HB-5420, As Passed House, January 25, 2018

 

 

 

 

 

 

 

 

 

 

 

 

SUBSTITUTE FOR

 

HOUSE BILL NO. 5420

 

 

 

 

 

 

 

 

 

 

 

     A bill to amend 1967 PA 281, entitled

 

"Income tax act of 1967,"

 

by amending sections 8, 12, 30, 30a, 51, 52, 512, and 607 (MCL

 

206.8, 206.12, 206.30, 206.30a, 206.51, 206.52, 206.512, and

 

206.607), section 12 as amended by 2003 PA 45, section 30 as

 

amended by 2017 PA 149, section 30a as added by 2012 PA 224,

 

section 51 as amended by 2016 PA 266, sections 52 and 512 as

 

amended by 2011 PA 38, and section 607 as amended by 2011 PA 306;

 

and to repeal acts and parts of acts.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 8. (1) "Department" means the revenue division of the

 

department of treasury.

 

     (2) "Dependent" means a dependent as defined in section 152 of

 

the internal revenue code.

 


     (3) (2) "Employee" means an employee as defined in section

 

3401(c) of the internal revenue code. Any person from whom an

 

employer is required to withhold for federal income tax purposes

 

shall prima facie be deemed an employee.

 

     (4) (3) "Employer" means an employer as defined in section

 

3401(d) of the internal revenue code. Any person required to

 

withhold for federal income tax purposes shall prima facie be

 

deemed an employer.

 

     Sec. 12. (1) "Flow-through entity" means an S corporation,

 

partnership, limited partnership, limited liability partnership, or

 

limited liability company. Flow-through entity does not include a

 

publicly traded partnership as that term is defined in section 7704

 

of the internal revenue code that has equity securities registered

 

with the securities and exchange commission under section 12 of

 

title I of the securities exchange act of 1934, chapter 404, 48

 

Stat. 881, 15 U.S.C. USC 78l.

 

     (2) "Gross income" means gross income as defined in the

 

internal revenue code.

 

     (3) "Internal revenue code" means the United States internal

 

revenue code of 1986 in effect on January 1, 1996 2018 or at the

 

option of the taxpayer, in effect for the tax year.

 

     (4) "Member of a flow-through entity" means a shareholder of

 

an S corporation; a partner in a partnership or limited

 

partnership; or a member of a limited liability company.

 

     (5) "Nonresident member" means any of the following that is a

 

member of a flow-through entity:

 

     (a) An individual who is not domiciled in this state.


     (b) A nonresident estate or trust.

 

     (c) A flow-through entity with a nonresident member.

 

     Sec. 30. (1) "Taxable income" means, for a person other than a

 

corporation, estate, or trust, adjusted gross income as defined in

 

the internal revenue code subject to the following adjustments

 

under this section:

 

     (a) Add gross interest income and dividends derived from

 

obligations or securities of states other than Michigan, in the

 

same amount that has been excluded from adjusted gross income less

 

related expenses not deducted in computing adjusted gross income

 

because of section 265(a)(1) of the internal revenue code.

 

     (b) Add taxes on or measured by income to the extent the taxes

 

have been deducted in arriving at adjusted gross income.

 

     (c) Add losses on the sale or exchange of obligations of the

 

United States government, the income of which this state is

 

prohibited from subjecting to a net income tax, to the extent that

 

the loss has been deducted in arriving at adjusted gross income.

 

     (d) Deduct, to the extent included in adjusted gross income,

 

income derived from obligations, or the sale or exchange of

 

obligations, of the United States government that this state is

 

prohibited by law from subjecting to a net income tax, reduced by

 

any interest on indebtedness incurred in carrying the obligations

 

and by any expenses incurred in the production of that income to

 

the extent that the expenses, including amortizable bond premiums,

 

were deducted in arriving at adjusted gross income.

 

     (e) Deduct, to the extent included in adjusted gross income,

 

the following:


     (i) Compensation, including retirement or pension benefits,

 

received for services in the armed forces Armed Forces of the

 

United States.

 

     (ii) Retirement or pension benefits under the railroad

 

retirement act of 1974, 45 USC 231 to 231v.

 

     (iii) Beginning January 1, 2012, retirement or pension

 

benefits received for services in the Michigan National Guard.

 

     (f) Deduct the following to the extent included in adjusted

 

gross income subject to the limitations and restrictions set forth

 

in subsection (9):

 

     (i) Retirement or pension benefits received from a federal

 

public retirement system or from a public retirement system of or

 

created by this state or a political subdivision of this state.

 

     (ii) Retirement or pension benefits received from a public

 

retirement system of or created by another state or any of its

 

political subdivisions if the income tax laws of the other state

 

permit a similar deduction or exemption or a reciprocal deduction

 

or exemption of a retirement or pension benefit received from a

 

public retirement system of or created by this state or any of the

 

political subdivisions of this state.

 

     (iii) Social security Security benefits as defined in section

 

86 of the internal revenue code.

 

     (iv) Beginning on and after January 1, 2007, retirement or

 

pension benefits not deductible under subparagraph (i) or

 

subdivision (e) from any other retirement or pension system or

 

benefits from a retirement annuity policy in which payments are

 

made for life to a senior citizen, to a maximum of $42,240.00 for a


single return and $84,480.00 for a joint return. The maximum

 

amounts allowed under this subparagraph shall be reduced by the

 

amount of the deduction for retirement or pension benefits claimed

 

under subparagraph (i) or subdivision (e) and by the amount of a

 

deduction claimed under subdivision (p). For the 2008 tax year and

 

each tax year after 2008, the maximum amounts allowed under this

 

subparagraph shall be adjusted by the percentage increase in the

 

United States consumer price index Consumer Price Index for the

 

immediately preceding calendar year. The department shall annualize

 

the amounts provided in this subparagraph as necessary. As used in

 

this subparagraph, "senior citizen" means that term as defined in

 

section 514.

