Michigan provides and mandates just one permit for businesses, and even Hookah lounges in the state are only required to obtain sales tax licence before opening their doors. However, since a lot of hookah lounges in the state are local, there is not much growth potential.
A hookah lounge can, nonetheless, become a local favourite if it offers the best shisha, the lowest prices, the best discounts or other great amenities. These lounges gain a lot from tobacco’s inelastic demand. Individuals who smoke hookah will often pay a lot for it, and they’ll keep returning to purchase it. For this reason, a hookah lounge which provides the best products, services or cost opportunities will have a very big advantage.