SB-1009, As Passed House, December 18, 2008

 

 

 

 

 

 

 

 

 

 

HOUSE SUBSTITUTE FOR

 

SENATE BILL NO. 1009

 

 

 

 

 

 

 

 

 

 

 

 

 

     A bill to amend 2007 PA 36, entitled

 

"Michigan business tax act,"

 

by amending section 207 (MCL 208.1207).

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 207. (1) Except as otherwise provided in this section,

 

the following are exempt from the tax imposed by this act:

 

     (a) The United States, this state, other states, and the

 

agencies, political subdivisions, and enterprises of the United

 

States, this state, and other states, including any grantor trust

 

established by a municipality with the municipality as the grantor

 

and exempt from federal income tax under the internal revenue code.

 

     (b) A person who is exempt from federal income tax under the

 

internal revenue code, and a partnership, limited liability

 

company, joint venture, general partnership, limited partnership,


 

unincorporated association, or other group or combination of

 

entities acting as a unit if the activities of the entity are

 

exclusively related to the charitable, educational, or other

 

purpose or function that is the basis for the exemption under the

 

internal revenue code from federal income taxation of the partners

 

or members and if all of the partners or members of the entity are

 

exempt from federal income tax under the internal revenue code,

 

except the following:

 

     (i) An organization included under section 501(c)(12) or

 

501(c)(16) of the internal revenue code.

 

     (ii) An organization exempt under section 501(c)(4) of the

 

internal revenue code that would be exempt under section 501(c)(12)

 

of the internal revenue code except that it failed to meet the

 

requirements in section 501(c)(12) that 85% or more of its income

 

consist of amounts collected from members.

 

     (iii) The tax base attributable to the activities giving rise to

 

the unrelated taxable business income of an exempt person.

 

     (c) A nonprofit cooperative housing corporation. As used in

 

this subdivision, "nonprofit cooperative housing corporation" means

 

a cooperative housing corporation that is engaged in providing

 

housing services to its stockholders and members and that does not

 

pay dividends or interest on stock or membership investment but

 

that does distribute all earnings to its stockholders or members.

 

The exemption under this subdivision does not apply to a business

 

activity of a nonprofit cooperative housing corporation other than

 

providing housing services to its stockholders and members.

 

     (d) That portion of the tax base attributable to the


 

production of agricultural goods by a person whose primary activity

 

is the production of agricultural goods. "Production of

 

agricultural goods" means commercial farming, including, but not

 

limited to, cultivation of the soil; growing and harvesting of an

 

agricultural, horticultural, or floricultural commodity; dairying;

 

raising of livestock, bees, fish, fur-bearing animals, or poultry;

 

or turf or tree farming, but does not include the marketing at

 

retail of agricultural goods except for sales of nursery stock

 

grown by the seller and sold to a nursery dealer licensed under

 

section 9 of the insect pest and plant disease act, 1931 PA 189,

 

MCL 286.209.

 

     (e) Except as provided in subsection (2), a farmers'

 

cooperative corporation organized within the limitations of section

 

98 of 1931 PA 327, MCL 450.98, that was at any time exempt under

 

subdivision (b) because the corporation was exempt from federal

 

income taxes under section 521 of the internal revenue code and

 

that would continue to be exempt under section 521 of the internal

 

revenue code except for either of the following activities:

 

     (i) The corporation's repurchase from nonproducer customers of

 

portions or components of commodities the corporation markets to

 

those nonproducer customers and the corporation's subsequent

 

manufacturing or marketing of the repurchased portions or

 

components of the commodities.

 

     (ii) The corporation's incidental or emergency purchases of

 

commodities from nonproducers to facilitate the manufacturing or

 

marketing of commodities purchased from producers.

 

     (f) That portion of the tax base attributable to the direct


 

and indirect marketing activities of a farmers' cooperative

 

corporation organized within the limitations of section 98 of 1931

 

PA 327, MCL 450.98, if those marketing activities are provided on

 

behalf of the members of that corporation and are related to the

 

members' direct sales of their products to third parties or, for

 

livestock, are related to the members' direct or indirect sales of

 

that product to third parties. Marketing activities for a product

 

that is not livestock are not exempt under this subdivision if the

 

farmers' cooperative corporation takes physical possession of the

 

product. As used in this subdivision, "marketing activities" means

 

activities that include, but are not limited to, all of the

 

following:

 

     (i) Activities under the agricultural commodities marketing

 

act, 1965 PA 232, MCL 290.651 to 290.674, and the agricultural

 

marketing and bargaining act, 1972 PA 344, MCL 290.701 to 290.726.

 

     (ii) Dissemination of market information.

 

     (iii) Establishment of price and other terms of trade.

 

     (iv) Promotion.

 

     (v) Research relating to members' products.

