Special Report: A Summary of Senate Bill 94: Michigan Business Tax
Update

Summary

Senate Bill 94 would create a new act, known as the Michigan Business Tax Act,
which would replace the Single Business Tax, which is set to expire on December
31, 2007.

The bill is tied-barred to House Bills 4369-4372, which would partially exempt
commercial and industrial property from the State Education Tax and local school
operating taxes. Highlights of SB 94 include:

• A tax of 4.95% on business income.
• A tax of 0.8% on gross receipts (less purchases from other firms).
• An increase in the tax on insurance companies from the current effective rate of
1.07% to 1.25%, yet still retaining a number of industry-specific credits.
• Subjecting financial institutions to a separate tax equal to 0.235% of net capital.
• A credit equal to 0.37% of compensation.
• A 2.9% investment tax credit similar to the existing credit against the SBT.
• A credit equal to 1.9% of research and development expenses.
• A credit equal to 30% of contributions made to a partnering small business
engaged in research and development, capped at $300,000.
• Retaining the current SBT filing threshold of $350,000, but creating a credit that
phases in tax liability for businesses with gross receipts less than $700,000.
• Retaining the alternative rate for small businesses, but reducing the rate from
2.0% to 1.8%, and increasing the limits on owner income, gross receipts, and
business income.
• Retaining many of the current economic development credits, including those
related to the Michigan Economic Growth Authority, brownfield redevelopment,and
historic preservation.
• Retaining a number of the other miscellaneous credits from the SBT.
• A credit for firms that add at least 20 employees.
• A credit for capital expenditures at the Michigan International Speedway and
certain other sports stadiums.
• A compensation-based credit for certain grocery stores.
• A credit for new automobile dealers for inventory.
• Requiring unitary filing for corporate groups.
 

Business Income Tax (Section 201)

The bill would impose a tax at a rate of 4.95% on business income after allocation
and apportionment, on every taxpayer with "business activity" within the state,
unless prohibited by federal P.L. 86-272 (15 USC 381 to 384). Business income
generally means that part of federal taxable income that is derived from business
activity, with a number of adjustments.

Modified Gross Receipts Tax (Section 203)

The bill would also impose a tax of 0.8% on a firm’s gross receipts, less its
purchases from other firms. The bill (Section 113) defines “purchased from other
firms” to mean (1) inventory, including delivery charges; (2) depreciable assets,
including installation costs; (3) other materials and supplies, including repair parts
and fuel; (4) and, for staffing companies, compensation of personnel supplied to
their customers. For the 2008 tax year, taxpayers may deduct 65% of any
remaining SBT business loss carry-forward incurred in 2006 or 2007.

Unitary Business Groups (Section 511)

The bill would require unitary business groups to file a combined return that
includes each U.S. person included in the group. The business income base,
modified gross receipts base, and the apportionment formula would not include
transactions between group members and would not include any business income,
modified gross receipts, or sales (for the purposes of apportionment) of a member
that is subject to the separate insurance or financial institutions tax under
Chapters 2A or 2B of the bill.

The bill (Section 201) provides that the business income of a unitary business
group is the sum of the business income of each member of the group, except a
foreign operating person and members subject to tax under Chapters 2A and 2B,
less any items of income and related deductions arising from transactions between
group members. Similarly, the bill (Section 203) also provides that the modified
gross receipts of a unitary business group is the sum of the modified gross
receipts of each member of the group except a foreign operating person and
members subject to tax under Chapters 2A and 2B, less any modified gross
receipts arising from transactions between group members.

For a full analysis, visit www.legislature.mi.gov/ and type in Bill Number 94; then
choose Analysis as Enrolled.

Ernest & Young Webcast: 2007 Michigan SBT Replacement Tax: What
Your Company Needs to Know

An overview of the recently approved legislation and its effects on taxpayers doing
business in the State of Michigan

Date: Wednesday, July 18, 2007
Time: 2:00 - 3:30 p.m. ET New York; 19:00 - 20:30 London; 20:00 - 21:30
Paris
Registration: Register for this Webcast at http://www.ey.com/webcast?
progid=672

Ernst & Young LLP cordially invites you to join a live Thought Center Webcast
providing an analysis of the new tax system that will replace the expiring Michigan
Single Business Tax and its effect on taxpayers conducting business in Michigan.

At the end of this program, the participant should be able to describe the newly
approved tax system that will replace the expiring Michigan Single Business Tax,
identify its effect on taxpayers conducting business in Michigan, and describe the
components of the new Michigan Business Tax, credits available to taxpayers, and
small business tax relief provisions.

During the Webcast, a team of Ernst & Young tax professionals will discuss a
variety of issues and considerations relevant to the new tax system. Specifically,
the following topics will be discussed:
* Components of the new Michigan Business Tax which consists of the modified
gross receipts tax and the business income tax
* Credits available to taxpayers
* Small business tax relief provisions
During this interactive Webcast, you will have the opportunity to ask questions.
The panelists will answer as many questions as time permits.

Featured Panelists
Dave Kirvan, Ernst & Young LLP, Michigan State and Local Tax Professional Smitha
Reddy, Ernst & Young LLP, Michigan State and Local Tax Professional
Dan Domenicucci, Ernst & Young LLP, Michigan State and Local Tax Professional
Bob Cline, Ernst & Young LLP, Quantitative Economics and Statistics Professional
Moderator
Gary LeDonne, Ernst & Young LLP, National Director of State and Local Tax
Services

How do I register?
You can register for any webcast in three easy steps:
1. Go to the Thought Center Webcast site: http://www.ey.com/webcast and click
"Upcoming Events" on the right side of the page to select the program for which
you would like to register.
2. Click the "Register" button, enter your e-mail address, and complete our simple
registration form.
3. After you have completed the registration form, follow the instructions to test
your system for the webcast technology.
Program Level - Intermediate
Prerequisites - Manager and above
Advanced Prep - No advanced preparation required
Estimated CPE - 1.5 - Please note that the final CPE award may differ from
estimate, based on the length of participation in the program, etc. CPE FAQ
<http://webcast.ey.com/thoughtcenter/pages/cpefaq.aspx>
 

Please contact Executive Director Walter Heinritzi at 517-321-1951 or wheinritzi@mitrucking.org.

Updated: July 12, 2007

 

Legislative Action