June 26, 2008, Introduced by Reps. Meisner and Condino and referred to the Committee on Tax Policy.
A bill to amend 2007 PA 36, entitled
"Michigan business tax act,"
by amending section 201 (MCL 208.1201), as amended by 2007 PA 145.
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 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 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
(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 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 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 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%.
(j) To the extent included in federal taxable income, deduct
any income derived from the cancellation of debt, or other
disposition of property, related to the foreclosure of property
owned by the taxpayer used in the taxpayer's regular business
activity or any other transaction such as a deed in lieu of
foreclosure or sale by a court-appointed receiver entered into
under the threat of foreclosure on property owned by the taxpayer
and used in the taxpayer's regular business activity.
(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. The deduction
under subsection (2)(i) is intended to flow through and reduce the
surcharge imposed and levied under section 281. 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
(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 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.