 

     (v) The amount determined to be the section 22 amount eligible

 

for the elderly and the permanently and totally disabled credit

 

provided in section 22 of the internal revenue code.

 

     (g) Adjustments resulting from the application of section 271.

 

     (h) Adjustments with respect to estate and trust income as

 

provided in section 36.

 

     (i) Adjustments resulting from the allocation and

 

apportionment provisions of chapter 3.

 

     (j) Deduct the following payments made by the taxpayer in the

 

tax year:

 

     (i) For the 2010 tax year and each tax year after 2010, the

 

amount of a charitable contribution made to the advance tuition

 

payment fund created under section 9 of the Michigan education

 

trust act, 1986 PA 316, MCL 390.1429.

 

     (ii) The amount of payment made under an advance tuition


payment contract as provided in the Michigan education trust act,

 

1986 PA 316, MCL 390.1421 to 390.1442.

 

     (iii) The amount of payment made under a contract with a

 

private sector investment manager that meets all of the following

 

criteria:

 

     (A) The contract is certified and approved by the board of

 

directors of the Michigan education trust to provide equivalent

 

benefits and rights to purchasers and beneficiaries as an advance

 

tuition payment contract as described in subparagraph (ii).

 

     (B) The contract applies only for a state institution of

 

higher education as defined in the Michigan education trust act,

 

1986 PA 316, MCL 390.1421 to 390.1442, or a community or junior

 

college in Michigan.

 

     (C) The contract provides for enrollment by the contract's

 

qualified beneficiary in not less than 4 years after the date on

 

which the contract is entered into.

 

     (D) The contract is entered into after either of the

 

following:

 

     (I) The purchaser has had his or her offer to enter into an

 

advance tuition payment contract rejected by the board of directors

 

of the Michigan education trust, if the board determines that the

 

trust cannot accept an unlimited number of enrollees upon an

 

actuarially sound basis.

 

     (II) The board of directors of the Michigan education trust

 

determines that the trust can accept an unlimited number of

 

enrollees upon an actuarially sound basis.

 

     (k) If an advance tuition payment contract under the Michigan


education trust act, 1986 PA 316, MCL 390.1421 to 390.1442, or

 

another contract for which the payment was deductible under

 

subdivision (j) is terminated and the qualified beneficiary under

 

that contract does not attend a university, college, junior or

 

community college, or other institution of higher education, add

 

the amount of a refund received by the taxpayer as a result of that

 

termination or the amount of the deduction taken under subdivision

 

(j) for payment made under that contract, whichever is less.

 

     (l) Deduct from the taxable income of a purchaser the amount

 

included as income to the purchaser under the internal revenue code

 

after the advance tuition payment contract entered into under the

 

Michigan education trust act, 1986 PA 316, MCL 390.1421 to

 

390.1442, is terminated because the qualified beneficiary attends

 

an institution of postsecondary education other than either a state

 

institution of higher education or an institution of postsecondary

 

education located outside this state with which a state institution

 

of higher education has reciprocity.

 

     (m) Add, to the extent deducted in determining adjusted gross

 

income, the net operating loss deduction under section 172 of the

 

internal revenue code.

 

     (n) Deduct a net operating loss deduction for the taxable year

 

as determined under section 172 of the internal revenue code

 

subject to the modifications under section 172(b)(2) of the

 

internal revenue code and subject to the allocation and

 

apportionment provisions of chapter 3 of this part for the taxable

 

year in which the loss was incurred.

 

     (o) Deduct, to the extent included in adjusted gross income,


benefits from a discriminatory self-insurance medical expense

 

reimbursement plan.

 

     (p) Beginning on and after January 1, 2007, subject to any

 

limitation provided in this subdivision, a taxpayer who is a senior

 

citizen may deduct to the extent included in adjusted gross income,

 

interest, dividends, and capital gains received in the tax year not

 

to exceed $9,420.00 for a single return and $18,840.00 for a joint

 

return. The maximum amounts allowed under this subdivision shall be

 

reduced by the amount of a deduction claimed for retirement or

 

pension benefits under subdivision (e) or a deduction claimed under

 

subdivision (f)(i), (ii), (iv), or (v). For the 2008 tax year and

 

each tax year after 2008, the maximum amounts allowed under this

 

subdivision shall be adjusted by the percentage increase in the

 

United States consumer price index Consumer Price Index for the

 

immediately preceding calendar year. The department shall annualize

 

the amounts provided in this subdivision as necessary. Beginning

 

January 1, 2012, the deduction under this subdivision is not

 

available to a senior citizen born after 1945. As used in this

 

subdivision, "senior citizen" means that term as defined in section

 

514.

 

     (q) Deduct, to the extent included in adjusted gross income,

 

all of the following:

 

     (i) The amount of a refund received in the tax year based on

 

taxes paid under this part.

 

     (ii) The amount of a refund received in the tax year based on

 

taxes paid under the city income tax act, 1964 PA 284, MCL 141.501

 

to 141.787.


     (iii) The amount of a credit received in the tax year based on

 

a claim filed under sections 520 and 522 to the extent that the

 

taxes used to calculate the credit were not used to reduce adjusted

 

gross income for a prior year.

