On July 12, 2007 Governor Granholm signed into law the Michigan Business Tax (MBT) which will replace the Single Business Tax (SBT).  For taxpayers other than financial institutions and insurance companies the MBT imposes two taxes on Michigan businesses and provides commercial and industrial personal property tax relief.  On December 1, 2007 the Governor signed legislation implementing a surcharge on the MBT and various other changes to the original tax act.  Below is a synopsis of the MBT in its current form.

Modified Gross Receipts Tax

This tax is imposed at 0.8% for each “Unitary Business Group” on a tax base composed of gross receipts less purchases from other firms.  “Gross Receipts” is defined as all receipts less those specifically excluded.  The MBT definition is similar the SBT for gross receipts.

The subtraction for “purchases from other firms” includes acquired inventory, depreciable and amortizable assets, repair parts and fuel, and construction subcontractor costs.

Business Income Tax

This tax base begins with federal taxable income and is imposed at 4.95% on each “Unitary Business Group”.   The tax base is subject to specific additions and subtractions.  The additions include state & local income taxes and federal net operating loss carryforwards.  Subtractions include interest income from U.S. securities and net earnings from self-employment that are not a reasonable return on capital.

Unitary Business Group

A unitary business group includes multiple entities where one of the members or shareholders controls directly or indirectly more than 50% of each business activity, and there is a flow of value or integrated business activity or operation between or among the business activities.  Inter-company transactions are usually eliminated in determining the MBT bases.

Apportionment

Under the MBT act apportionment of sales out of Michigan can only happen if you have nexus in another state using the MBT nexus standards.  Under these standards you will need over $350,000 of sales or more than 1 day of presence in another state to claim nexus in that state.  Apportionment is figured at the unitary group level and therefore all Michigan and non-Michigan sales are taken into consideration.

Surcharge

A 21.99% surcharge (for non-financial institutions) will be added to your tax after apportionment and before credits are taken.  This surcharge was enacted to replace the use tax on services December 1, 2007 and will possibly sunset January 1, 2017 if certain economic conditions are met at that time.

Credits

Generally, unused SBT carryforward credits may be applied to the MBT for 2008 and 2009.  Historic preservation and Brownfield redevelopment credits are carried forward for the same period as under the SBT.  New MBT credits include a .296% (.37% after 2008) credit for compensation, 2.32% (2.9% after 2008) of costs related to purchases of tangible personal property, a research and development credit equal to 1.52% (1.9% after 2008) of qualifying costs, an alternate tax credit that results in total MBT liability of 1.8% of adjusted business income for qualifying entities, and a personal property tax credit for 35% of tax paid on industrial personal property assessed and paid within the year.

Based on the revised MBT, it will be important to note the order in which credits are applied and the amount of tax which may be offset by each credit as the limits have been adjusted.

Reduction of Personal Property Taxes

As part of the new MBT legislation there is a reduction in commercial and industrial personal property taxes.  The commercial personal property taxes were reduced 12 mills and the industrial personal property taxes were reduced 24 mills starting January 1, 2008.  Companies should review their personal property tax statements to make sure personal property is classified correctly.  All leased property should be classified as commercial even if it is an industrial type asset in nature.

Provided as a service of Dolinka VanNoord & Company, PLLP.  We have reviewed the information contained herein and believe it to be correct.  However, we cannot accept responsibility for its content or application.

Please consult with us before acting on any tax advice.