 

     (g) That portion of the tax base attributable to the services

 

provided by an attorney-in-fact to a reciprocal insurer pursuant to

 

chapter 72 of the insurance code of 1956, 1956 PA 218, MCL 500.7200

 

to 500.7234.

 

     (h) That portion of the tax base attributable to a multiple

 

employer welfare arrangement that provides dental benefits only and

 

that has a certificate of authority under chapter 70 of the

 

insurance code of 1956, 1956 PA 218, MCL 500.7001 to 500.7090.


 

     (i) A foreign person is not subject to taxation under this act

 

if the foreign person is domiciled in a subnational jurisdiction

 

that does not impose an income tax on a similarly situated person

 

domiciled in this state whose presence in the foreign country is

 

the same as the foreign person's presence in the United States. If

 

a foreign person is domiciled in a subnational jurisdiction that

 

does not impose an income tax on businesses, but instead imposes

 

some other type of subnational business tax, that foreign person is

 

not subject to taxation under this act if that subnational business

 

tax is not imposed on a similarly situated person domiciled in this

 

state whose presence in the foreign country is the same as the

 

foreign person's presence in the United States.

 

     (2) Subsection (1)(e) does not exempt a farmers' cooperative

 

corporation if the total dollar value of the farmers' cooperative

 

corporation's incidental and emergency purchases described in

 

subsection (1)(e)(ii) are equal to or greater than 5% of the

 

corporation's total purchases.

 

     (3) Except as otherwise provided in this section, a farmers'

 

cooperative corporation that is structured to allocate net earnings

 

in the form of patronage dividends as defined in section 1388 of

 

the internal revenue code to its farmer or farmer cooperative

 

corporation patrons shall exclude from its adjusted tax base the

 

revenue and expenses attributable to business transacted with its

 

farmer or farmer cooperative corporation patrons.

 

     (4) Notwithstanding any other provision of this act to the

 

contrary, a foreign person subject to tax under this act shall

 

calculate its business income tax base and modified gross receipts


 

tax base under this section. Except as otherwise provided in this

 

section, the business income tax base and modified gross receipts

 

tax base of a foreign person is subject to all adjustments and

 

other provisions of this act. However, neither the business income

 

tax base nor the modified gross receipts tax base shall include

 

proceeds from sales where title passes outside the United States.

 

     (5) Except as otherwise provided in this section, the modified

 

gross receipts tax base of a foreign person includes the sum of

 

gross receipts and the adjustments under section 203 that are

 

related to United States business activity.

 

     (6) Except as otherwise provided in this section, the business

 

income tax base of a foreign person includes the sum of business

 

income and the adjustments under section 201 that are related to

 

United States business activity.

 

     (7) The sales factor for a foreign person is a fraction, the

 

numerator of which is the taxpayer's total sales in this state

 

where title passes inside the United States during the tax year and

 

the denominator of which is the taxpayer's total sales in the

 

United States where title passes inside the United States during

 

the tax year.

 

     (8) (4) As used in subsection (1)(b), "exclusively" this

 

section:

 

     (a) "Business income" means, for a foreign person, gross

 

income attributable to the taxpayer's United States business

 

activity and gross income derived from sources within the United

 

States minus the deductions allowed under the internal revenue code

 

that are related to that gross income. Gross income includes the


 

proceeds from sales shipped or delivered to any purchaser within

 

the United States and for which title transfers within the United

 

States; proceeds from services performed within the United States;

 

and a pro rata proportion of the proceeds from services performed

 

both within and outside the United States to the extent the

 

recipient receives benefit of the services within the United

 

States.

 

     (b) "Domiciled" means the location of the headquarters of the

 

trade or business from which the trade or business of the foreign

 

person is principally managed and directed.

 

     (c) For subsection (1)(b), "exclusively" means that term as

 

applied for purposes of section 501(c)(3) of the internal revenue

 

code.

 

     (d) "Foreign person" means either of the following:

 

     (i) An individual who is not a United States resident, whether

 

or not the individual is subject to taxation under the internal

 

revenue code.

 

     (ii) A person formed under the laws of a foreign country or a

 

political subdivision of a foreign country, whether or not the

 

person is subject to taxation under the internal revenue code.

 

     (e) "Gross receipts" means, for a foreign person, gross

 

receipts as defined in section 111(1) from United States business

 

activity or from sources within the United States. Gross receipts

 

include all sales for which title transfers within the United

 

States; proceeds from all services performed within the United

 

States; and a pro rata portion of proceeds from services performed

 

both within and outside of the United States to the extent the


Senate Bill No. 1009 (H-3) as amended December 18, 2008

recipient receives benefit of the services within the United

 

States.

 

     Enacting section 1. This amendatory act is retroactive and

 

effective January 1, 2008 and applies to all business activity

 

occurring after December 31, 2007.

     [Enacting section 2.  This amendatory act does not take effect

 unless Senate Bill No. 1038 of the 94th Legislature is enacted into law.]