SB-1038, As Passed House, June 28, 2008

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 1038

A bill to amend 2007 PA 36, entitled

"Michigan business tax act,"

by amending section 111 (MCL 208.1111), as amended by 2007 PA 207.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 111. (1) "Gross receipts" means the entire amount

received by the taxpayer as determined by using the taxpayer's

method of accounting used for federal income tax purposes, less any

amount deducted as bad debt for federal income tax purposes that

corresponds to items of gross receipts included in the modified

gross receipts tax base for the current tax year or a past tax year

and less any previously recognized income related to proceeds on

contingent sales for federal income tax purposes and included in

the taxpayer's modified gross receipts tax base, from any activity

whether in intrastate, interstate, or foreign commerce carried on

for direct or indirect gain, benefit, or advantage to the taxpayer

or to others except for the following:

(a) Proceeds from sales by a principal that the taxpayer

collects in an agency capacity solely on behalf of the principal

and delivers to the principal.

(b) Amounts received by the taxpayer as an agent solely on

behalf of the principal that are expended by the taxpayer for any

of the following:

(i) The performance of a service by a third party for the

benefit of the principal that is required by law to be performed by

a licensed person.

(ii) The performance of a service by a third party for the

benefit of the principal that the taxpayer has not undertaken a

contractual duty to perform.

(iii) Principal and interest under a mortgage loan or land

contract, lease or rental payments, or taxes, utilities, or

insurance premiums relating to real or personal property owned or

leased by the principal.

(iv) A capital asset of a type that is, or under the internal

revenue code will become, eligible for depreciation, amortization,

or accelerated cost recovery by the principal for federal income

tax purposes, or for real property owned or leased by the

principal.

(v) Property not described under subparagraph (iv) that is

purchased by the taxpayer on behalf of the principal and that the

taxpayer does not take title to or use in the course of performing

its contractual business activities.

(vi) Fees, taxes, assessments, levies, fines, penalties, or

other payments established by law that are paid to a governmental

entity and that are the legal obligation of the principal.

corporation engaged in the international operation of aircraft

under section 883(a) of the internal revenue code.

(d) Amounts received by an advertising agency used to acquire

advertising media time, space, production, or talent on behalf of

another person.

(e) Notwithstanding any other provision of this section,

amounts received by a taxpayer that manages real property owned by

a third party that are deposited into a separate account kept in

the name of that third party and that are not reimbursements to the

taxpayer and are not indirect payments for management services that

the taxpayer provides to that third party.

(f) Proceeds from the taxpayer's transfer of an account

receivable if the sale that generated the account receivable was

included in gross receipts for federal income tax purposes. This

subdivision does not apply to a taxpayer that during the tax year

both buys and sells any receivables.

(g) Proceeds from any of the following:

(i) The original issue of stock or equity instruments.

(ii) The original issue of debt instruments.

(h) Refunds from returned merchandise.

(i) Cash and in-kind discounts.

(j) Trade discounts.

(k) Federal, state, or local tax refunds.

(l) Security deposits.

(m) Payment of the principal portion of loans.

(n) Value of property received in a like-kind exchange.

(o) Proceeds from a sale, transaction, exchange, involuntary

conversion, maturity, redemption, repurchase, recapitalization, or

other disposition or reorganization of tangible, intangible, or

real property, ~~that~~ less any gain from the disposition or

reorganization to the extent that the gain is included in the

taxpayer's federal taxable income, if the property satisfies 1 or

more of the following:

(i) The property is a capital asset as defined in section

1221(a) of the internal revenue code. or

(ii) The property is land that qualifies as property used in

the trade or business as defined in section 1231(b) of the internal

revenue code. ~~, less any gain from the disposition to the extent~~

~~that gain is included in federal taxable income.~~

(iii) The property is used in a hedging transaction entered into

by the taxpayer in the normal course of the taxpayer's trade or

business primarily to manage the risk of exposure to foreign

currency fluctuations that affect assets, liabilities, profits,

losses, equity, or investments in foreign operations; interest rate

fluctuations; or commodity price fluctuations. For purposes of this

subparagraph, the actual transfer of title of real or tangible

personal property to another person is not a hedging transaction.

