HB-4362, As Passed House, April 28, 2011

SUBSTITUTE FOR

HOUSE BILL NO. 4362

A bill to amend 2007 PA 36, entitled

"Michigan business tax act,"

by amending sections 107, 117, and 455 (MCL 208.1107, 208.1117, and

208.1455), section 117 as amended by 2009 PA 142 and section 455 as

amended by 2010 PA 312, and by adding section 500; and to repeal

acts and parts of acts.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 107. (1) "Certificated credit" means any of the

following:

(a) A tax voucher certificate that has been issued to a

taxpayer under an agreement entered into before January 1, 2012

under section 419 or section 23 of the Michigan early stage venture

investment act of 2003, 2003 PA 296, MCL 125.2253.

(b) A credit for which a preapproval letter has been issued to

a qualified taxpayer under section 437 before January 1, 2012 to

the extent the credit has not been fully claimed or paid prior to

January 1, 2012.

entered into an agreement with the Michigan economic growth

authority under sections 430, 431, 431a, 431b, 431c, 432, 434, or

450 before January 1, 2012 to the extent the credit has not been

fully claimed or paid prior to January 1, 2012.

(d) A credit for which a taxpayer or eligible production

company has entered into an agreement with the Michigan film office

with the concurrence of the state treasurer under section 455 or

457 before January 1, 2012 to the extent the credit has not been

fully claimed or paid before January 1, 2012.

(e) A credit for which a qualified taxpayer has received a

part 2 approval, approved rehabilitation plan, approved high

community impact rehabilitation plan, or preapproval letter from

the state historic preservation office under section 435 before

January 1, 2012 to the extent the credit has not been fully claimed

or paid before January 1, 2012.

(f) A credit under section 433 but only for a taxpayer that

has a development agreement executed between a taxpayer and the

Michigan strategic fund before January 1, 2012.

(g) A credit under this act under section 36109 of the natural

resources and environmental protection act, 1994 PA 451, MCL

324.36109.

(h) A credit allowed a taxpayer under section 409 if the

taxpayer has met the capital expenditure requirements under section

409(4).

(2) ~~(1)~~ "Client" means an entity whose employment operations

are managed by a professional employer organization.

(3) ~~(2)~~ "Compensation" means all wages, salaries, fees,

bonuses, commissions, other payments made in the tax year on behalf

of or for the benefit of employees, officers, or directors of the

taxpayers, and 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. Compensation includes, but is not limited

to, payments that are subject to or specifically exempt or excepted

from withholding under sections 3401 to 3406 of the internal

revenue code. Compensation also includes, on a cash or accrual

basis consistent with the taxpayer's method of accounting for

federal income tax purposes, payments to a pension, retirement, or

profit sharing plan other than those payments attributable to

unfunded accrued actuarial liabilities, and payments for insurance

for which employees are the beneficiaries, including payments under

health and welfare and noninsured benefit plans and payment of fees

for the administration of health and welfare and noninsured benefit

plans. Compensation for a taxpayer licensed under article 25 or 26

of the occupational code, 1980 PA 299, MCL 339.2501 to 339.2518 and

339.2601 to 339.2637, includes payments to an independent

contractor licensed under article 25 or 26 of the occupational

code, 1980 PA 299, MCL 339.2501 to 339.2518 and 339.2601 to

339.2637. Compensation does not include any of the following:

(a) Discounts on the price of the taxpayer's merchandise or

services sold to the taxpayer's employees, officers, or directors

that are not available to other customers.

(b) Except as otherwise provided in this subsection, payments

to an independent contractor.

funds.

(d) The employer's portion of payments under the federal

insurance contributions act, chapter 21 of subtitle C of the

internal revenue code, 26 USC 3101 to 3128, the railroad retirement

tax act, chapter 22 of subtitle C of the internal revenue code, 26

USC 3201 to 3233, and similar social insurance programs.

(e) Payments, including self-insurance payments, for worker's

compensation insurance or federal employers' liability act

insurance pursuant to 45 USC 51 to 60.

