HOUSE BILL No. 4212 February 13, 2001, Introduced by Reps. Vear and Gosselin and referred to the Committee on Tax Policy. A bill to amend 1967 PA 281, entitled "Income tax act of 1967," by amending section 30 (MCL 206.30), as amended by 2000 PA 400. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 30. (1) "Taxable income" means, for a person other 2 than a corporation, estate, or trust, adjusted gross income as 3 defined in the internal revenue code subject to the following 4 adjustments under this section: 5 (a) Add gross interest income and dividends derived from 6 obligations or securities of states other than Michigan, in the 7 same amount that has been excluded from adjusted gross income 8 less related expenses not deducted in computing adjusted gross 9 income because of section 265(a)(1) of the internal revenue 10 code. 00233'01 MRM 2 1 (b) Add taxes on or measured by income to the extent the 2 taxes have been deducted in arriving at adjusted gross income, 3 EXCEPT SELF-EMPLOYMENT TAXES PAID FOR TAX YEARS BEGINNING AFTER 4 DECEMBER 31, 2000. 5 (c) Add losses on the sale or exchange of obligations of the 6 United States government, the income of which this state is pro- 7 hibited from subjecting to a net income tax, to the extent that 8 the loss has been deducted in arriving at adjusted gross income. 9 (d) Deduct, to the extent included in adjusted gross income, 10 income derived from obligations, or the sale or exchange of obli- 11 gations, of the United States government that this state is pro- 12 hibited by law from subjecting to a net income tax, reduced by 13 any interest on indebtedness incurred in carrying the obligations 14 and by any expenses incurred in the production of that income to 15 the extent that the expenses, including amortizable bond premi- 16 ums, were deducted in arriving at adjusted gross income. 17 (e) Deduct, to the extent included in adjusted gross income, 18 compensation, including retirement benefits, received for serv- 19 ices in the armed forces of the United States. 20 (f) Deduct the following to the extent included in adjusted 21 gross income: 22 (i) Retirement or pension benefits received from a federal 23 public retirement system or from a public retirement system of or 24 created by this state or a political subdivision of this state. 25 (ii) Retirement or pension benefits received from a public 26 retirement system of or created by another state or any of its 27 political subdivisions if the income tax laws of the other state 00233'01 3 1 permit a similar deduction or exemption or a reciprocal deduction 2 or exemption of a retirement or pension benefit received from a 3 public retirement system of or created by this state or any of 4 the political subdivisions of this state. 5 (iii) Social security benefits as defined in section 86 of 6 the internal revenue code. 7 (iv) Before October 1, 1994, retirement or pension benefits 8 from any other retirement or pension system as follows: 9 (A) For a single return, the sum of not more than 10 $7,500.00. 11 (B) For a joint return, the sum of not more than 12 $10,000.00. 13 (v) After September 30, 1994, retirement or pension benefits 14 not deductible under subparagraph (i) or subdivision (e) from any 15 other retirement or pension system or benefits from a retirement 16 annuity policy in which payments are made for life to a senior 17 citizen, to a maximum of $30,000.00 for a single return and 18 $60,000.00 for a joint return. The maximum amounts allowed under 19 this subparagraph shall be reduced by the amount of the deduction 20 for retirement or pension benefits claimed under subparagraph (i) 21 or subdivision (e) and for tax years after the 1996 tax year by 22 the amount of a deduction claimed under subdivision (r). For the 23 1995 tax year and each tax year after 1995, the maximum amounts 24 allowed under this subparagraph shall be adjusted by the percen- 25 tage increase in the United States consumer price index for the 26 immediately preceding calendar year. The department shall 27 annualize the amounts provided in this subparagraph and 00233'01 4 1 subparagraph (iv) as necessary for tax years that end after 2 September 30, 1994. As used in this subparagraph, "senior 3 citizen" means that term as defined in section 514. 4 (vi) The amount determined to be the section 22 amount eli- 5 gible for the elderly and the permanently and totally disabled 6 credit provided in section 22 of the internal revenue code. 7 (g) Adjustments resulting from the application of section 8 271. 9 (h) Adjustments with respect to estate and trust income as 10 provided in section 36. 11 (i) Adjustments resulting from the allocation and apportion- 12 ment provisions of chapter 3. 