Only the overall net gain from the hedging transactions entered

into during the tax year is included in gross receipts. As used in

this subparagraph, "hedging transaction" means that term as defined

under section 1221 of the internal revenue code regardless of

whether the transaction was identified by the taxpayer as a hedge

for federal income tax purposes, provided, however, that

transactions excluded under this subparagraph and not identified as

a hedge for federal income tax purposes shall be identifiable to

the department by the taxpayer as a hedge in its books and records.

(iv) The property is investment and trading assets managed as

part of the person's treasury function. For purposes of this

subparagraph, a person principally engaged in the trade or business

of purchasing and selling investment and trading assets is not

performing a treasury function. Only the overall net gain from the

treasury function incurred during the tax year is included in gross

receipts. As used in this subparagraph, "treasury function" means

the pooling and management of investment and trading assets for the

purpose of satisfying the cash flow or liquidity needs of the

taxpayer's trade or business.

(p) The proceeds from a policy of insurance, a settlement of a

claim, or a judgment in a civil action less any proceeds under this

subdivision that are included in federal taxable income.

(q) For a sales finance company, as defined in section 2 of

the motor vehicle sales finance act, 1950 (Ex Sess) PA 27, MCL

492.102, and directly or indirectly owned in whole or in part by a

motor vehicle manufacturer as of January 1, 2008, and for a person

that is a broker or dealer as defined under section 78c(a)(4) or

(5) of the securities exchange act of 1934, 15 USC 78c, or a person

included in the unitary business group of that broker or dealer

that buys and sells for its own account, contracts that are subject

to the commodity exchange act, 7 USC 1 to 27f, amounts realized

from the repayment, maturity, sale, or redemption of the principal

of a loan, bond, or mutual fund, certificate of deposit, or similar

marketable instrument provided such instruments are not held as

inventory.

(r) For a sales finance company, as defined in section 2 of

the motor vehicle sales finance act, 1950 (Ex Sess) PA 27, MCL

492.102, and directly or indirectly owned in whole or in part by a

motor vehicle manufacturer as of January 1, 2008, and for a person

that is a broker or dealer as defined under section 78c(a)(4) or

(5) of the securities exchange act of 1934, 15 USC 78c, or a person

included in the unitary business group of that broker or dealer

that buys and sells for its own account, contracts that are subject

to the commodity exchange act, 7 USC 1 to 27f, the principal amount

received under a repurchase agreement or other transaction properly

characterized as a loan.

(s) For a mortgage company, proceeds representing the

principal balance of loans transferred or sold in the tax year. For

purposes of this subdivision, "mortgage company" means a person

that is licensed under the mortgage brokers, lenders, and servicers

licensing act, 1987 PA 173, MCL 445.1651 to 445.1684, or the

secondary mortgage loan act, 1981 PA 125, MCL 493.51 to 493.81, and

has greater than 90% of its revenues, in the ordinary course of

business, from the origination, sale, or servicing of residential

mortgage loans.

(t) For a professional employer organization, any amount

charged by a professional employer organization that represents the

actual cost of wages and salaries, benefits, worker's compensation,

payroll taxes, withholding, or other assessments paid to or on

behalf of a covered employee by the professional employer

organization under a professional employer arrangement.

(u) Any invoiced items used to provide more favorable floor

plan assistance to a person subject to the tax imposed under this

act than to a person not subject to this tax and paid by a

manufacturer, distributor, or supplier.