(4) ~~(3)~~ "Corporation" means a taxpayer that is required or has

elected to file as a corporation under the internal revenue code.

(5) ~~(4)~~ "Department" means the department of treasury.

Sec. 117. (1) "Tangible personal property" means that term as

defined in section 2 of the use tax act, 1937 PA 94, MCL 205.92.

(2) "Tax" means the tax imposed under this act, including

interest and penalties under this act, unless the term is given a

more limited meaning in the context of this act or a provision of

this act.

(3) "Tax-exempt person" means an organization that is exempt

from federal income tax under section 501(a) of the internal

revenue code, and a partnership, limited liability company, joint

venture, unincorporated association, or other group or combination

of organizations acting as a unit if all such organizations are

exempt from federal income tax under section 501(a) of the internal

revenue code and if all activities of the unit are exclusively

related to the charitable, educational, or other purposes or

functions that are the basis for the exemption of such

organizations from federal income tax, except the following:

(a) An organization exempt under section 501(c)(12) or (16) of

the internal revenue code.

(b) An organization exempt under section 501(c)(4) of the

internal revenue code that would be exempt under section 501(c)(12)

of the internal revenue code but for its failure to meet the

requirement in section 501(c)(12) that 85% or more of its income

must consist of amounts collected from members.

(4) "Tax year" means the calendar year, or the fiscal year

ending during the calendar year, upon the basis of which the tax

base of a taxpayer is computed under this act. If a return is made

for a fractional part of a year, tax year means the period for

which the return is made. Except for the first return required by

this act, a taxpayer's tax year is for the same period as is

covered by its federal income tax return. A taxpayer that has a 52-

or 53-week tax year beginning not more than 7 days before December

31 of any year is considered to have a tax year beginning after

December of that tax year. If the term tax year in this act is used

in reference to 1 or more previous or preceding tax years and those

referenced tax years are before January 1, 2008, then those

referenced tax years are deemed those same tax years during which

former 1975 PA 228 was in effect.

(5) "Taxpayer" means, through December 31, 2011, a person or a

House Bill No. 4362 (H-1) as amended April 27, 2011

unitary business group liable for a tax, interest, or penalty under

this act. Beginning January 1, 2012, taxpayer means either of the

following:

(a) A person or unitary business group that has been approved

to receive, has received, or has been assigned a certificated

credit but is not subject to the tax imposed under part 2 of the

income tax act of 1967, 1967 PA 281, MCL 206.601 to 206.697, and

that elects during the first tax year after the effective date of

the amendatory act that added section 500 to file a return and pay

the tax imposed under this act[, if any].

(b) A person or unitary business group that has been approved

to receive, has received, or has been assigned a certificated

credit and that elected under section 680 of the income tax act of

1967, 1967 PA 281, MCL 206.680, to file a return and pay the tax

imposed under this act[, if any].

(6) "Unitary business group" means a group of United States

persons, other than a foreign operating entity, 1 of which owns or

controls, directly or indirectly, more than 50% of the ownership

interest with voting rights or ownership interests that confer

comparable rights to voting rights of the other United States

persons, and that has business activities or operations which

result in a flow of value between or among persons included in the

unitary business group or has business activities or operations

that are integrated with, are dependent upon, or contribute to each

other. For purposes of this subsection, flow of value is determined

by reviewing the totality of facts and circumstances of business

activities and operations.

(7) "United States person" means that term as defined in

section 7701(a)(30) of the internal revenue code.

(8) "Unrelated business activity" means, for a tax-exempt

person, business activity directly connected with an unrelated

trade or business as defined in section 513 of the internal revenue

code.

Sec. 455. (1) The Michigan film office, with the concurrence

of the state treasurer, may enter into an agreement with an

eligible production company providing the company with a credit

against the tax imposed by this act ~~or against taxes withheld under~~

~~chapter 7 of the income tax act of 1967, 1967 PA 281, MCL 206.351~~

~~to 206.367,~~ as provided under this section. ~~and section 367 of the~~

~~income tax act of 1967, 1967 PA 281, MCL 206.367.~~ To qualify for

the credit under this section, a company shall meet all of the

following requirements:

(a) Spend at least $50,000.00 in this state for the

development, preproduction, production, or postproduction costs of

a state certified qualified production.