 

     (r) Add the amount paid by the state on behalf of the taxpayer

 

in the tax year to repay the outstanding principal on a loan taken

 

on which the taxpayer defaulted that was to fund an advance tuition

 

payment contract entered into under the Michigan education trust

 

act, 1986 PA 316, MCL 390.1421 to 390.1442, if the cost of the

 

advance tuition payment contract was deducted under subdivision (j)

 

and was financed with a Michigan education trust secured loan.

 

     (s) Deduct, to the extent included in adjusted gross income,

 

any amount, and any interest earned on that amount, received in the

 

tax year by a taxpayer who is a Holocaust victim as a result of a

 

settlement of claims against any entity or individual for any

 

recovered asset pursuant to the German act regulating unresolved

 

property claims, also known as Gesetz zur Regelung offener

 

Vermogensfragen, as a result of the settlement of the action

 

entitled In re: Holocaust victim assets litigation, CV-96-4849, CV-

 

96-5161, and CV-97-0461 (E.D. NY), or as a result of any similar

 

action if the income and interest are not commingled in any way

 

with and are kept separate from all other funds and assets of the

 

taxpayer. As used in this subdivision:

 

     (i) "Holocaust victim" means a person, or the heir or

 

beneficiary of that person, who was persecuted by Nazi Germany or

 

any Axis regime during any period from 1933 to 1945.

 

     (ii) "Recovered asset" means any asset of any type and any


interest earned on that asset including, but not limited to, bank

 

deposits, insurance proceeds, or artwork owned by a Holocaust

 

victim during the period from 1920 to 1945, withheld from that

 

Holocaust victim from and after 1945, and not recovered, returned,

 

or otherwise compensated to the Holocaust victim until after 1993.

 

     (t) Deduct , to the extent not deducted in determining

 

adjusted gross income, both all of the following:

 

     (i) Contributions To the extent not deducted in determining

 

adjusted gross income, contributions made by the taxpayer in the

 

tax year less qualified withdrawals made in the tax year from

 

education savings accounts, calculated on a per education savings

 

account basis, pursuant to the Michigan education savings program

 

act, 2000 PA 161, MCL 390.1471 to 390.1486, not to exceed a total

 

deduction of $5,000.00 for a single return or $10,000.00 for a

 

joint return per tax year. The amount calculated under this

 

subparagraph for each education savings account shall not be less

 

than zero.

 

     (ii) The amount under section 30f.To the extent included in

 

adjusted gross income, interest earned in the tax year on the

 

contributions to the taxpayer's education savings accounts if the

 

contributions were deductible under subparagraph (i).

 

     (iii) To the extent included in adjusted gross income,

 

distributions that are qualified withdrawals from an education

 

savings account to the designated beneficiary of that education

 

savings account.

 

     (u) Add, to the extent not included in adjusted gross income,

 

the amount of money withdrawn by the taxpayer in the tax year from


education savings accounts, not to exceed the total amount deducted

 

under subdivision (t) in the tax year and all previous tax years,

 

if the withdrawal was not a qualified withdrawal as provided in the

 

Michigan education savings program act, 2000 PA 161, MCL 390.1471

 

to 390.1486. This subdivision does not apply to withdrawals that

 

are less than the sum of all contributions made to an education

 

savings account in all previous tax years for which no deduction

 

was claimed under subdivision (t), less any contributions for which

 

no deduction was claimed under subdivision (t) that were withdrawn

 

in all previous tax years.

 

     (v) A taxpayer who is a resident tribal member may deduct, to

 

the extent included in adjusted gross income, all nonbusiness

 

income earned or received in the tax year and during the period in

 

which an agreement entered into between the taxpayer's tribe and

 

this state pursuant to section 30c of 1941 PA 122, MCL 205.30c, is

 

in full force and effect. As used in this subdivision:

 

     (i) "Business income" means business income as defined in

 

section 4 and apportioned under chapter 3.

 

     (ii) "Nonbusiness income" means nonbusiness income as defined

 

in section 14 and, to the extent not included in business income,

 

all of the following:

 

     (A) All income derived from wages whether the wages are earned

 

within the agreement area or outside of the agreement area.

 

     (B) All interest and passive dividends.

 

     (C) All rents and royalties derived from real property located

 

within the agreement area.

 

     (D) All rents and royalties derived from tangible personal


property, to the extent the personal property is utilized within

 

the agreement area.

 

     (E) Capital gains from the sale or exchange of real property

 

located within the agreement area.

 

     (F) Capital gains from the sale or exchange of tangible

 

personal property located within the agreement area at the time of

 

sale.

 

     (G) Capital gains from the sale or exchange of intangible

 

personal property.

 

     (H) All pension income and benefits including, but not limited

 

to, distributions from a 401(k) plan, individual retirement

 

accounts under section 408 of the internal revenue code, or a

 

defined contribution plan, or payments from a defined benefit plan.

 

     (I) All per capita payments by the tribe to resident tribal

 

members, without regard to the source of payment.

 

     (J) All gaming winnings.

 

     (iii) "Resident tribal member" means an individual who meets

 

all of the following criteria:

 

     (A) Is an enrolled member of a federally recognized tribe.

 

     (B) The individual's tribe has an agreement with this state

 

pursuant to section 30c of 1941 PA 122, MCL 205.30c, that is in

 

full force and effect.

 

     (C) The individual's principal place of residence is located

 

within the agreement area as designated in the agreement under sub-

 

subparagraph (B).

 

     (w) For tax years beginning after December 31, 2011, eliminate

 

all of the following:


     (i) Income from producing oil and gas to the extent included

 

in adjusted gross income.

 

     (ii) Expenses of producing oil and gas to the extent deducted

 

in arriving at adjusted gross income.

