HOUSE BILL No. 4993 October 13, 1999, Introduced by Reps. Green, Sheltrown, Jelinek, Spade, Neumann, Frank, Birkholz, Jellema, Kukuk, Rick Johnson, Rivet, Julian, Cameron Brown, Gosselin, Ehardt, Garcia and Law and referred to the Committee on Agriculture and Resource Management. A bill to amend 1994 PA 451, entitled "Natural resources and environmental protection act," by amending section 36109 (MCL 324.36109), as amended by 1996 PA 233. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 36109. (1) An owner of farmland and related buildings 2 covered by 1 or more development rights agreements meeting the 3 requirements of this part who is required or eligible to file a 4 return as an individual or a claimant under the state income tax 5 act may claim a credit against the state income tax liability for 6 the amount by which the property taxes on the land and structures 7 used in the farming operation, including the homestead, 8 restricted by the development rights agreementsexceed 7%9 EXCEEDS 1% FOR TAX YEARS 1999, 2000, 2001, AND 2002, AND 7% FOR 10 TAX YEARS THEREAFTER, of the household income as defined in 04590'99 JCB 2 1 chapter 9 of the state income tax act,being sections 206.501 to2206.532 of the Michigan Compiled Laws1967 PA 281, MCL 206.501 3 TO 206.532, excluding a deduction if taken under section 613 of 4 the internal revenue code of 1986., 26 U.S.C. 613.For the 5 purposes of this section, all of the following apply: 6 (a) A partner in a partnership is considered an owner of 7 farmland and related buildings covered by a development rights 8 agreement that are owned by the partnership. A partner is con- 9 sidered to pay a proportion of the property taxes on that prop- 10 erty equal to the partner's share of ownership of capital or dis- 11 tributive share of ordinary income as reported by the partnership 12 to the internal revenue service or, if the partnership is not 13 required to report that information to the internal revenue serv- 14 ice, as provided in the partnership agreement or, if there is no 15 written partnership agreement, a statement signed by all the 16 partners. A partner claiming a credit under this section based 17 upon the partnership agreement or a statement shall file a copy 18 of the agreement or statement with his or her income tax return. 19 If the agreement or statement is not filed, the department of 20 treasury shall deny the credit. All partners in a partnership 21 claiming the credit allowed under this section shall compute the 22 credit using the same basis for the apportionment of the property 23 taxes. 24 (b) A shareholder of a corporation that has filed a proper 25 election under subchapter S of chapter 1 of SUBTITLE A OF the 26 internal revenue code of 1986, 26 U.S.C. 1361 to 1379, is 27 considered an owner of farmland and related buildings covered by 04590'99 3 1 a development rights agreement that are owned by the 2 corporation. A shareholder is considered to pay a proportion of 3 the property taxes on that property equal to the shareholder's 4 percentage of stock ownership for the tax year as reported by the 5 corporation to the internal revenue service. Except as provided 6 in subsection (8), this subdivision applies to tax years begin- 7 ning after 1987. 8 (c) Except as otherwise provided in this subdivision, an 9 individual in possession of property for life under a life estate 10 with remainder to another person or holding property under a life 11 lease is considered the owner of that property if it is farmland 12 and related buildings covered by a development rights agreement. 13 Beginning January 1, 1986, if an individual in possession of 14 property for life under a life estate with remainder to another 15 person or holding property under a life lease enters into a writ- 16 ten agreement with the person holding the remainder interest in 17 that land and the written agreement apportions the property taxes 18 in the same manner as revenue and expenses, the life lease or 19 life estate holder and the person holding the remainder interest 20 may claim the credit under this act as it is apportioned to them 21 under the written agreement upon filing a copy of the written 22 agreement with the return. 23 (d) If a trust holds farmland and related buildings covered 24 by a development rights agreement and an individual is treated 25 under subpart E of subchapter J of SUBCHAPTER A OF chapter 1 of 26 the internal revenue code of 1986, 26 U.S.C. 671 to 679, as the 27 owner of that portion of the trust that includes the farmland and 04590'99 4 1 related buildings, that individual is considered the owner of 2 that property. 