(b) Enter into an agreement as provided in this section.

the office under subsection (5).

(d) Submit the postproduction certificate of completion issued

by the office under subsection (5) to the department under

subsection (8).

(e) Shall not be delinquent in a tax or other obligation owed

to this state or be owned or under common control of an entity that

is delinquent in a tax or other obligation owed to this state.

(2) For direct production expenditures or qualified personnel

expenditures made after February 29, 2008, an agreement under this

section may provide for an eligible production company to claim a

tax credit equal to 42% of direct production expenditures for a

state certified qualified production in a core community, 40% of

direct production expenditures for a state certified qualified

production in part of this state other than a core community, and

30% for qualified personnel expenditures. A taxpayer shall not

claim a credit under this section for any of the following:

(a) A direct expenditure, or qualified personnel expenditure,

for which the company claims a credit under section 459.

~~(b) A direct expenditure, or qualified personnel expenditure,~~

~~for which the company claims a credit under section 367 of the~~

~~income tax act of 1967, 1967 PA 281, MCL 206.367.~~

(b) ~~(c)~~ A direct expenditure, or qualified personnel

expenditure, for which another taxpayer claims a credit under this

section , or a credit under section 459. ~~, or a credit under~~

~~section 367 of the income tax act of 1967, 1967 PA 281, MCL~~

~~206.367.~~

(3) An eligible production company intending to produce a

qualified production in this state, or that initiated production of

a qualified production after February 29, 2008 and before April 8,

2008, may submit an application to enter into an agreement under

this section to the Michigan film office. Except for a qualified

production for which production was initiated after February 29,

2008 and before April 8, 2008, direct production expenditures and

qualified personnel expenditures incurred prior to approval of an

agreement under this section are not eligible for the credit under

this section. The request shall be submitted in a form prescribed

by the Michigan film office and shall be accompanied by a $100.00

application fee and all of the information and records requested by

the office. An application fee received by the office under this

subsection shall be deposited in the Michigan film promotion fund.

The office shall not process the application until it is complete.

As part of the application, the company shall estimate direct

production expenditures and qualified personnel expenditures for an

identified qualified production. If the office, with the

concurrence of the state treasurer, determines to enter into an

agreement under this section, the agreement shall provide for all

of the following:

(a) A requirement that the eligible production company

commence work in this state on the identified qualified production

within 90 days of the date of the agreement or else the agreement

shall expire. However, upon request submitted by the company based

on good cause, the office may extend the period for commencement of

work in this state for up to an additional 90 days.

(b) A statement identifying the company and the qualified

production that the company intends to produce in whole or in part

in this state.

the office.

(d) A requirement that the qualified production not depict

obscene matter or an obscene performance.

(e) If the qualified production is a long-form narrative film

production, a requirement that the qualified production include an

acknowledgement that the qualified production was filmed in this

state.

(f) A requirement that the company provide the office with the

information and independent certification the office and the

department deem necessary to verify direct production expenditures,

qualified personnel expenditures, and eligibility for the credit

under this section.

(g) If determined to be necessary by the office and the state

treasurer, a provision for addressing expenditures in excess of

those identified in the agreement.

(4) In determining whether to enter into an agreement under

this section, the Michigan film office and the state treasurer

shall consider all of the following:

(a) The potential that in the absence of the credit the

qualified production will be produced in a location other than this

state.

(b) The extent to which the qualified production may have the

effect of promoting this state as a tourist destination.

effect of promoting economic development or job creation in this

state.

(d) The extent to which the credit will attract private

investment for the production of qualified productions in this

state.

(e) The record of the eligible production company in

completing commitments to engage in a qualified production.

