November 8, 2018, Introduced by Rep. Cole and referred to the Committee on Commerce and Trade.
A bill to amend 1967 PA 281, entitled
"Income tax act of 1967,"
by amending sections 30, 36, and 623 (MCL 206.30, 206.36, and
206.623), section 30 as amended by 2018 PA 38, section 36 as
amended by 2011 PA 38, and section 623 as amended by 2014 PA 13.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
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 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 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 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 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 all of the following:
(i) 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) 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. For purposes of this
subparagraph, expenses of producing oil and gas include costs
allowable as a deduction from the sales price of the oil and gas in
determining the gross cash value of the oil and gas at the wellhead
for the severance tax, but do not include any of the following:
(A) Costs incurred to purchase, lease, or otherwise acquire an
oil and gas property, whether proved or unproved.
(B) Costs incurred for exploration or development of an oil
and gas property, whether producing or nonproducing.
(C) Costs incurred for processing, transportation, or
marketing of the oil and gas that has been produced from an oil and
gas property.
(D) Costs incurred for plugging and abandonment of an oil and
gas property.
(E) Allowances for depletion that do not reduce the adjusted
basis of the oil and gas property.
(x) For tax years that begin after December 31, 2015, deduct
all of the following:
(i) 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) 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) 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 and dependency exemptions 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.
(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
subsection (2) is allowable to another taxpayer during the tax year
is not 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 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 for the 2010-2011 state fiscal year. For the 2022 tax year
and each tax year after 2022, the adjusted amount determined under
this subsection shall be increased by an additional $600.00. The
resultant product shall be rounded to the nearest $100.00
increment. As used in this section, "United States Consumer Price
Index" means the United States 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 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
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 the severance tax levied and imposed under 1929 PA 48,
MCL 205.301 to 205.317.
Sec. 36. (1) "Taxable income" in the case of a resident estate
or trust means federal taxable income as defined in the internal
revenue code subject to the following adjustments:
(a) Add gross interest income and dividends derived from
obligations or securities of states other than Michigan, in the
same amount which has been excluded from federal taxable income
less related expenses not deducted in computing federal taxable
income because of section 265 of the internal revenue code.
(b) Add taxes on or measured by income to the extent the taxes
have been deducted in arriving at federal taxable 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 federal taxable income.
(d) Deduct, to the extent included in federal taxable income,
income derived from obligations, or the sale or exchange of
obligations, of the United States government which 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 such income to
the extent that the expenses, including amortizable bond premiums,
were deducted in arriving at federal taxable income.
(e) Adjustments resulting from the application of section 271.
(f) Deduct an adjustment resulting from the allocation and
apportionment provisions of chapter 3.
(g) 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 federal taxable income.
(ii) Expenses of producing oil and gas to the extent deducted
in arriving at federal taxable income. For purposes of this
subparagraph, expenses of producing oil and gas include costs
allowable as a deduction from the sales price of the oil and gas in
determining the gross cash value of the oil and gas at the wellhead
for the severance tax, but do not include any of the following:
(A) Costs incurred to purchase, lease, or otherwise acquire an
oil and gas property, whether proved or unproved.
(B) Costs incurred for exploration or development of an oil
and gas property, whether producing or nonproducing.
(C) Costs incurred for processing, transportation, or
marketing of the oil and gas that has been produced from an oil and
gas property.
(D) Costs incurred for plugging and abandonment of an oil and
gas property.
(E) Allowances for depletion that do not reduce the adjusted
basis of the oil and gas property.
(2) The respective shares of an estate or trust and its
beneficiaries, including, solely for the purpose of this
allocation, nonresident beneficiaries, in the additions and
subtractions to taxable income shall be in proportion to their
respective shares of distributable net income of the estate or
trust as defined in the internal revenue code. If the estate or
trust has no distributable net income for the taxable year, the
share of each beneficiary in the additions and subtractions shall
be in proportion to his or her share of the estate or trust income
for the year, under local law or the terms of the instrument, which
is required to be distributed currently and any other amounts of
such income distributed in the year. Any balance of the additions
and subtractions shall be allocated to the estate or trust. If
capital gains and losses are distributed or distributable to a
beneficiary or beneficiaries under the internal revenue code, the
fiduciary shall advise each beneficiary of his or her share of the
adjustment under section 271. The election or failure to elect
under section 271 with respect to capital gains and losses taxable
to the estate or trust shall not affect the beneficiary's right to
elect or not to elect under section 271.
(3) An addition or subtraction shall not be made under this
section which has the effect of duplicating an item of income or
deduction if the taxpayer establishes to the satisfaction of the
commissioner that the item is already reflected in federal taxable
income. If an addition or subtraction with respect to the sale or
exchange of obligations of the United States government proper
adjustment, in accordance with rules promulgated by the department,
of the deduction for excess of capital gains over capital losses
shall be made.