3 (e) An individual who is the sole beneficiary of a trust 4 that is the result of the death of that individual's spouse is 5 considered the owner of farmland and related buildings covered by 6 a development rights agreement and held by the trust if the trust 7 conforms to all of the following: 8 (i) One hundred percent of the trust income is distributed 9 to the beneficiary in the tax year in which the trust receives 10 the income. 11 (ii) The trust terms do not provide that any portion of the 12 trust is to be paid, set aside, or otherwise used in a manner 13 that would qualify for the deduction allowed by section 642(c) of 14 the internal revenue code of 1986., 26 U.S.C. 642.15 (f) A member in a limited liability company is considered an 16 owner of farmland and related buildings covered by a development 17 rights agreement that are owned by the limited liability 18 company. A member is considered to pay a proportion of the prop- 19 erty taxes on that property equal to the member's share of owner- 20 ship or distributive share of ordinary income as reported by the 21 limited liability company to the internal revenue service. 22 (2) An owner of farmland and related buildings covered by 1 23 or more development rights agreements meeting the requirements of 24 this part to whom subsection (1) does not apply may claim a 25 credit under the single business tax act,Act No. 228 of the26Public Acts of 1975, being sections 208.1 to 208.145 of the27Michigan Compiled Laws1975 PA 228, MCL 208.1 TO 208.145, for 04590'99 5 1 the amount by which the property taxes on the land and structures 2 used in farming operations restricted by the development rights 3 agreementsexceed 7%EXCEEDS 1% FOR TAX YEARS 1999, 2000, 2001, 4 AND 2002, AND 7% FOR TAX YEARS THEREAFTER, of the adjusted busi- 5 ness income of the owner as defined in section 36 ofAct No. 2286of the Public Acts of 1975, being section 208.36 of the Michigan7Compiled LawsTHE SINGLE BUSINESS TAX ACT, 1975 PA 228, 8 MCL 208.36, plus compensation to shareholders not included in 9 adjusted business income, excluding any deductions if taken under 10 section 613 of the internal revenue code of 1986., 2611U.S.C. 613.When calculating adjusted business income for tax 12 years beginning before 1987, federal taxable income shall not be 13 less than zero for the purposes of this subsection only. A par- 14 ticipant is not eligible to claim a credit and refund against the 15 state single business tax unless the participant demonstrates 16 that the participant's agricultural gross receipts of the farming 17 operation exceed 5 times the property taxes on the land for each 18 of 3 out of the 5 tax years immediately preceding the year in 19 which the credit is claimed. This eligibility requirement does 20 not apply to those participants who executed farmland development 21 rights agreements under this part before January 1, 1978. A par- 22 ticipant may compare, during the contract period, the average of 23 the most recent 3 years of agricultural gross receipts to prop- 24 erty taxes in the first year that the participant entered the 25 program under the present contract in calculating the gross 26 receipts qualification. Once an election is made by the 04590'99 6 1 participant to compute the benefit in this manner, all future 2 calculations shall be made in the same manner. 3 (3) If the farmland and related buildings covered by a 4 development rights agreement are owned by more than 1 owner, each 5 owner is allowed to claim a credit under this section based upon 6 that owner's share of the property tax payable on the farmland 7 and related buildings. The department of treasury shall consider 8 the property tax equally apportioned among the owners unless a 9 written agreement signed by all the owners is filed with the 10 return, which agreement apportions the property taxes in the same 11 manner as all other items of revenue and expense. If the prop- 12 erty taxes are considered equally apportioned, a husband and wife 13 shall be considered 1 owner, and a person with respect to whom a 14 deduction under section 151 of the internal revenue code of 1986 15, 26 U.S.C. 151,is allowable to another owner of the property 16 shall not be considered an owner. 17 (4) A beneficiary of an estate or trust to which subsection 18 (1) does not apply is entitled to the same percentage of the 19 credit provided in this section as that person's percentage of 20 all other distributions by the estate or trust. 