 

     (x) For tax years that begin after December 31, 2015, deduct ,

 

to the extent not deducted in determining adjusted gross income,

 

all of the following:

 

     (i) Contributions To the extent not deducted in determining

 

adjusted gross income, contributions made by the taxpayer in the

 

tax year less qualified withdrawals made in the tax year from an

 

ABLE savings account, pursuant to the Michigan ABLE program act,

 

2015 PA 160, MCL 206.981 to 206.997, not to exceed a total

 

deduction of $5,000.00 for a single return or $10,000.00 for a

 

joint return per tax year. The amount calculated under this

 

subparagraph for an ABLE savings account shall not be less than

 

zero.

 

     (ii) Interest To the extent included in adjusted gross income,

 

interest earned in the tax year on the contributions to the

 

taxpayer's ABLE savings account if the contributions were

 

deductible under subparagraph (i).

 

     (iii) Distributions To the extent included in adjusted gross

 

income, distributions that are qualified withdrawals from an ABLE

 

savings account to the designated beneficiary of that ABLE savings

 

account.

 

     (y) Add, to the extent not included in adjusted gross income,

 

the amount of money withdrawn by the taxpayer in the tax year from

 

an ABLE savings account, not to exceed the total amount deducted


under subdivision (x) in the tax year and all previous tax years,

 

if the withdrawal was not a qualified withdrawal as provided in the

 

Michigan ABLE program act, 2015 PA 160, MCL 206.981 to 206.997.

 

This subdivision does not apply to withdrawals that are less than

 

the sum of all contributions made to an ABLE savings account in all

 

previous tax years for which no deduction was claimed under

 

subdivision (x), less any contributions for which no deduction was

 

claimed under subdivision (x) that were withdrawn in all previous

 

tax years.

 

     (2) Except as otherwise provided in subsection (7) and section

 

30a, a personal exemption of $3,700.00 multiplied by the number of

 

personal or and dependency exemptions allowable on the taxpayer's

 

federal income tax return pursuant to the internal revenue code

 

shall be subtracted in the calculation that determines taxable

 

income. The number of personal and dependency exemptions allowed

 

shall be determined as follows:

 

     (a) Each taxpayer may claim 1 personal exemption. However, if

 

a joint return is not made by the taxpayer and his or her spouse,

 

the taxpayer may claim a personal exemption for the spouse if the

 

spouse, for the calendar year in which the taxable year of the

 

taxpayer begins, does not have any gross income and is not the

 

dependent of another taxpayer.

 

     (b) A taxpayer may claim a dependency exemption for each

 

individual who is a dependent of the taxpayer for the tax year.

 

     (3) Except as otherwise provided in subsection (7), a single

 

additional exemption determined as follows shall be subtracted in

 

the calculation that determines taxable income in each of the


following circumstances:

 

     (a) $1,800.00 for each taxpayer and every dependent of the

 

taxpayer who is a deaf person as defined in section 2 of the deaf

 

persons' interpreters act, 1982 PA 204, MCL 393.502; a paraplegic,

 

a quadriplegic, or a hemiplegic; a person who is blind as defined

 

in section 504; or a person who is totally and permanently disabled

 

as defined in section 522. When a dependent of a taxpayer files an

 

annual return under this part, the taxpayer or dependent of the

 

taxpayer, but not both, may claim the additional exemption allowed

 

under this subdivision. As used in this subdivision, "dependent"

 

means that term as defined in section 30e.

 

     (b) For tax years beginning after 2007, $250.00 for each

 

taxpayer and every dependent of the taxpayer who is a qualified

 

disabled veteran. When a dependent of a taxpayer files an annual

 

return under this part, the taxpayer or dependent of the taxpayer,

 

but not both, may claim the additional exemption allowed under this

 

subdivision. As used in this subdivision:

 

     (i) "Qualified disabled veteran" means a veteran with a

 

service-connected disability.

 

     (ii) "Service-connected disability" means a disability

 

incurred or aggravated in the line of duty in the active military,

 

naval, or air service as described in 38 USC 101(16).

 

     (iii) "Veteran" means a person who served in the active

 

military, naval, marine, coast guard, or air service and who was

 

discharged or released from his or her service with an honorable or

 

general discharge.

 

     (4) An individual with respect to whom a deduction under


section 151 of the internal revenue code subsection (2) is

 

allowable to another federal taxpayer during the tax year is not

 

considered to have an allowable federal entitled to an exemption

 

for purposes of subsection (2), but may subtract $1,500.00 in the

 

calculation that determines taxable income for a tax year.

 

     (5) A nonresident or a part-year resident is allowed that

 

proportion of an exemption or deduction allowed under subsection

 

(2), (3), or (4) that the taxpayer's portion of adjusted gross

 

income from Michigan sources bears to the taxpayer's total adjusted

 

gross income.