(5) If the Michigan film office determines that an eligible

production company has complied with the terms of an agreement

entered into under this section, the office shall issue a

postproduction certificate of completion to the company. The

company shall submit a request to the office for a postproduction

certificate of completion on a form prescribed by the office, along

with any information or independent certification the office or the

department deems necessary. The office shall process each request

within 60 days after the request is complete. However, the office

may request additional information or independent certification

before issuing a postproduction certificate of completion and need

not issue the postproduction certificate of completion until

satisfied that direct production expenditures, qualified personnel

expenditures, and eligibility are adequately established. The

additional information requested may include a report of direct

production expenditures and qualified personnel expenditures for

the qualified production audited and certified by an independent

certified public accountant. Each postproduction certificate of

completion shall be signed by the Michigan film commissioner and

shall include the following information:

(a) The name of the eligible production company.

(b) The name of the certified production produced in whole or

in part in this state.

expenditures and qualified personnel expenditures for the qualified

production.

(d) The date of completion for the qualified production in

this state.

(e) The unique number assigned to the qualified production

project by the Michigan film office under subsection (3).

(f) The eligible production company's federal employer

identification number or Michigan treasury number.

(g) Any independent certification required by the department

or the Michigan film office.

(6) Information, records, or other data received, prepared,

used, or retained by the Michigan film office under this section

that are submitted by an eligible production company and considered

by the taxpayer and acknowledged by the office as confidential

shall not be subject to the disclosure requirements of the freedom

of information act, 1976 PA 442, MCL 15.231 to 15.246. Information,

records, or other data shall only be considered confidential to the

extent that the information or records describe the commercial and

financial operations or intellectual property of the company, the

information or records have not been publicly disseminated at any

time, and disclosure of the information or records may put the

company at a competitive disadvantage. For purposes of this

subsection, information or records that describe commercial and

financial operations do not include that portion of information or

records that include any expenses that qualify under this section

as qualified personnel expenditures or direct production

expenditures and for which a credit may be claimed.

(7) The Michigan film office shall, on January 15 and July 15

in each year, make available on its website a detailed semiannual

report that includes, at a minimum, all of the following:

(a) The number of applications received for a credit under

this section in the immediately preceding 6 months, including the

name of the eligible production company that submitted the

application and a brief description of the proposed qualified

production, including the locations in this state to be used in the

production and the proposed amount of money to be expended by the

eligible production company to produce the qualified production in

this state.

(b) The number of applications approved during the immediately

preceding 6 months.

issued during the immediately preceding 6 months and the total

amount of credits certified under those postproduction certificates

of completion.

(8) An eligible production company shall submit a

postproduction certificate of completion issued under subsection

(5) to the department. The Michigan film office shall forward a

copy of each postproduction certificate of completion issued

pursuant to this subsection to the governor, the president of the

Michigan strategic fund, the chairperson of the senate finance

committee, the chairperson of the house tax policy committee, the

director of the senate fiscal agency, and the director of the house

fiscal agency. If the credit allowed under this section exceeds the

tax liability of the company for the tax year or if the company

claiming the credit does not have a tax liability under this act

for the tax year, the department shall refund the excess or pay the

amount of the credit to the company. The department shall, as soon

as the information is available, annually report to the governor,

the president of the Michigan strategic fund, the chairperson of

the senate finance committee, the chairperson of the house tax

policy committee, the director of the senate fiscal agency, and the

director of the house fiscal agency the total amount of the credits

certified under this section that exceed the taxpayer's tax

liability for the most recent year that tax information is

available and for which returns have cleared and been processed.

The credit under this section shall be claimed after all other

credits under this act.

(9) An eligible production company may assign all or a portion

of a credit under this section to any assignee. An assignee may

subsequently assign a credit or any portion of a credit assigned

under this subsection to 1 or more assignees. A company may claim a

portion of a credit and assign the remaining credit amount. A

credit assignment under this subsection is irrevocable. The credit

assignment under this subsection shall be made on a form prescribed

by the department. The qualified taxpayer shall send a copy of the

completed assignment form to the department in the tax year in

which the assignment is made and shall attach a copy of the form to

the return on which the credit is claimed.

