October 31, 2007, Introduced by Rep. Coulouris and referred to the Committee on Tax Policy.
A bill to amend 2007 PA 36, entitled
"Michigan business tax act,"
by amending sections 201, 203, 235, 263, 417, and 601 (MCL
208.1201, 208.1203, 208.1235, 208.1263, 208.1417, and 208.1601),
section 201 as amended by 2007 PA 90; and to repeal acts and parts
of acts.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 201. (1) Except as otherwise provided in this act, there
is levied and imposed a business income tax on every taxpayer with
business
activity within in this state unless prohibited by 15 USC
381 to 384. The business income tax is imposed on the business
income tax base, after allocation or apportionment to this state,
at the rate of 4.95%.
(2) The business income tax base means a taxpayer's business
income subject to the following adjustments, before allocation or
apportionment, and the adjustment in subsection (5) after
allocation or apportionment:
(a) Add interest income and dividends derived from obligations
or
securities of states a
state other than this state, in the
same
amount that was excluded from federal taxable income, less the
related portion of expenses not deducted in computing federal
taxable income because of sections 265 and 291 of the internal
revenue code.
(b) Add all taxes on or measured by net income and the tax
imposed under this act to the extent the taxes were deducted in
arriving at federal taxable income.
(c) Add any carryback or carryover of a net operating loss to
the extent deducted in arriving at federal taxable income.
(d) To the extent included in federal taxable income, deduct
dividends and royalties received from entities or persons other
than United States persons and foreign operating entities,
including, but not limited to, amounts determined under section 78
of the internal revenue code or sections 951 to 964 of the internal
revenue code.
(e) To the extent included in federal taxable income, add the
loss or subtract the income from the business income tax base that
is attributable to another entity or person whose business
activities are taxable under this section or would be subject to
the tax under this section if the business activities were in this
state.
(f) Except as otherwise provided under this subdivision, to
the extent deducted in arriving at federal taxable income, add any
royalty,
interest, or other expense paid to a an entity or person
related to the taxpayer by ownership or control for the use of an
intangible asset if the person is not included in the taxpayer's
unitary business group. The addition of any royalty, interest, or
other expense described under this subdivision is not required to
be added if the taxpayer can demonstrate that the transaction has a
nontax business purpose other than avoidance of this tax, is
conducted with arm's-length pricing and rates and terms as applied
in accordance with sections 482 and 1274(d) of the internal revenue
code, and satisfies 1 of the following:
(i) Is a pass through of another transaction between a third
party and the related person with comparable rates and terms.
(ii) Results in double taxation. For purposes of this
subparagraph, double taxation exists if the transaction is subject
to tax in another jurisdiction.
(iii) Is unreasonable as determined by the treasurer, and the
taxpayer agrees that the addition would be unreasonable based on
the taxpayer's facts and circumstances.
(g) To the extent included in federal taxable income, deduct
interest income derived from United States obligations.
(h) To the extent included in federal taxable income, deduct
any earnings that are net earnings from self-employment as defined
under section 1402 of the internal revenue code of the taxpayer or
a partner or limited liability company member of the taxpayer
except to the extent that those net earnings represent a reasonable
return on capital.
(i) Subject to the limitation provided under this subdivision,
if the book-tax differences for the first fiscal period ending
after July 12, 2007 result in a deferred liability for a person
subject to tax under this act, deduct the following percentages of
the total book-tax difference for each qualifying asset, for each
of the successive 15 tax years beginning with the 2015 tax year:
(i) For the 2015 through 2019 tax years, 4%.
(ii) For the 2020 through 2024 tax years, 6%.
(iii) For the 2025 through 2029 tax years, 10%.
(3) The deduction under subsection (2)(i) shall not exceed the
amount necessary to offset the net deferred tax liability of the
taxpayer as computed in accordance with generally accepted
accounting principles which would otherwise result from the
imposition of the business income tax under this section and the
modified gross receipts tax under section 203 if the deduction
provided under this subdivision were not allowed. For purposes of
the calculation of the deduction under subsection (2)(i), a book-
tax difference shall only be used once in the calculation of the
deduction arising from the taxpayer's business income tax base
under this section and once in the calculation of the deduction
arising from the taxpayer's modified gross receipts tax base under
section 203. The adjustment under subsection (2)(i) shall be
calculated without regard to the federal effect of the deduction.