(4) As used in this section, "oil and gas" means oil and gas
that is subject to the severance tax levied and imposed under 1929
PA 48, MCL 205.301 to 205.317.
Sec. 623. (1) Except as otherwise provided in this part, there
is levied and imposed a corporate income tax on every taxpayer with
business activity within this state or ownership interest or
beneficial interest in a flow-through entity that has business
activity in this state unless prohibited by 15 USC 381 to 384. The
corporate income tax is imposed on the corporate income tax base,
after allocation or apportionment to this state, at the rate of
6.0%.
(2) The corporate income tax base means a taxpayer's business
income subject to the following adjustments, before allocation or
apportionment, and the adjustment in subsection (4) after
allocation or apportionment:
(a) Add interest income and dividends derived from obligations
or securities of states other than this state, in the same amount
that was excluded from federal taxable income, less the related
portion of expenses not deducted in computing federal taxable
income because of sections 265 and 291 of the internal revenue
code.
(b) Add all taxes on or measured by net income including the
tax imposed under this part to the extent that the taxes were
deducted in arriving at federal taxable income.
(c) Add any carryback or carryover of a net operating loss to
the extent deducted in arriving at federal taxable income.
(d) To the extent included in federal taxable income, deduct
dividends and royalties received from persons other than United
States persons and foreign operating entities, including, but not
limited to, amounts determined under section 78 of the internal
revenue
code or sections 951 to 964 965
of the internal revenue
code.
(e) Except as otherwise provided under this subdivision, to
the extent deducted in arriving at federal taxable income, add any
royalty, interest, or other expense paid to a person related to the
taxpayer by ownership or control for the use of an intangible asset
if the person is not included in the taxpayer's unitary business
group. The addition of any royalty, interest, or other expense
described under this subdivision is not required to be added if the
taxpayer can demonstrate that the transaction has a nontax business
purpose, is conducted with arm's-length pricing and rates and terms
as applied in accordance with sections 482 and 1274(d) of the
internal revenue code, and 1 of the following is true:
(i) The transaction is a pass through of another transaction
between a third party and the related person with comparable rates
and terms.
(ii) An addition would result in double taxation. For purposes
of this subparagraph, double taxation exists if the transaction is
subject to tax in another jurisdiction.
(iii) An addition would be unreasonable as determined by the
state treasurer.
(iv) The related person recipient of the transaction is
organized under the laws of a foreign nation which has in force a
comprehensive income tax treaty with the United States.
(f) To the extent included in federal taxable income, deduct
interest income derived from United States obligations.
(g) 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 federal taxable income.
(ii) Expenses of producing oil and gas to the extent deducted
in arriving at federal taxable income. For purposes of this
subparagraph, expenses of producing oil and gas include costs
allowable as a deduction from the sales price of the oil and gas in
determining the gross cash value of the oil and gas at the wellhead
for the severance tax, but do not include any of the following:
(A) Costs incurred to purchase, lease, or otherwise acquire an
oil and gas property, whether proved or unproved.
(B) Costs incurred for exploration or development of an oil
and gas property, whether producing or nonproducing.
(C) Costs incurred for processing, transportation, or
marketing of the oil and gas that has been produced from an oil and
gas property.
(D) Costs incurred for plugging and abandonment of an oil and
gas property.
(E) Allowances for depletion that do not reduce the adjusted
basis of the oil and gas property.
(h) For tax years beginning after December 31, 2012, for a
qualified taxpayer, eliminate all of the following:
(i) Income derived from a mineral to the extent included in
federal taxable income.
(ii) Expenses related to the income deductible under
subparagraph (i) to the extent deducted in arriving at federal
taxable income.
(3) For purposes of subsection (2), the business income of a
unitary business group is the sum of the business income of each
person included in the unitary business group less any items of
income and related deductions arising from transactions including
dividends between persons included in the unitary business group.
(4) Deduct any available business loss incurred after December
31, 2011. As used in this subsection, "business loss" means a
negative business income taxable amount after allocation or
apportionment. For purposes of this subsection, a taxpayer that
acquires the assets of another corporation in a transaction
described under section 381(a)(1) or (2) of the internal revenue
code may deduct any business loss attributable to that distributor
or transferor corporation. The business loss shall be carried
forward to the year immediately succeeding the loss year as an
offset to the allocated or apportioned corporate income tax base,
then successively to the next 9 taxable years following the loss
year or until the loss is used up, whichever occurs first.
(5) As used in this section, "oil and gas" means oil and gas
that is subject to the severance tax levied and imposed under 1929
PA 48, MCL 205.301 to 205.317.
Enacting section 1. This amendatory act is curative and
intended to clarify the original intent of the legislature
regarding the application of the deduction for certain income and
expenses related to oil and gas as added by 2011 PA 38.
Accordingly, this amendatory act is retroactive and effective for
all tax years beginning after December 31, 2011.