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.