(10) The amount of the credit under this section shall be

reduced by a credit application and redemption fee equal to 0.5% of

the credit claimed, which shall be deducted from the credit

otherwise payable to the taxpayer claiming the credit and be

deposited by the department in the Michigan film promotion fund.

(11) A taxpayer that willfully submits information under this

section that the taxpayer knows to be fraudulent or false shall, in

addition to any other penalties provided by law, be liable for a

civil penalty equal to the amount of the taxpayer's credit under

this section. A penalty collected under this section shall be

deposited in the Michigan film promotion fund.

(12) Not later than March 1 of each year after 2008, the

Michigan film office shall submit to the governor, the president of

the Michigan strategic fund, the chairperson of the senate finance

committee, the chairperson of the house tax policy committee, the

director of the senate fiscal agency, and the director of the house

fiscal agency an annual report concerning the operation and

effectiveness of the credit under this section. The requirements of

section 28(1)(f) of 1941 PA 122, MCL 205.28, do not apply to

disclosure of tax information required by this subsection. The

report shall include all of the following:

(a) A brief assessment of the overall effectiveness of the

credit under this section at attracting qualified productions to

this state during the immediately preceding calendar year.

(b) The number of qualified productions for which the eligible

production company applied for a tax credit under this section

during the immediately preceding year, the names of the qualified

productions produced in this state for which credits were begun or

completed in the immediately preceding year, and the locations in

this state that were used in the production of qualified

productions in the immediately preceding calendar year.

company identified in subdivision (b) to produce each qualified

production in this state and a breakdown of all production spending

by all companies classified as goods, services, or salaries and

wages in the immediately preceding calendar year.

(d) The number of below the line crew employed in this state

by eligible production companies that qualified for the credit

under this section in the immediately preceding calendar year, how

many of those persons employed were residents of this state and not

included in qualified personnel expenditures, and the total number

of hours worked on the qualified production for which a credit is

granted.

(e) For requests for postproduction certificates of completion

submitted after January 2, 2011, the number of above the line

personnel employed in this state by the eligible production

companies that qualified for the credit under this section in the

immediately preceding calendar year and how many of those personnel

employed were residents of this state. For purposes of this

subdivision, above the line personnel means personnel who are not

below the line crew.

(f) For requests for postproduction certificates of completion

submitted after January 2, 2011, the number of persons employed in

this state by the eligible production companies that qualified for

the credit under this section in the immediately preceding calendar

year that earned more than $250,000.00 on a qualified production

and how many of those persons were residents of this state.

(g) The value of all tax credit certificates of completion

issued under this section in the immediately preceding calendar

year.

(h) The amount known by the Michigan film office of other

state and local assistance provided to eligible production

companies in addition to the tax credit under this section.

(13) As used in this section:

(a) "Below the line crew" means that term as defined under

section 459.

(b) "Core community" means a qualified local governmental unit

as defined under section 2 of the obsolete property rehabilitation

act, 2000 PA 146, MCL 125.2782.

preproduction, production, or postproduction expenditure made in

this state that is not a qualified personnel expenditure directly

attributable to the production or distribution of a qualified

production that is a transaction subject to taxation in this state,

including, but not limited to, all of the following:

(i) Payments to vendors doing business in this state to

purchase or use tangible personal property in producing or

distributing the qualified production or to purchase services

relating to the production or distribution of the qualified

production, including all of the following:

(A) Expenditures for optioning or purchasing intellectual

property including, but not limited to, books, scripts, music, or

trademarks relating to the development or purchase of a script,

story, scenario, screenplay, or format, including all expenditures

generally associated with the optioning or purchase of intellectual

property, including option money, agent fees, and attorney fees

relating to the transaction, but not including deferrals,

deferments, royalties, profit participation, or recourse or

nonrecourse loans negotiated by the eligible production company to

obtain the rights to the intellectual property.

(B) Production work, production equipment, production

software, development work, postproduction work, postproduction

equipment, postproduction software, set design, set construction,

set operations, props, lighting, wardrobe, makeup, makeup

accessories, photography, sound synchronization, special effects,

visual effects, audio effects, film processing, music, sound

mixing, editing, and related services and materials.

studios, location fees, and related services and materials.