If the adjustment under subsection (2)(i) is greater than the
taxpayer's business income tax base, any adjustment that is unused
may be carried forward and applied as an adjustment to the
taxpayer's business income tax base before apportionment in future
years. In order to claim this deduction, the department may require
the taxpayer to report the amount of this deduction on a form as
prescribed by the department that is to be filed on or after the
date that the first quarterly return and estimated payment are due
under this act. As used in subsection (2)(i) and this subsection:
(a) "Book-tax difference" means the difference, if any,
between the person's qualifying asset's net book value shown on the
person's books and records for the first fiscal period ending after
July 12, 2007 and the qualifying asset's tax basis on that same
date.
(b) "Qualifying asset" means any asset shown on the person's
books and records for the first fiscal period ending after July 12,
2007, in accordance with generally accepted accounting principles.
(4) For purposes of subsections (2) and (3), the business
income of a unitary business group is the sum of the business
income of each entity or person, other than a foreign operating
entity or a person subject to the tax imposed under chapter 2A or
2B, included in the unitary business group less any items of income
and related deductions arising from transactions including
dividends between persons included in the unitary business group.
(5) Deduct any available business loss incurred after December
31, 2007. As used in this subsection, "business loss" means a
negative business income taxable amount after allocation or
apportionment. The business loss shall be carried forward to the
year immediately succeeding the loss year as an offset to the
allocated or apportioned business income tax base, then
successively to the next 9 taxable years following the loss year or
until the loss is used up, whichever occurs first, but for not more
than 10 taxable years after the loss year.
Sec. 203. (1) Except as otherwise provided in this act, there
is levied and imposed a modified gross receipts tax on every
taxpayer with nexus as determined under section 200. The modified
gross receipts tax is imposed on the modified gross receipts tax
base, after allocation or apportionment to this state at a rate of
0.80%.
(2) The tax levied and imposed under this section is upon the
privilege of doing business and not upon income or property.
(3) The modified gross receipts tax base means a taxpayer's
gross receipts less purchases from other firms before apportionment
under this act. The modified gross receipts of a unitary business
group is the sum of modified gross receipts of each entity or
person, other than a foreign operating entity or a person subject
to the tax imposed under chapter 2A or 2B, included in the unitary
business group less any modified gross receipts arising from
transactions between entities or persons included in the unitary
business group.
(4) For the 2008 tax year, deduct 65% of any remaining
business loss carryforward calculated under section 23b(h) of
former 1975 PA 228 that was actually incurred in the 2006 or 2007
tax year to the extent not deducted in tax years beginning before
January 1, 2008. A deduction under this subsection shall not
include any business loss carryforward that was incurred before
January 1, 2006. If the taxpayer is a unitary business group, the
business loss carryforward under this subsection may only be
deducted against the modified gross receipts tax base of that
entity or person included in the unitary business group calculated
as if the entity or person was not included in the unitary business
group.
(5) Nothing in this act shall prohibit a taxpayer who
qualifies for the credit under section 445 or a taxpayer who is a
dealer of new or used personal watercraft from collecting the tax
imposed under this section in addition to the sales price. The
amount remitted to the department for the tax under this section
shall not be less than the stated and collected amount.
Sec. 235. (1) Each An insurance
company shall pay a the tax
determined
levied and imposed under this chapter.
(2)
The An insurance company
shall pay a tax imposed by this
chapter
on each insurance company shall be a tax equal to 1.25% of
gross direct premiums written on property or risk located or
residing in this state. Direct premiums do not include any of the
following:
(a) Premiums on policies not taken.
(b) Returned premiums on canceled policies.
(c) Receipts from the sale of annuities.
(d) Receipts on reinsurance premiums if the tax has been paid
on the original premiums.
(e) The first $190,000,000.00 of disability insurance premiums
written in this state, other than credit insurance and disability
income insurance premiums, of each insurance company subject to tax
under this chapter. This exemption shall be reduced by $2.00 for
each $1.00 by which the insurance company's gross direct premiums
from insurance carrier services in this state and outside this
state exceed $280,000,000.00.