(v) For an individual, estate, ~~partnership organized~~

~~exclusively for estate or gift planning purposes,~~ or ~~trust~~ other

person organized ~~exclusively~~ for estate or gift planning purposes,

amounts received other than those from transactions, activities,

and sources in the regular course of the taxpayer's trade or

business. ~~, including~~ For purposes of this subdivision, all of the

following apply:

(i) Amounts received from transactions, activities, and sources

in the regular course of the taxpayer's business include, but are

not limited to, the following:

(A) (i) Receipts from tangible and intangible property if the

acquisition, rental, lease, management, or disposition of the

property constitutes integral parts of the taxpayer's regular trade

or business operations.

(B) (ii) Receipts received in the course of the taxpayer's

trade or business from stock and securities of any foreign or

domestic corporation and dividend and interest income.

~~assignment~~ assignments, licenses, divisions, or other infrequently

occurring dispositions, transfers, or transactions involving

tangible, intangible, or real property if the property is or was

used in the taxpayer's trade or business operation.

(D) (iv) Receipts derived from the sale of an interest in a

business.

(E) (v) Receipts ~~excluded from gross receipts under this~~

~~subsection for an individual, estate, partnership organized~~

~~exclusively for estate or gift planning purposes, or trust~~

~~organized exclusively for estate or gift planning purposes~~ derived

from the lease or rental of real property.

(ii) Receipts excluded from gross receipts include, but are not

limited to, the following:

(A) ~~Personal~~ Receipts derived from investment activity,

including interest, dividends, royalties, and gains from ~~a personal~~

an investment portfolio or retirement account, if the investment

activity is not part of the taxpayer's trade or business.

(B) ~~Disposition~~ Receipts derived from the disposition of

tangible, intangible, or real property held for personal use and

enjoyment, such as a personal residence or personal assets.

(w) Receipts derived from investment activity by a person that

is organized exclusively to conduct investment activity and that

does not conduct investment activity for any person other than an

individual or a person related to that individual or by a common

trust fund established under the collective investment funds act,

1941 PA 174, MCL 555.101 to 555.113. For purposes of this

subdivision, a person is related to an individual if that person is

a spouse, brother or sister, whether of the whole or half blood or

by adoption, ancestor, lineal descendent of that individual or

related person, or a trust benefiting that individual or 1 or more

persons related to that individual.

(x) Interest income and dividends derived from obligations or

securities of the United States government, this state, or any

governmental unit of this state. As used in this subdivision,

"governmental unit" means that term as defined in section 3 of the

shared credit rating act, 1985 PA 227, MCL 141.1053.

(y) Dividends and royalties received or deemed received from a

foreign operating entity or a person other than a United States

person, including, but not limited to, the amounts determined under

section 78 of the internal revenue code and sections 951 to 964 of

the internal revenue code.

(z) To the extent not deducted as purchases from other firms

under section 203, each of the following:

(i) Sales or use taxes collected from or reimbursed by a

consumer or other taxes the taxpayer collected directly from or was

reimbursed by a purchaser and remitted to a local, state, or

federal tax authority.

(ii) In the case of receipts from the sale of cigarettes or

tobacco products by a wholesale dealer, retail dealer, distributor,

manufacturer, or seller, an amount equal to the federal and state

excise taxes paid by any person on or for such cigarettes or

tobacco products under subtitle E of the internal revenue code or

other applicable state law.

(iii) In the case of receipts from the sale of motor fuel by a

person with a motor fuel tax license or a retail dealer, an amount

Senate Bill No. 1038 (H-11) as amended June 28, 2008

equal to federal and state excise taxes paid by any person on such

motor fuel under section 4081 of the internal revenue code or under

other applicable state law.

(iv) In the case of receipts from the sale of beer, wine, or

intoxicating liquor by a person holding a license to sell,

distribute, or produce those products, an amount equal to federal

and state excise taxes paid by any person on or for such beer,

wine, or intoxicating liquor under subtitle E of the internal

revenue code or other applicable state law.