(D) Catering, food, lodging, and related services and

materials.

(E) Use of vehicles, which may include chartered aircraft

based in this state used for transportation in this state directly

attributable to production of a qualified production, but may not

include the chartering of aircraft for transportation outside of

this state.

(F) Commercial airfare if purchased through a travel agency or

travel company based in this state for travel to and from this

state or within this state directly attributable to production or

distribution of a qualified production.

(G) Insurance coverage or bonding if purchased from an

insurance agent based in this state.

(H) Expenditures for distribution, including, but not limited

to, both of the following:

(I) Preproduction, production, or postproduction costs

relating to the creation of trailers, marketing videos,

commercials, point-of-purchase videos, and content created on film

or digital media, including, but not limited to, the duplication of

films, videos, compact discs, digital video discs, and digital

files or other digital media created for consumer consumption.

(II) Purchase of equipment relating to the duplication or

market distribution of any content created or produced in this

state.

(I) Other expenditures for production of a qualified

production in accordance with generally accepted entertainment

industry practices.

(ii) Payments and compensation, not to exceed $2,000,000.00 for

any 1 employee or contractual or salaried employee who performs

services in this state for the production or distribution of a

qualified production, including all of the following:

(A) Payment of wages, benefits, or fees for talent,

management, or labor.

(B) Payment to a personal services corporation or professional

employer organization for the services of a performing artist or

crew member if the personal services corporation or professional

employer organization is subject to the tax levied under this act

on the portion of the payment qualifying for the tax credit under

this section and the payments received by the performing artist or

crew member that are subject to taxation under the income tax act

of 1967, 1967 PA 281, MCL 206.1 to ~~206.532~~ 206.697, and are

withheld and paid to this state in the amount provided under

section 351 of the income tax act of 1967, 1967 PA 281, MCL

206.351.

(d) "Eligible production company" or "company" means an entity

in the business of producing qualified productions, but does not

include an entity that is more than 30% owned, affiliated, or

controlled by an entity or individual who is in default on a loan

made by this state, a loan guaranteed by this state, or a loan made

or guaranteed by any other state.

(e) "Interactive website" means a website, the production

costs of which exceed $500,000.00 in an annual period and primarily

includes interactive games, end user applications, animation,

simulation, sound, graphics, story lines, or video created or

repurposed for distribution over the internet. Interactive website

does not include a website primarily used for institutional,

private, industrial, retail, or wholesale marketing or promotional

purposes, or which contains obscene matter or an obscene

performance.

(f) "Michigan film office" or "office" means the Michigan film

office created under chapter 2A of the Michigan strategic fund act,

1984 PA 270, MCL 125.2029 to 125.2029g.

(g) "Michigan film promotion fund" means the fund created

under chapter 2A of the Michigan strategic fund act, 1984 PA 270,

MCL 125.2029 to 125.2029g.

(h) "Obscene matter or an obscene performance" means matter

described in 1984 PA 343, MCL 752.361 to 752.374.

(i) "Postproduction expenditure" means a direct expenditure

for editing, Foley recording, automatic dialogue replacement, sound

editing, special or visual effects including computer-generated

imagery or other effects, scoring and music editing, beginning and

end credits, negative cutting, soundtrack production, dubbing,

subtitling, or addition of sound or visual effects. Postproduction

expenditure includes direct expenditures for advertising,

marketing, distribution, or related expenses.

(j) "Qualified personnel expenditure" means an expenditure

made in this state directly attributable to the production or

distribution of a qualified production that is a transaction

subject to taxation in this state and is a payment or compensation

payable to below the line crew for below the line crew members who

were not residents of this state for at least 60 days before

approval of the agreement for the qualified production under

subsection (3), not to exceed $2,000,000.00 for any 1 employee or

contractual or salaried employee who performs service in this state

for the production of a qualified production, including both of the

following:

(i) Payment of wages, benefits, or fees.

(ii) Payment to a personal services corporation or professional