SENATE BILL NO. 763 September 28, 1999, Introduced by Senators ROGERS, MC MANUS, GOUGEON, STILLE, SIKKEMA, HOFFMAN, STEIL, GAST, VAN REGENMORTER, HAMMERSTROM, JOHNSON, NORTH, BULLARD, SCHWARZ, GOSCHKA and SHUGARS and referred to the Committee on Farming, Agribusiness and Food Systems. 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 agreements exceed7%3.5% 9 of the household income as defined in chapter 9 of the state 10 income tax act,being sections 206.501 to 206.532 of the04441'99 JCB 2 1Michigan Compiled Laws1967 PA 281, MCL 206.501 TO 206.532, 2 excluding a deduction if taken under section 613 of the internal 3 revenue code of 1986., 26 U.S.C. 613.For the purposes of this 4 section, all of the following apply: 5 (a) A partner in a partnership is considered an owner of 6 farmland and related buildings covered by a development rights 7 agreement that are owned by the partnership. A partner is con- 8 sidered to pay a proportion of the property taxes on that prop- 9 erty equal to the partner's share of ownership of capital or dis- 10 tributive share of ordinary income as reported by the partnership 11 to the internal revenue service or, if the partnership is not 12 required to report that information to the internal revenue serv- 13 ice, as provided in the partnership agreement or, if there is no 14 written partnership agreement, a statement signed by all the 15 partners. A partner claiming a credit under this section based 16 upon the partnership agreement or a statement shall file a copy 17 of the agreement or statement with his or her income tax return. 18 If the agreement or statement is not filed, the department of 19 treasury shall deny the credit. All partners in a partnership 20 claiming the credit allowed under this section shall compute the 21 credit using the same basis for the apportionment of the property 22 taxes. 23 (b) A shareholder of a corporation that has filed a proper 24 election under subchapter S of chapter 1 of SUBTITLE A OF the 25 internal revenue code of 1986, 26 U.S.C. 1361 to 1379, is consid- 26 ered an owner of farmland and related buildings covered by a 27 development rights agreement that are owned by the corporation. 04441'99 3 1 A shareholder is considered to pay a proportion of the property 2 taxes on that property equal to the shareholder's percentage of 3 stock ownership for the tax year as reported by the corporation 4 to the internal revenue service. Except as provided in 5 subsection (8), this subdivision applies to tax years beginning 6 after 1987. 7 (c) Except as otherwise provided in this subdivision, an 8 individual in possession of property for life under a life estate 9 with remainder to another person or holding property under a life 10 lease is considered the owner of that property if it is farmland 11 and related buildings covered by a development rights agreement. 12 Beginning January 1, 1986, if an individual in possession of 13 property for life under a life estate with remainder to another 14 person or holding property under a life lease enters into a writ- 15 ten agreement with the person holding the remainder interest in 16 that land and the written agreement apportions the property taxes 17 in the same manner as revenue and expenses, the life lease or 18 life estate holder and the person holding the remainder interest 19 may claim the credit under this act as it is apportioned to them 20 under the written agreement upon filing a copy of the written 21 agreement with the return. 22 (d) If a trust holds farmland and related buildings covered 23 by a development rights agreement and an individual is treated 24 under subpart E of subchapter J of SUBCHAPTER A OF chapter 1 of 25 the internal revenue code of 1986, 26 U.S.C. 671 to 679, as the 26 owner of that portion of the trust that includes the farmland and 04441'99 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 04441'99 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 agreements exceed 7% of the adjusted business income of the owner 4 as defined in section 36 ofAct No. 228 of the Public Acts of51975, being section 208.36 of the Michigan Compiled LawsTHE 6 SINGLE BUSINESS TAX ACT, 1975 PA 228, MCL 208.36, plus compensa- 7 tion to shareholders not included in adjusted business income, 8 excluding any deductions if taken under section 613 of the inter- 9 nal revenue code of 1986., 26 U.S.C. 613.When calculating 10 adjusted business income for tax years beginning before 1987, 11 federal taxable income shall not be less than zero for the pur- 12 poses of this subsection only. A participant is not eligible to 13 claim a credit and refund against the state single business tax 14 unless the participant demonstrates that the participant's agri- 15 cultural gross receipts of the farming operation exceed 5 times 16 the property taxes on the land for each of 3 out of the 5 tax 17 years immediately preceding the year in which the credit is 18 claimed. This eligibility requirement does not apply to those 19 participants who executed farmland development rights agreements 20 under this part before January 1, 1978. A participant may com- 21 pare, during the contract period, the average of the most recent 22 3 years of agricultural gross receipts to property taxes in the 23 first year that the participant entered the program under the 24 present contract in calculating the gross receipts 25 qualification. Once an election is made by the participant to 26 compute the benefit in this manner, all future calculations shall 27 be made in the same manner. 