 

     (6) In calculating taxable income, a taxpayer shall not

 

subtract from adjusted gross income the amount of prizes won by the

 

taxpayer under the McCauley-Traxler-Law-Bowman-McNeely lottery act,

 

1972 PA 239, MCL 432.1 to 432.47.

 

     (7) For each tax year beginning on and after January 1, 2013,

 

the personal exemption allowed under subsection (2) shall be

 

adjusted by multiplying the exemption for the tax year beginning in

 

2012 by a fraction, the numerator of which is the United States

 

consumer price index Consumer Price Index for the state fiscal year

 

ending in the tax year prior to the tax year for which the

 

adjustment is being made and the denominator of which is the United

 

States consumer price index Consumer Price Index for the 2010-2011

 

state fiscal year. The resultant product shall be rounded to the

 

nearest $100.00 increment. As used in this section, "United States

 

consumer price index" Consumer Price Index" means the United States

 

consumer price index Consumer Price Index for all urban consumers

 

as defined and reported by the United States Department of Labor,


Bureau of Labor Statistics. For each tax year, the exemptions

 

allowed under subsection (3) shall be adjusted by multiplying the

 

exemption amount under subsection (3) for the tax year by a

 

fraction, the numerator of which is the United States consumer

 

price index Consumer Price Index for the state fiscal year ending

 

the tax year prior to the tax year for which the adjustment is

 

being made and the denominator of which is the United States

 

consumer price index Consumer Price Index for the 1998-1999 state

 

fiscal year. The resultant product shall be rounded to the nearest

 

$100.00 increment.

 

     (8) As used in this section, "retirement or pension benefits"

 

means distributions from all of the following:

 

     (a) Except as provided in subdivision (d), qualified pension

 

trusts and annuity plans that qualify under section 401(a) of the

 

internal revenue code, including all of the following:

 

     (i) Plans for self-employed persons, commonly known as Keogh

 

or HR10 plans.

 

     (ii) Individual retirement accounts that qualify under section

 

408 of the internal revenue code if the distributions are not made

 

until the participant has reached 59-1/2 years of age, except in

 

the case of death, disability, or distributions described by

 

section 72(t)(2)(A)(iv) of the internal revenue code.

 

     (iii) Employee annuities or tax-sheltered annuities purchased

 

under section 403(b) of the internal revenue code by organizations

 

exempt under section 501(c)(3) of the internal revenue code, or by

 

public school systems.

 

     (iv) Distributions from a 401(k) plan attributable to employee


contributions mandated by the plan or attributable to employer

 

contributions.

 

     (b) The following retirement and pension plans not qualified

 

under the internal revenue code:

 

     (i) Plans of the United States, state governments other than

 

this state, and political subdivisions, agencies, or

 

instrumentalities of this state.

 

     (ii) Plans maintained by a church or a convention or

 

association of churches.

 

     (iii) All other unqualified pension plans that prescribe

 

eligibility for retirement and predetermine contributions and

 

benefits if the distributions are made from a pension trust.

 

     (c) Retirement or pension benefits received by a surviving

 

spouse if those benefits qualified for a deduction prior to the

 

decedent's death. Benefits received by a surviving child are not

 

deductible.

 

     (d) Retirement and pension benefits do not include:

 

     (i) Amounts received from a plan that allows the employee to

 

set the amount of compensation to be deferred and does not

 

prescribe retirement age or years of service. These plans include,

 

but are not limited to, all of the following:

 

     (A) Deferred compensation plans under section 457 of the

 

internal revenue code.

 

     (B) Distributions from plans under section 401(k) of the

 

internal revenue code other than plans described in subdivision

 

(a)(iv).

 

     (C) Distributions from plans under section 403(b) of the


internal revenue code other than plans described in subdivision

 

(a)(iii).

 

     (ii) Premature distributions paid on separation, withdrawal,

 

or discontinuance of a plan prior to the earliest date the

 

recipient could have retired under the provisions of the plan.

 

     (iii) Payments received as an incentive to retire early unless

 

the distributions are from a pension trust.

 

     (9) In determining taxable income under this section, the

 

following limitations and restrictions apply:

 

     (a) For a person born before 1946, this subsection provides no

 

additional restrictions or limitations under subsection (1)(f).

 

     (b) Except as otherwise provided in subdivision (c), for a

 

person born in 1946 through 1952, the sum of the deductions under

 

subsection (1)(f)(i), (ii), and (iv) is limited to $20,000.00 for a

 

single return and $40,000.00 for a joint return. After that person

 

reaches the age of 67, the deductions under subsection (1)(f)(i),

 

(ii), and (iv) do not apply and that person is eligible for a

 

deduction of $20,000.00 for a single return and $40,000.00 for a

 

joint return, which deduction is available against all types of

 

income and is not restricted to income from retirement or pension

 

benefits. A person who takes the deduction under subsection (1)(e)

 

is not eligible for the unrestricted deduction of $20,000.00 for a

 

single return and $40,000.00 for a joint return under this

 

subdivision.

 

     (c) Beginning January 1, 2013 for a person born in 1946

 

through 1952 and beginning January 1, 2018 for a person born after

 

1945 who has retired as of January 1, 2013, if that person receives


retirement or pension benefits from employment with a governmental

 

agency that was not covered by the federal social security act,

 

chapter 531, 49 Stat 620, the sum of the deductions under

 

subsection (1)(f)(i), (ii), and (iv) is limited to $35,000.00 for a

 

single return and, except as otherwise provided under this

 

subdivision, $55,000.00 for a joint return. If both spouses filing

 

a joint return receive retirement or pension benefits from

 

employment with a governmental agency that was not covered by the

 

federal social security act, chapter 531, 49 Stat 620, the sum of

 

the deductions under subsection (1)(f)(i), (ii), and (iv) is

 

limited to $70,000.00 for a joint return. After that person reaches

 

the age of 67, the deductions under subsection (1)(f)(i), (ii), and

 

(iv) do not apply and that person is eligible for a deduction of

 

$35,000.00 for a single return and $55,000.00 for a joint return,

 

or $70,000.00 for a joint return if applicable, which deduction is

 

available against all types of income and is not restricted to

 

income from retirement or pension benefits. A person who takes the

 

deduction under subsection (1)(e) is not eligible for the

 

unrestricted deduction of $35,000.00 for a single return and

 

$55,000.00 for a joint return, or $70,000.00 for a joint return if

 

applicable, under this subdivision.

