For almost everyone, the best state to start an LLC is the one where you live and run the business, because forming next door usually means registering in your home state anyway. If you genuinely have a free choice, Michigan is cheaper to open, at $50 against Ohio’s $99, but charges a $25 annual statement every year, while Ohio charges more once and then asks for no annual report at all. By its second annual statement a Michigan LLC has paid more in state filing fees than an Ohio LLC ever will, so taxes, not fees, should decide.
Both states are inexpensive places to keep an LLC in good standing. What follows compares fees, recurring paperwork and taxes, drawn from Michigan’s licensing and treasury departments, the Ohio Revised Code and the Ohio Department of Taxation as of September 2026.
Start with the home state rule
An LLC is formed in one state and must register as a foreign LLC in every other state where it transacts business. If you live in Toledo and form in Michigan to save $49, you will very likely have to register that Michigan LLC in Ohio as well, for $99, and then keep a registered agent and meet filing duties in both states. You have spent more, not less.
The exceptions are narrow: holding companies, entities built around property or operations in the other state, and businesses with a real presence in both. Everyone else should form where they operate. The same logic runs through our comparisons of Washington or Oregon and Alabama or Mississippi for LLC formation.
Filing fees and ongoing paperwork
Michigan charges $50 to file Articles of Organization for a domestic LLC, according to the Michigan Department of Licensing and Regulatory Affairs fee schedule, and $25 if you want to reserve a name first. Every LLC then files an annual statement by February 15, with a $25 fee ($75 for a professional LLC) and a $50 penalty if it is late. An LLC formed after September 30 skips the first February 15 filing. LARA warns that ignoring the statement leads to lost good standing, dissolution or revocation, and possibly the loss of your business name.
Ohio’s fees are set in statute. Ohio Revised Code section 111.16 charges $99 to file articles of organization for an LLC, $99 to register a foreign LLC and $39 to reserve a name. Ohio does not require LLCs to file an annual or biennial report; the biennial report fee in the same statute covers certain partnership filings, not LLCs. The ongoing duty that matters is keeping a statutory agent on record, because an LLC that fails to maintain one can have its registration canceled.
| Item | Michigan | Ohio |
|---|---|---|
| Domestic LLC formation fee | $50 | $99 |
| Name reservation | $25 | $39 |
| Foreign LLC registration | $50 | $99 |
| Annual filing | Annual statement, $25 ($75 PLLC), due February 15; $50 late penalty | None |
| Entity level tax | 6% Corporate Income Tax, only for LLCs taxed as corporations with $350,000 or more in apportioned gross receipts | 0.26% Commercial Activity Tax on Ohio taxable gross receipts above $6 million |
| Personal income tax (2026) | Flat 4.25% | 2.75% on nonbusiness income above $26,050; first $250,000 of business income deducted, 3% above |
| Local income taxes | 24 cities, such as Detroit at 2.4% for residents | Hundreds of municipalities, plus 210 school districts |
| State sales tax | 6%, no local sales taxes | 5.75%, up to 8.75% with county and transit taxes |
Over the first five years, a Michigan LLC pays $50 plus four or five $25 statements, $150 to $175 in all, while an Ohio LLC pays $99 once. The gap is real but small next to the tax differences below.
Ohio’s Commercial Activity Tax, and why Michigan has no equivalent
Ohio’s main business level tax is the Commercial Activity Tax, a tax on gross receipts rather than profit, and it applies to LLCs as well as corporations. It used to reach small businesses through an annual minimum tax, but that ended in 2024. According to the Ohio Department of Taxation, only businesses with more than $6 million a year in Ohio taxable gross receipts pay the CAT for 2025 and later (the threshold was $3 million in 2024), at 0.26 percent of taxable gross receipts. A business must register within 30 days of crossing the threshold, and all CAT accounts now file quarterly.
Michigan has no gross receipts tax. Its Corporate Income Tax, which replaced the Michigan Business Tax for most taxpayers on January 1, 2012, is a 6 percent tax on C corporations and on entities taxed federally as corporations, including LLCs that elect corporate treatment. Businesses with less than $350,000 in allocated or apportioned gross receipts, or $100 or less in liability, do not file. An LLC taxed as a partnership or a disregarded entity is outside the CIT.
For the vast majority of small LLCs, neither tax applies: the CAT starts at $6 million in Ohio receipts, and the CIT reaches only LLCs taxed as corporations.
How owners are taxed on LLC profits
By default an LLC is a pass through entity: profit flows to the owners’ personal returns, so the individual rate matters most. Michigan’s is a flat 4.25 percent. The Department of Treasury confirmed in April 2026 that no rate cut was triggered for the 2026 tax year.