21 (5) If the allowable amount of the credit claimed exceeds 22 the state income tax or the state single business tax otherwise 23 due for the tax year or if there is no state income tax or the 24 state single business tax due for the tax year, the amount of the 25 claim not used as an offset against the state income tax or the 26 state single business tax, after examination and review, shall be 27 approved for payment to the claimant pursuant toAct No. 122 of04590'99 7 1the Public Acts of 1941, being sections 205.1 to 205.31 of the2Michigan Compiled Laws1941 PA 122, MCL 205.1 TO 205.31. The 3 total credit allowable under this part and chapter 9 of the state 4 income tax act or the single business tax act,Act No. 228 of5the Public Acts of 19751975 PA 228, MCL 208.1 TO 208.145, shall 6 not exceed the total property tax due and payable by the claimant 7 in that year. The amount the credit exceeds the property tax due 8 and payable shall be deducted from the credit claimed under this 9 part. 10 (6) For purposes of audit, review, determination, appeals, 11 hearings, notices, assessments, and administration relating to 12 the credit program provided by this section, the state income tax 13 act or single business tax act,Act No. 228 of the Public Acts14of 1975,1975 PA 228, MCL 208.1 TO 208.145, applies according to 15 which tax the credit is claimed against. If an individual is 16 allowed to claim a credit under subsection (1) based upon prop- 17 erty owned or held by a partnership, S corporation, or trust, the 18 department of treasury may require that the individual furnish to 19 the department a copy of a tax return, or portion of a tax 20 return, and supporting schedules that the partnership, 21 S corporation, or trust files under the internal revenue code. 22 (7) The department of treasury shall account separately for 23 payments under this part and not combine them with other credit 24 programs. A payment made to a claimant for a credit claimed 25 under this part shall be issued by 1 or more warrants made out to 26 the county treasurer in each county in which the claimant's 27 property is located and the claimant, unless the claimant 04590'99 8 1 specifies on the return that a copy of the receipt showing 2 payment of the property taxes that became a lien in the year for 3 which the credit is claimed, or that became a lien in the year 4 before the year for which the credit is claimed, is attached to 5 the income tax or single business tax return filed by the 6 claimant. If the claimant specifies that a copy of the receipt 7 is attached to the return, the payment shall be made directly to 8 the claimant. A warrant made out to a claimant and a county 9 treasurer shall be used first to pay delinquent property taxes, 10 interest, penalties, and fees on property restricted by the 11 development rights agreement. If the warrant exceeds the amount 12 of delinquent taxes, interest, penalties, and fees, the county 13 treasurer shall remit the excess to the claimant. If a claimant 14 falsely specifies that the receipt showing payment of the prop- 15 erty taxes is attached to the return and if the property taxes on 16 the land subject to that development rights agreement were not 17 paid before the return was filed, all future payments to that 18 claimant of credits claimed under this act attributable to that 19 development rights agreement may be made payable to the county 20 treasurer of the county in which the property subject to the 21 development rights agreement is located and to that claimant. 22 (8) For property taxes levied after 1987, a person that was 23 an S corporation and had entered into a development rights agree- 24 ment before January 1, 1989, and paid property taxes on that 25 property, may claim the credit allowed by this section as an 26 owner eligible under subsection (2). A subchapter S corporation 27 claiming a credit as permitted by this subsection for taxes 04590'99 9 1 levied in 1988 through 1990 shall claim the credit by filing an 2 amended return under the single business tax act,Act No. 228 of3the Public Acts of 19751975 PA 228, MCL 208.1 TO 208.145. If a 4 subchapter S corporation files an amended return as permitted by 5 this subsection and if a shareholder of the subchapter S corpora- 6 tion claimed a credit under subsection (1)(b) for the same prop- 7 erty taxes, the shareholder shall file an amended return under 8 the state income tax act. A subchapter S corporation is not 9 entitled to a credit under this subsection until all of its 10 shareholders file the amended returns required by this 11 subsection. The department of treasury shall first apply a 12 credit due to a subchapter S corporation under this subsection to 13 repay credits claimed under this section by the subchapter S 14 corporation's shareholders for property taxes levied in 1988 15 through 1990 and shall refund any remaining credit to the S 16 corporation. Interest or penalty is not due or payable on an 17 income tax liability resulting from an amended return required by 18 this subsection. A subchapter S corporation electing to claim a 19 credit as an owner eligible under subsection (2) shall not claim 20 a credit under subsection (1) for property taxes levied after 21 1987. 04590'99 Final page. JCB