 

     (d) Except as otherwise provided under subdivision (c) for a

 

person who was retired as of January 1, 2013, for a person born

 

after 1952 who has reached the age of 62 through 66 years of age

 

and who receives retirement or pension benefits from employment

 

with a governmental agency that was not covered by the federal

 

social security act, chapter 532, 49 Stat 620, the sum of the


deductions under subsection (1)(f)(i), (ii), and (iv) is limited to

 

$15,000.00 for a single return and, except as otherwise provided

 

under this subdivision, $15,000.00 for a joint return. If both

 

spouses filing a joint return receive retirement or pension

 

benefits from employment with a governmental agency that was not

 

covered by the federal social security act, chapter 532, 49 Stat

 

620, the sum of the deductions under subsection (1)(f)(i), (ii),

 

and (iv) is limited to $30,000.00 for a joint return.

 

     (e) Except as otherwise provided under subdivision (c) or (d),

 

for a person born after 1952, the deduction under subsection

 

(1)(f)(i), (ii), or (iv) does not apply. When that person reaches

 

the age of 67, that person is eligible for a deduction of

 

$20,000.00 for a single return and $40,000.00 for a joint return,

 

which deduction is available against all types of income and is not

 

restricted to income from retirement or pension benefits. If a

 

person takes the deduction of $20,000.00 for a single return and

 

$40,000.00 for a joint return, that person shall not take the

 

deduction under subsection (1)(f)(iii) and shall not take the

 

personal exemption under subsection (2). That person may elect not

 

to take the deduction of $20,000.00 for a single return and

 

$40,000.00 for a joint return and elect to take the deduction under

 

subsection (1)(f)(iii) and the personal exemption under subsection

 

(2) if that election would reduce that person's tax liability. A

 

person who takes the deduction under subsection (1)(e) is not

 

eligible for the unrestricted deduction of $20,000.00 for a single

 

return and $40,000.00 for a joint return under this subdivision.

 

     (f) For a joint return, the limitations and restrictions in


this subsection shall be applied based on the age of the older

 

spouse filing the joint return.

 

     (10) As used in this section, "oil and gas" means oil and gas

 

subject to severance tax under 1929 PA 48, MCL 205.301 to 205.317.

 

     Sec. 30a. Notwithstanding any other provision of this part,

 

for the 2012 tax year and each tax year after 2012, taxable income

 

for purposes of this part means taxable income as determined under

 

section 30 with the following adjustment. For the 2012 tax year and

 

each tax year after 2012, to determine taxable income, a taxpayer

 

shall claim a personal exemption deduction equal to the amount

 

calculated pursuant to section 30(2) or equal to the following

 

amounts multiplied by the number of personal or and dependency

 

exemptions allowable on the taxpayer's federal income tax return

 

pursuant to the internal revenue code, under section 30(2),

 

whichever calculation is greater:

 

     (a) Beginning on and after October 1, 2012 and before January

 

1, 2014, $3,950.00. The department shall annualize the personal

 

exemption deduction for the 2012 tax year, rounded to the nearest

 

$1.00.

 

     (b) Beginning on and after January 1, 2014 and each year after

 

2014, before January 1, 2018, $4,000.00.

 

     (c) For the 2018 tax year, $4,300.00.

 

     (d) For the 2019 tax year, $4,600.00.

 

     (e) For the 2020 tax year and each tax year after 2020,

 

$4,800.00.

 

     Sec. 51. (1) For receiving, earning, or otherwise acquiring

 

income from any source whatsoever, there is levied and imposed


under this part upon the taxable income of every person other than

 

a corporation a tax at the following rates in the following

 

circumstances:

 

     (a) On and after October 1, 2007 and before October 1, 2012,

 

4.35%.

 

     (b) Except as otherwise provided under subdivision (c), on and

 

after October 1, 2012, 4.25%.

 

     (c) For each tax year beginning on and after January 1, 2023,

 

if the percentage increase in the total general fund/general

 

purpose revenue from the immediately preceding fiscal year is

 

greater than the inflation rate for the same period and the

 

inflation rate is positive, then the current rate shall be reduced

 

by an amount determined by multiplying that rate by a fraction, the

 

numerator of which is the difference between the total general

 

fund/general purpose revenue from the immediately preceding state

 

fiscal year and the capped general fund/general purpose revenue and

 

the denominator of which is the total revenue collected from this

 

part in the immediately preceding state fiscal year. For purposes

 

of this subdivision only, the state treasurer, the director of the

 

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

 

shall determine whether the total revenue distributed to general

 

fund/general purpose revenue has increased as required under this

 

subdivision based on the comprehensive annual financial report

 

prepared and published by the department of technology, management,

 

and budget in accordance with section 23 of article IX of the state

 

constitution of 1963. The state treasurer, the director of the

 

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


shall make the determination under this subdivision no later than

 

the date of the January 2023 revenue estimating conference

 

conducted pursuant to sections 367a through 367f of the management

 

and budget act, 1984 PA 431, MCL 18.1367a to 18.1367f, and the date

 

of each January revenue estimating conference conducted each year

 

thereafter. As used in this subdivision:

 

     (i) "Capped general fund/general purpose revenue" means the

 

total general fund/general purpose revenue from the 2020-2021 state

 

fiscal year multiplied by the sum of 1 plus the product of 1.425

 

times the difference between a fraction, the numerator of which is

 

the consumer price index Consumer Price Index for the state fiscal

 

year ending in the tax year prior to the tax year for which the

 

adjustment is being made and the denominator of which is the

 

consumer price index Consumer Price Index for the 2020-2021 state

 

fiscal year, and 1.