(3)
The tax calculated levied
and imposed under this chapter
is in lieu of all other privilege or franchise fees or taxes
imposed by this act or any other law of this state, except taxes on
real and personal property, taxes collected under the general sales
tax act, 1933 PA 167, MCL 205.1 to 205.78, and taxes collected
under the use tax act, 1937 PA 94, MCL 205.91 to 205.111, and
except as otherwise provided in the insurance code of 1956, 1956 PA
218, MCL 500.100 to 500.8302.
Sec. 263. (1) Every financial institution with nexus in this
state as determined under section 200 is subject to a franchise tax
levied and imposed under this act. The franchise tax is imposed
upon the tax base of the financial institution as determined under
section 265 after allocation or apportionment to this state, at the
rate of 0.235%.
(2)
The tax under this chapter is in lieu of the a tax
levied
and imposed under chapter 2 of this act.
Sec.
417. (1) The credit provided in under
this section shall
be taken after the credits under sections 403 and 405 and before
any other credit under this act and is available to any taxpayer
with gross receipts that do not exceed $20,000,000.00 and with
adjusted business income minus the loss adjustment that does not
exceed $1,300,000.00 as adjusted annually for inflation using the
Detroit consumer price index and subject to the following:
(a) An individual, a partnership, a limited partnership, a
limited liability company, or a subchapter S corporation is
disqualified if the individual, any 1 partner of the partnership,
any 1 partner of the limited partnership, any 1 member of the
limited liability company, or any 1 shareholder of the subchapter S
corporation receives more than $180,000.00 as a distributive share
of the adjusted business income minus the loss adjustment of the
individual, the partnership, the limited partnership, the limited
liability company, or the subchapter S corporation.
(b) A corporation other than a subchapter S corporation is
disqualified if either of the following occur for the respective
tax year:
(i) Compensation and directors' fees of a shareholder or
officer exceed $180,000.00.
(ii) The sum of the following amounts exceeds $180,000.00:
(A) Compensation and directors' fees of a shareholder.
(B) The product of the percentage of outstanding ownership or
of outstanding stock owned by that shareholder multiplied by the
difference between the sum of business income and, to the extent
deducted in determining federal taxable income, a carryback or a
carryover of a net operating loss or capital loss, minus the loss
adjustment.
(c) Subject to the reduction percentage determined under
subsection (3), the credit determined under this subsection shall
be reduced by the following percentages in the following
circumstances:
(i) If an individual, any 1 partner of the partnership, any 1
partner of the limited partnership, any 1 member of the limited
liability company, or any 1 shareholder of the subchapter S
corporation receives as a distributive share of adjusted business
income minus the loss adjustment of the individual, partnership,
limited partnership, limited liability company, or subchapter S
corporation; if compensation and directors' fees of a shareholder
or officer of a corporation other than a subchapter S corporation
are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B)
is more than $160,000.00 but less than $165,000.00, the credit is
reduced by 20%.
(ii) If an individual, any 1 partner of the partnership, any 1
partner of the limited partnership, any 1 member of the limited
liability company, or any 1 shareholder of the subchapter S
corporation receives as a distributive share of adjusted business
income minus the loss adjustment of the individual, partnership,
limited partnership, limited liability company, or subchapter S
corporation; if compensation and directors' fees of a shareholder
or officer of a corporation other than a subchapter S corporation
are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B)
is $165,000.00 or more but less than $170,000.00, the credit is
reduced by 40%.
(iii) If an individual, any 1 partner of the partnership, any 1
partner of the limited partnership, any 1 member of the limited
liability company, or any 1 shareholder of the subchapter S
corporation receives as a distributive share of adjusted business
income minus the loss adjustment of the individual, partnership,
limited partnership, limited liability company, or subchapter S
corporation; if compensation and directors' fees of a shareholder
or officer of a corporation other than a subchapter S corporation
are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B)
is $170,000.00 or more but less than $175,000.00, the credit is
reduced by 60%.