04441'99 6 1 (3) If the farmland and related buildings covered by a 2 development rights agreement are owned by more than 1 owner, each 3 owner is allowed to claim a credit under this section based upon 4 that owner's share of the property tax payable on the farmland 5 and related buildings. The department of treasury shall consider 6 the property tax equally apportioned among the owners unless a 7 written agreement signed by all the owners is filed with the 8 return, which agreement apportions the property taxes in the same 9 manner as all other items of revenue and expense. If the prop- 10 erty taxes are considered equally apportioned, a husband and wife 11 shall be considered 1 owner, and a person with respect to whom a 12 deduction under section 151 of the internal revenue code of 1986 13, 26 U.S.C. 151,is allowable to another owner of the property 14 shall not be considered an owner. 15 (4) A beneficiary of an estate or trust to which subsection 16 (1) does not apply is entitled to the same percentage of the 17 credit provided in this section as that person's percentage of 18 all other distributions by the estate or trust. 19 (5) If the allowable amount of the credit claimed exceeds 20 the state income tax or the state single business tax otherwise 21 due for the tax year or if there is no state income tax or the 22 state single business tax due for the tax year, the amount of the 23 claim not used as an offset against the state income tax or the 24 state single business tax, after examination and review, shall be 25 approved for payment to the claimant pursuant toAct No. 122 of26the Public Acts of 1941, being sections 205.1 to 205.31 of the27Michigan Compiled Laws1941 PA 122, MCL 205.1 TO 205.31. The 04441'99 7 1 total credit allowable under this part and chapter 9 of the state 2 income tax act or the single business tax act,Act No. 228 of3the Public Acts of 19751975 PA 228, MCL 208.1 TO 208.145, shall 4 not exceed the total property tax due and payable by the claimant 5 in that year. The amount the credit exceeds the property tax due 6 and payable shall be deducted from the credit claimed under this 7 part. 8 (6) For purposes of audit, review, determination, appeals, 9 hearings, notices, assessments, and administration relating to 10 the credit program provided by this section, the state income tax 11 act or single business tax act,Act No. 228 of the Public Acts12of 1975,1975 PA 228, MCL 208.1 TO 208.145, applies according to 13 which tax the credit is claimed against. If an individual is 14 allowed to claim a credit under subsection (1) based upon prop- 15 erty owned or held by a partnership, S corporation, or trust, the 16 department of treasury may require that the individual furnish to 17 the department a copy of a tax return, or portion of a tax 18 return, and supporting schedules that the partnership, 19 S corporation, or trust files under the internal revenue code. 20 (7) The department of treasury shall account separately for 21 payments under this part and not combine them with other credit 22 programs. A payment made to a claimant for a credit claimed 23 under this part shall be issued by 1 or more warrants made out to 24 the county treasurer in each county in which the claimant's prop- 25 erty is located and the claimant, unless the claimant specifies 26 on the return that a copy of the receipt showing payment of the 27 property taxes that became a lien in the year for which the 04441'99 8 1 credit is claimed, or that became a lien in the year before the 2 year for which the credit is claimed, is attached to the income 3 tax or single business tax return filed by the claimant. If the 4 claimant specifies that a copy of the receipt is attached to the 5 return, the payment shall be made directly to the claimant. A 6 warrant made out to a claimant and a county treasurer shall be 7 used first to pay delinquent property taxes, interest, penalties, 8 and fees on property restricted by the development rights 9 agreement. If the warrant exceeds the amount of delinquent 10 taxes, interest, penalties, and fees, the county treasurer shall 11 remit the excess to the claimant. If a claimant falsely speci- 12 fies that the receipt showing payment of the property taxes is 13 attached to the return and if the property taxes on the land 14 subject to that development rights agreement were not paid before 15 the return was filed, all future payments to that claimant of 16 credits claimed under this act attributable to that development 17 rights agreement may be made payable to the county treasurer of 18 the county in which the property subject to the development 19 rights agreement is located and to that claimant. 20 (8) For property taxes levied after 1987, a person that was 21 an S corporation and had entered into a development rights agree- 22 ment before January 1, 1989, and paid property taxes on that 23 property, may claim the credit allowed by this section as an 24 owner eligible under subsection (2). A subchapter S corporation 25 claiming a credit as permitted by this subsection for taxes 26 levied in 1988 through 1990 shall claim the credit by filing an 27 amended return under the single business tax act,Act No. 228 of04441'99 9 1the Public Acts of 19751975 PA 228, MCL 208.1 TO 208.145. If a 2 subchapter S corporation files an amended return as permitted by 3 this subsection and if a shareholder of the subchapter S corpora- 4 tion claimed a credit under subsection (1)(b) for the same prop- 5 erty taxes, the shareholder shall file an amended return under 6 the state income tax act. A subchapter S corporation is not 7 entitled to a credit under this subsection until all of its 8 shareholders file the amended returns required by this 9 subsection. The department of treasury shall first apply a 10 credit due to a subchapter S corporation under this subsection to 11 repay credits claimed under this section by the subchapter S 12 corporation's shareholders for property taxes levied in 1988 13 through 1990 and shall refund any remaining credit to the S 14 corporation. Interest or penalty is not due or payable on an 15 income tax liability resulting from an amended return required by 16 this subsection. A subchapter S corporation electing to claim a 17 credit as an owner eligible under subsection (2) shall not claim 18 a credit under subsection (1) for property taxes levied after 19 1987. 04441'99 Final page. JCB