 

     (ii) "Total general fund/general purpose revenue" means the

 

total general fund/general purpose revenue and other financing

 

sources as published in the comprehensive annual financial report

 

schedule of revenue and other financing sources – general fund for

 

that fiscal year plus any distribution made pursuant to section

 

51d.

 

     (2) Beginning January 1, 2000, that percentage of the gross

 

collections before refunds from the tax levied under this section

 

that is equal to 1.012% divided by the income tax rate levied under

 

this section shall be deposited in the state school aid fund

 

created in section 11 of article IX of the state constitution of

 

1963. In addition to the amount already deposited under this


House Bill No. 5420 as amended January 25, 2018

subsection, an amount equal to all revenue lost [to the state school aid

 fund] under this part as

 

a result of the changes implemented for personal and dependency

 

exemptions in sections 30 and 30a by the amendatory act that added

 

this sentence, as determined by the department, shall be deposited

 

in the state school aid fund created in section 11 of article IX of

 

the state constitution of 1963.

 

     (3) In addition to the distribution under subsection (2) and

 

section 51d, beginning October 1, 2016, from the revenue collected

 

under this section an amount equal to 3.5% of the average amount of

 

farmland tax credits claimed under section 36109 of the natural

 

resources and environmental protection act, 1994 PA 451, MCL

 

324.36109, for the immediately preceding 3 state fiscal years shall

 

be deposited into the agricultural preservation fund created in

 

section 36202 of the natural resources and environmental protection

 

act, 1994 PA 451, MCL 324.36202.

 

     (4) The department shall annualize rates provided in

 

subsection (1) as necessary. The applicable annualized rate shall

 

be imposed upon the taxable income of every person other than a

 

corporation for those tax years.

 

     (5) The taxable income of a nonresident shall be computed in

 

the same manner that the taxable income of a resident is computed,

 

subject to the allocation and apportionment provisions of this

 

part.

 

     (6) A resident beneficiary of a trust whose taxable income

 

includes all or part of an accumulation distribution by a trust, as

 

defined in section 665 of the internal revenue code, shall be

 

allowed a credit against the tax otherwise due under this part. The


credit shall be all or a proportionate part of any tax paid by the

 

trust under this part for any preceding taxable year that would not

 

have been payable if the trust had in fact made distribution to its

 

beneficiaries at the times and in the amounts specified in section

 

666 of the internal revenue code. The credit shall not reduce the

 

tax otherwise due from the beneficiary to an amount less than would

 

have been due if the accumulation distribution were excluded from

 

taxable income.

 

     (7) The taxable income of a resident who is required to

 

include income from a trust in his or her federal income tax return

 

under the provisions of 26 USC 671 to 679, shall include items of

 

income and deductions from the trust in taxable income to the

 

extent required by this part with respect to property owned

 

outright.

 

     (8) It is the intention of this section that the income

 

subject to tax of every person other than corporations shall be

 

computed in like manner and be the same as provided in the internal

 

revenue code subject to adjustments specifically provided for in

 

this part.

 

     (9) As used in this section:

 

     (a) "Consumer price index" Price Index" means the United

 

States consumer price index Consumer Price Index for all urban

 

consumers as defined and reported by the United States Department

 

of Labor, Bureau of Labor Statistics.

 

     (b) "Inflation rate" means the annual percentage change in the

 

consumer price index, Consumer Price Index, as determined by the

 

department, comparing the 2 most recent completed state fiscal


years.

 

     (c) "Person other than a corporation" means a resident or

 

nonresident individual or any of the following:

 

     (i) A partner in a partnership as defined in the internal

 

revenue code.

 

     (ii) A beneficiary of an estate or a trust as defined in the

 

internal revenue code.

 

     (iii) An estate or trust as defined in the internal revenue

 

code.

 

     (d) "Taxable income" means taxable income as defined in this

 

part subject to the applicable source and attribution rules

 

contained in this part.

 

     Sec. 52. For tax years beginning after 1986, a A person with

 

respect to whom a deduction under section 151 of the internal

 

revenue code is allowable to another federal taxpayer during the

 

tax year is not considered to have an allowable federal exemption

 

for purposes of section 30(2) and, notwithstanding sections 51 and

 

315, if that person has an adjusted gross income for that tax year

 

of $1,500.00 or less, is exempt from the tax levied and imposed in

 

section 51 and is not required to file a return under this part.

 

     Sec. 512. (1) "Paraplegic, hemiplegic, or quadriplegic" means

 

an individual, or either 1 of 2 persons filing a joint tax return

 

under this part, who is a paraplegic, hemiplegic, or quadriplegic

 

at the end of the tax year.

 

     (2) "Property taxes" means, for tax years before the 2003 tax

 

year, general ad valorem taxes due and payable, levied on a

 

homestead within this state including property tax administration


fees, but does not include penalties, interest, or special

 

assessments unless assessed in the entire city, village, or

 

township, levied using a uniform millage rate on all real property

 

not exempt by state law from the levy of the special assessment,

 

and levied and based on state equalized valuation or taxable value.

 

     (3) "Qualified person" means a claimant and any person,

 

domiciled in Michigan, who can be claimed as a dependent under the

 

internal revenue code and who does not file a claim under this part

 

for the same tax year. The term does not include the additional

 

exemptions allowed for age or blindness.

 

     (2) (4) "Renter" means a person who rents or leases a

 

homestead.