Ohio splits income into two buckets. Nonbusiness income, such as wages and interest, is exempt up to $26,050, and for tax years beginning in 2026 the amount above that is taxed at a single 2.75 percent rate under Ohio Revised Code section 5747.02. Business income, which covers most profit an active LLC passes to its owners, gets the business income deduction: the first $250,000 is deducted ($125,000 for married couples filing separately), and anything above that is taxed at a flat 3 percent.
That makes Ohio unusually friendly at the state level to owners with modest profits. An owner with $150,000 of Ohio business income and nothing else generally owes no Ohio state income tax on it, while a Michigan owner with the same profit owes 4.25 percent after exemptions.
Both states also let pass through entities elect to pay income tax at the entity level, a workaround for the federal cap on state and local tax deductions. Whether it helps depends on your federal return, so model it with your CPA.
Local income taxes: the cost people forget
This is Ohio’s weak spot. Hundreds of Ohio cities and villages levy a municipal income tax; the Ohio Department of Taxation’s historical data counted 635 in 2017, with rates from 0.5 percent to 3 percent. Municipal taxes reach wages and business net profits, though businesses can opt in to have the state administer their municipal net profit tax. On top of that, 210 of Ohio’s school districts levied a school district income tax as of January 2026, paid by residents of those districts.
Michigan’s local income taxes are far more limited. Only 24 cities levy one, including Detroit, Grand Rapids, Lansing, Flint and Saginaw, according to the Michigan Department of Treasury. Detroit charges 2.4 percent on residents, 1.2 percent on nonresidents who work there and 2 percent on corporations. Outside those 24 cities, there is no local income tax at all.
So Ohio’s generous business income deduction can be partly offset by local taxes, depending on exactly where you live and work. Price your actual city and school district before you compare.
Sales tax if you sell products
Michigan’s sales tax is 6 percent statewide, and the state does not allow cities or other local units to add their own. Ohio’s state rate is 5.75 percent, and counties and regional transit authorities can add up to 3 percent more, for combined rates of up to 8.75 percent. In Michigan, one rate covers the whole state.
Which one should you pick
Pick Michigan if you live and work there, you want the cheapest start, or your business sits outside the 24 cities with an income tax.
Pick Ohio if you live and work there, you want no annual report, or you expect business income under $250,000 and want the full benefit of the business income deduction. Just budget for municipal and possibly school district income tax.
If the business is purely online and you truly have no footprint in either state, form where you file your personal return. For the bigger picture on living in these states, see our comparisons of Michigan or Illinois and New York or Ohio.
Mistakes to avoid
Missing Michigan’s February 15 deadline. The statement costs $25; filing late adds a $50 penalty, and ignoring it long enough costs you good standing.
Reading “no annual report” as “no obligations” in Ohio. You still need a statutory agent on record, municipal net profit returns where they apply, and CAT registration within 30 days if Ohio receipts pass $6 million.
Electing S corporation or corporate treatment without running state numbers. A corporate election can pull a Michigan LLC into the CIT and changes how Ohio’s business income rules apply. Model it first.
Frequently asked questions
Is it cheaper to form an LLC in Michigan or Ohio?
Michigan is cheaper to open at $50 against $99 in Ohio. Michigan then charges a $25 annual statement every February 15, while Ohio has no annual report, so Ohio becomes cheaper once a Michigan LLC files its second statement. Over five years the difference is well under $100 either way.
Does an Ohio LLC have to file an annual report?
No. Ohio does not require LLCs to file an annual or biennial report with the Secretary of State. You must keep a statutory agent on record, and you may still owe municipal net profit returns, income tax filings and, above $6 million in Ohio receipts, quarterly Commercial Activity Tax returns.
Do small Ohio LLCs pay the Commercial Activity Tax?
Generally not anymore. The annual minimum tax ended in 2024, and for 2025 and later only businesses with more than $6 million a year in Ohio taxable gross receipts pay the CAT, at 0.26 percent. You must register within 30 days of crossing that threshold and file quarterly.
Does Michigan have a gross receipts tax like Ohio’s CAT?
No. Michigan replaced its Michigan Business Tax with a 6 percent Corporate Income Tax in 2012, and it applies only to C corporations and entities taxed as corporations. Businesses under $350,000 in apportioned gross receipts, or with $100 or less of liability, do not file. Most LLCs never touch it.
Can I form a Michigan LLC if I live and work in Ohio?
You can, but you will almost certainly need to register it as a foreign LLC in Ohio for $99 and keep an Ohio statutory agent, on top of Michigan’s $50 formation fee and $25 annual statement. You end up maintaining two states and saving nothing. Form where you operate.
The bottom line
Michigan is the cheaper state to open an LLC and the simpler one for local taxes, with a flat 4.25 percent income tax, no gross receipts tax and only 24 cities with an income tax. Its only recurring chore is a $25 annual statement due every February 15.
Ohio costs more at formation but then leaves LLCs alone, and its business income deduction shields the first $250,000 of business income from state tax. The catch is local: municipal and school district income taxes can take back part of that advantage. Form where you actually operate.
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