(iv) If an individual, any 1 partner of the partnership, any 1
partner of the limited partnership, any 1 member of the limited
liability company, or any 1 shareholder of the subchapter S
corporation receives as a distributive share of adjusted business
income minus the loss adjustment of the individual, partnership,
limited partnership, limited liability company, or subchapter S
corporation; if compensation and directors' fees of a shareholder
or officer of a corporation other than a subchapter S corporation
are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B)
is $175,000.00 or more but not in excess of $180,000.00, the credit
is reduced by 80%.
(2) For the purposes of determining disqualification under
subsection (1), an active shareholder's share of business income
shall not be attributed to another active shareholder.
(3) To determine the reduction percentage under subsection
(1)(c), the following apply:
(a) The reduction percentage for a partnership, limited
partnership, limited liability company, or subchapter S corporation
is based on the distributive share of adjusted business income
minus loss adjustment of the partner, limited partner, member, or
shareholder with the greatest distributive share of adjusted
business income minus loss adjustment.
(b) The reduction percentage for a corporation other than a
subchapter S corporation is the greater of the following:
(i) The reduction percentage based on the compensation and
directors' fees of the shareholder or officer with the greatest
amount of compensation and directors' fees.
(ii) The reduction percentage based on the sum of the amounts
in subsection (1)(b)(ii)(A) and (B) for the shareholder or officer
with the greatest sum of the amounts in subsection (1)(b)(ii)(A) and
(B).
(4) A taxpayer that qualifies under subsection (1) is allowed
a credit against the tax imposed under this act. The credit under
this subsection is the amount by which the tax imposed under this
act exceeds 1.8% of adjusted business income.
(5) If gross receipts exceed $19,000,000.00, the credit shall
be reduced by a fraction, the numerator of which is the amount of
gross receipts over $19,000,000.00 and the denominator of which is
$1,000,000.00. The credit shall not exceed 100% of the tax
liability imposed under this act.
(6) For a taxpayer that reports for a tax year less than 12
months, the amounts specified in this section for gross receipts,
adjusted business income, and share of business income shall be
multiplied by a fraction, the numerator of which is the number of
months in the tax year and the denominator of which is 12.
(7) The department shall permit a taxpayer that elects to
claim the credit allowed under this section based on the amount by
which the tax imposed under this act exceeds the percentage of
adjusted business income for the tax year as determined under
subsection (4), and that is not required to reduce the credit
pursuant to subsection (1) or (5), to file and pay the tax imposed
by
this act without computing the a
tax imposed under sections 201
and 203.
(8) Compensation paid by the professional employer
organization to the officers of the client and to employees of the
professional employer organization who are assigned or leased to
and perform services for the client shall be included in
determining eligibility of the client under this section.
(9) As used in this section:
(a) "Active shareholder" means a shareholder who receives at
least $10,000.00 in compensation, directors' fees, or dividends
from the business, and who owns at least 5% of the outstanding
stock or other ownership interest.
(b) "Adjusted business income" means business income as
defined in section 105 with all of the following adjustments:
(i) Add compensation and directors' fees of active shareholders
of a corporation.
(ii) Add, to the extent deducted in determining federal taxable
income, a carryback or a carryover of a net operating loss.
(iii) Add, to the extent deducted in determining federal taxable
income, a capital loss.
(iv) Add compensation and directors' fees of officers of a
corporation.
(c) "Detroit consumer price index" means the most
comprehensive index of consumer prices available for the Detroit
area from the United States department of labor, bureau of labor
statistics.
(d) "Loss adjustment" means the amount by which adjusted
business income was less than zero in any of the 5 tax years
immediately preceding the tax year for which eligibility for the
credit under this section is being determined. In determining the
loss adjustment for a tax year, a taxpayer is not required to use
more of the taxpayer's total negative adjusted business income than
the amount needed to qualify the taxpayer for the credit under this
section. A taxpayer shall not be considered to have used any
portion of the taxpayer's negative adjusted business income amount
unless the portion used is necessary to qualify for the credit
under this section. A taxpayer shall not reuse a negative adjusted
business income amount used as a loss adjustment in a previous tax
year or use a negative adjusted business income amount from a year
in which the taxpayer did not receive the credit under this
section.