 

     Sec. 607. (1) "Federal taxable income" means taxable income as

 

defined in section 63 of the internal revenue code, except that

 

federal taxable income shall be calculated as if section 168(k) and

 

section 199 of the internal revenue code were not in effect.

 

     (2) "Flow-through entity" means an entity that for the

 

applicable tax year is treated as a subchapter S corporation under

 

section 1362(a) of the internal revenue code, a general

 

partnership, a trust, a limited partnership, a limited liability

 

partnership, or a limited liability company, that for the tax year

 

is not taxed as a corporation for federal income tax purposes.

 

Flow-through entity does not include any entity disregarded under

 

section 699.

 

     (3) "Foreign operating entity" means a United States

 

corporation that satisfies each of the following:

 

     (a) Would otherwise be a part of a unitary business group that


has at least 1 corporation included in the unitary business group

 

that is taxable in this state.

 

     (b) Has substantial operations outside the United States, the

 

District of Columbia, any territory or possession of the United

 

States except for the Commonwealth of Puerto Rico, or a political

 

subdivision of any of the foregoing.

 

     (c) At least 80% of its income is active foreign business

 

income as defined in section 861(c)(1)(B) of the internal revenue

 

code.

 

     (4) "Gross receipts" means the entire amount received by the

 

taxpayer from any activity whether in intrastate, interstate, or

 

foreign commerce carried on for direct or indirect gain, benefit,

 

or advantage to the taxpayer or to others except for the following:

 

     (a) Proceeds from sales by a principal that the taxpayer

 

collects in an agency capacity solely on behalf of the principal

 

and delivers to the principal.

 

     (b) Amounts received by the taxpayer as an agent solely on

 

behalf of the principal that are expended by the taxpayer for any

 

of the following:

 

     (i) The performance of a service by a third party for the

 

benefit of the principal that is required by law to be performed by

 

a licensed person.

 

     (ii) The performance of a service by a third party for the

 

benefit of the principal that the taxpayer has not undertaken a

 

contractual duty to perform.

 

     (iii) Principal and interest under a mortgage loan or land

 

contract, lease or rental payments, or taxes, utilities, or


insurance premiums relating to real or personal property owned or

 

leased by the principal.

 

     (iv) A capital asset of a type that is, or under the internal

 

revenue code will become, eligible for depreciation, amortization,

 

or accelerated cost recovery by the principal for federal income

 

tax purposes, or for real property owned or leased by the

 

principal.

 

     (v) Property not described under subparagraph (iv) purchased

 

by the taxpayer on behalf of the principal and that the taxpayer

 

does not take title to or use in the course of performing its

 

contractual business activities.

 

     (vi) Fees, taxes, assessments, levies, fines, penalties, or

 

other payments established by law that are paid to a governmental

 

entity and that are the legal obligation of the principal.

 

     (c) Amounts that are excluded from gross income of a foreign

 

corporation engaged in the international operation of aircraft

 

under section 883(a) of the internal revenue code.

 

     (d) Amounts received by an advertising agency used to acquire

 

advertising media time, space, production, or talent on behalf of

 

another person.

 

     (e) Notwithstanding any other provision of this section,

 

amounts received by a taxpayer that manages real property owned by

 

the taxpayer's client that are deposited into a separate account

 

kept in the name of the taxpayer's client and that are not

 

reimbursements to the taxpayer and are not indirect payments for

 

management services that the taxpayer provides to that client.

 

     (f) Proceeds from the taxpayer's transfer of an account


receivable if the sale that generated the account receivable was

 

included in gross receipts for federal income tax purposes. This

 

subdivision does not apply to a taxpayer that during the tax year

 

both buys and sells any receivables.

 

     (g) Proceeds from any of the following:

 

     (i) The original issue of stock or equity instruments.

 

     (ii) The original issue of debt instruments.

 

     (h) Refunds from returned merchandise.

 

     (i) Cash and in-kind discounts.

 

     (j) Trade discounts.

 

     (k) Federal, state, or local tax refunds.

 

     (l) Security deposits.

 

     (m) Payment of the principal portion of loans.

 

     (n) Value of property received in a like-kind exchange.

 

     (o) Proceeds from a sale, transaction, exchange, involuntary

 

conversion, or other disposition of tangible, intangible, or real

 

property that is a capital asset as defined in section 1221(a) of

 

the internal revenue code or land that qualifies as property used

 

in the trade or business as defined in section 1231(b) of the

 

internal revenue code, less any gain from the disposition to the

 

extent that gain is included in federal taxable income.

 

     (p) The proceeds from a policy of insurance, a settlement of a

 

claim, or a judgment in a civil action less any proceeds under this

 

subdivision that are included in federal taxable income.

 

     (5) "Insurance company" means an authorized insurer as defined

 

in section 108 of the insurance code of 1956, 1956 PA 218, MCL

 

500.108.


     (6) "Internal revenue code" means the United States internal

 

revenue code of 1986 in effect on January 1, 2012 2018 or, at the

 

option of the taxpayer, in effect for the tax year.

 

     (7) "Member", when used in reference to a flow-through entity,

 

means a shareholder of a subchapter S corporation, a partner in a

 

general partnership, a limited partnership, or a limited liability

 

partnership, a member of a limited liability company, or a

 

beneficiary of a trust that is a flow-through entity.

 

     Enacting section 1. Sections 30e and 30f of the income tax act

 

of 1967, 1967 PA 281, MCL 206.30e and 206.30f, are repealed.

 

     Enacting section 2. This amendatory act does not take effect

 

unless all of the following bills of the 99th Legislature are

 

enacted into law:

 

     (a) House Bill No. 5421.

 

     (b) House Bill No. 5422.