(v) In the case of receipts from the sale of communication,

video, internet access and related services and equipment, any

government imposed tax, fee, or other imposition in the nature of a

tax or fee required by law, ordinance, regulation, ruling, or other

legal authority and [authorized to be] charged on a customer's bill or

invoice. This

subparagraph does not include the recovery of net income taxes, net

worth taxes, property taxes, or the tax imposed under this act.

(vi) In the case of receipts from the sale of electricity,

natural gas, or other energy source, any government imposed tax,

fee, or other imposition in the nature of a tax or fee required by

law, ordinance, regulation, ruling, or other legal authority and

[authorized to be]

charged on a customer's bill or invoice. This subparagraph does not

include the recovery of net income taxes, net worth taxes, property

taxes, or the tax imposed under this act.

(vii) Any deposit required under any of the following:

(A) 1976 IL 1, MCL 445.571 to 445.576.

(B) R 436.1629 of the Michigan administrative code.

(D) Any substantially similar beverage container deposit law

of another state.

(aa) Amounts attributable to an ownership interest in a pass-

through entity, regulated investment company, real estate

investment trust, or cooperative corporation whose business

activities are taxable under section 203 or would be subject to the

tax under section 203 if the business activities were in this

state. For purposes of this subdivision:

(i) "Cooperative corporation" means those organizations

described under subchapter T of the internal revenue code.

(ii) "Pass-through" entity means a partnership, subchapter S

corporation, or other person, other than an individual, that is not

classified for federal income tax purposes as an association taxed

as a corporation.

(iii) "Real estate investment trust" means that term as defined

under section 856 of the internal revenue code.

(iv) "Regulated investment company" means that term as defined

under section 851 of the internal revenue code.

(2) "Insurance company" means an authorized insurer as defined

in section 106 of the insurance code of 1956, 1956 PA 218, MCL

500.106.

(3) "Internal revenue code" means the United States internal

revenue code of 1986 in effect on January 1, 2008 or, at the option

of the taxpayer, in effect for the tax year.

(4) "Inventory" means, except as provided in subdivision (e),

all of the following:

(a) The stock of goods held for resale in the regular course

of trade of a retail or wholesale business, including electricity

or natural gas purchased for resale.

(b) Finished goods, goods in process, and raw materials of a

manufacturing business purchased from another person.

under the Michigan vehicle code, 1949 PA 300, MCL 257.1 to 257.923,

floor plan interest expenses for new motor vehicles. For purposes

of this subdivision, "floor plan interest" means interest paid that

finances any part of the person's purchase of new motor vehicle

inventory from a manufacturer, distributor, or supplier. However,

amounts attributable to any invoiced items used to provide more

favorable floor plan assistance to a person subject to the tax

imposed under this act than to a person not subject to this tax is

considered interest paid by a manufacturer, distributor, or

supplier.

(d) For a person that is a broker or dealer as defined under

section 78c(a)(4) or (5) of the securities exchange act of 1934, 15

USC 78c, or a person included in the unitary business group of that

broker or dealer that buys and sells for its own account, contracts

that are subject to the commodity exchange act, 7 USC 1 to 27f, the

cost of securities as defined under section 475(c)(2) of the

internal revenue code and the cost of commodities as defined under

section 475(e)(2)(b), (c), and (d) of the internal revenue code,

excluding interest expense other than interest expense related to

repurchase agreements.

(e) Inventory does not include either of the following:

(i) Personal property under lease or principally intended for

lease rather than sale.

(ii) Property allowed a deduction or allowance for depreciation

or depletion under the internal revenue code.

(5) "Officer" means an officer of a corporation other than a

subchapter S corporation, including all of the following:

(a) The chairperson of the board.

(b) The president, vice president, secretary, or treasurer of

the corporation or board.

subdivisions (a) and (b).

Enacting section 1. This amendatory act is retroactive and

effective for taxes levied on and after January 1, 2008.

Enacting section 2. This amendatory act does not take effect

unless all of the following bills of the 94th Legislature are

enacted into law:

(a) House Bill No. 4301.

(b) House Bill No. 4628.