Sec. 601. (1) For the 2008 fiscal year, except as otherwise
provided under subsection (4), if total net cash payments from the
tax imposed under this act plus any net cash payments from former
1975 PA 228 less any net cash payments made by insurance companies
under
either act this act or
former 1975 PA 228 exceed
$2,398,000,000.00, 50% of that excess shall be refunded in the
immediately succeeding fiscal year as provided in subsection (5)
and
the remaining 50% shall be deposited into the countercyclical
budget
and economic stabilization fund. pursuant to section 353 of
the
management and budget act, 1984 PA 431, MCL 18.1353.
(2) For the 2009 fiscal year, except as otherwise provided
under subsection (4), if total net cash payments from the tax
imposed under this act, excluding any revenue collected pursuant to
chapter 2A, exceed the fiscal year 2009 base, 50% of that excess
shall be refunded in the immediately succeeding fiscal year as
provided in subsection (5) and the remaining 50% shall be deposited
into
the countercyclical budget and economic stabilization fund.
pursuant
to section 353 of the management and budget act, 1984 PA
431,
MCL 18.1353. To calculate the
fiscal year 2009 base, the
department shall multiply $2,398,000,000.00 by 1.01 and then
multiply this product by 2009 fiscal year Michigan personal income
divided by 2008 fiscal year Michigan personal income.
(3) For the 2010 fiscal year, except as otherwise provided
under subsection (4), if total net cash payments from the tax
imposed under this act, excluding any revenue collected pursuant to
chapter 2A, exceed the fiscal year 2010 base, 50% of that excess
shall be refunded in the immediately succeeding fiscal year as
provided in subsection (5) and the remaining 50% shall be deposited
into
the countercyclical budget and economic stabilization fund.
pursuant
to section 353 of the management and budget act, 1984 PA
431,
MCL 18.1353. To calculate the
fiscal year 2010 base, the
department shall multiply $2,398,000,000.00 by 1.0201 and then
multiply this product by 2010 fiscal year Michigan personal income
divided by 2008 fiscal year Michigan personal income.
(4) If the amount of the total net cash payments collected
from the tax imposed under this act, excluding any revenue
collected pursuant to chapter 2A, exceeds the amount described in
the applicable subsection by less than $5,000,000.00, then all of
that
excess shall be deposited into the countercyclical budget and
economic
stabilization fund. pursuant
to section 353 of the
management
and budget act, 1984 PA 431, MCL 18.1353.
(5)
The refund available authorized
under subsection (1), (2),
or (3) shall be applied pro rata to the taxpayers that made
positive net cash payments during the fiscal year. The taxpayer's
pro rata share shall be the total amount to be refunded under
subsection (1), (2), or (3) multiplied by a fraction the numerator
of which is the positive net payments made by the taxpayer during
the fiscal year and the denominator of which is the sum of the
positive net cash payments made by all taxpayers during the fiscal
year.
(6) As used in this section:
(a) "Budget stabilization fund" means the countercyclical
budget and economic stabilization fund created under section 351 of
the management and budget act, 1984 PA 431, MCL 18.1351.
(b) (a)
"Fiscal year" means the
state fiscal year that
commences October 1 and continues through September 30.
(c) (b)
"Fiscal year Michigan
personal income" is means
the
average of the 4 quarterly values for the fiscal year, as published
by the United States department of commerce, bureau of economic
analysis. Fiscal year personal income for subsection (2) is
calculated using the personal income totals published in December
2009. Fiscal year personal income for subsection (3) is calculated
using the personal income totals published in December 2010.
(d) (c)
"Net cash payments" for
the fiscal year are equal to
cash annual and estimated payments made during the fiscal year less
refunds paid during the fiscal year. Refunds paid under this
section are not used to reduce net cash payments for purposes of
calculating refunds paid out under this section.
Enacting section 1. (1) Section 6a of the use tax act, 1937 PA
94, MCL 205.96a, is repealed effective December 31, 2010.
(2) Sections 353c, 353e, and 353f of the management and budget
act, 1984 PA 431, MCL 18.1353c, 18.1353e, and 18.1353f, are
repealed.
Enacting section 2. This amendatory act takes effect January
1, 2008 and applies to all business activity occurring after
December 31, 2007.