13 (j) Deduct political contributions as described in section 4 14 of the Michigan campaign finance act, 1976 PA 388, MCL 169.204, 15 or section 301 of title III of the federal election campaign act 16 of 1971, Public Law 92-225, 2 U.S.C. 431, not in excess of $50.00 17 per annum, or $100.00 per annum for a joint return. 18 (k) Deduct, to the extent included in adjusted gross income, 19 wages not deductible under section 280C of the internal revenue 20 code. 21 (l) Deduct the following payments made by the taxpayer in 22 the tax year: 23 (i) The amount of payment made under an advance tuition pay- 24 ment contract as provided in the Michigan education trust act, 25 1986 PA 316, MCL 390.1421 to 390.1444. 00233'01 5 1 (ii) The amount of payment made under a contract with a 2 private sector investment manager that meets all of the following 3 criteria: 4 (A) The contract is certified and approved by the board of 5 directors of the Michigan education trust to provide equivalent 6 benefits and rights to purchasers and beneficiaries as an advance 7 tuition payment contract as described in subparagraph (i). 8 (B) The contract applies only for a state institution of 9 higher education as defined in the Michigan education trust act, 10 1986 PA 316, MCL 390.1421 to 390.1444, or a community or junior 11 college in Michigan. 12 (C) The contract provides for enrollment by the contract's 13 qualified beneficiary in not less than 4 years after the date on 14 which the contract is entered into. 15 (D) The contract is entered into after either of the 16 following: 17 (I) The purchaser has had his or her offer to enter into an 18 advance tuition payment contract rejected by the board of direc- 19 tors of the Michigan education trust, if the board determines 20 that the trust cannot accept an unlimited number of enrollees 21 upon an actuarially sound basis. 22 (II) The board of directors of the Michigan education trust 23 determines that the trust can accept an unlimited number of 24 enrollees upon an actuarially sound basis. 25 (m) If an advance tuition payment contract under the 26 Michigan education trust act, 1986 PA 316, MCL 390.1421 to 27 390.1444, or another contract for which the payment was 00233'01 6 1 deductible under subdivision (l) is terminated and the qualified 2 beneficiary under that contract does not attend a university, 3 college, junior or community college, or other institution of 4 higher education, add the amount of a refund received by the tax- 5 payer as a result of that termination or the amount of the deduc- 6 tion taken under subdivision (l) for payment made under that con- 7 tract, whichever is less. 8 (n) Deduct from the taxable income of a purchaser the amount 9 included as income to the purchaser under the internal revenue 10 code after the advance tuition payment contract entered into 11 under the Michigan education trust act, 1986 PA 316, MCL 390.1421 12 to 390.1444, is terminated because the qualified beneficiary 13 attends an institution of postsecondary education other than 14 either a state institution of higher education or an institution 15 of postsecondary education located outside this state with which 16 a state institution of higher education has reciprocity. 17 (o) Add, to the extent deducted in determining adjusted 18 gross income, the net operating loss deduction under section 172 19 of the internal revenue code. 20 (p) Deduct a net operating loss deduction for the taxable 21 year as determined under section 172 of the internal revenue code 22 subject to the modifications under section 172(b)(2) of the 23 internal revenue code and subject to the allocation and appor- 24 tionment provisions of chapter 3 of this act for the taxable year 25 in which the loss was incurred. 26 (q) For a tax year beginning after 1986, deduct, to the 27 extent included in adjusted gross income, benefits from a 00233'01 7 1 discriminatory self-insurance medical expense reimbursement 2 plan. 3 (r) After September 30, 1994 and before the 1997 tax year, a 4 taxpayer who is a senior citizen may deduct, to the extent 5 included in adjusted gross income, interest and dividends 6 received in the tax year not to exceed $1,000.00 for a single 7 return or $2,000.00 for a joint return. However, for tax years 8 before the 1997 tax year, the deduction under this subdivision 9 shall not be taken if the taxpayer takes a deduction for retire- 10 ment benefits under subdivision (e) or a deduction under 11 subdivision (f)(i), (ii), (iv), or (v). For tax years after the 12 1996 tax year, a taxpayer who is a senior citizen may deduct to 13 the extent included in adjusted gross income, interest, divi- 14 dends, and capital gains received in the tax year not to exceed 15 $3,500.00 for a single return and $7,000.00 for a joint return 16 for the 1997 tax year, and $7,500.00 for a single return and 17 $15,000.00 for a joint return for tax years after the 1997 tax 18 year. For tax years after the 1996 tax year, the maximum amounts 19 allowed under this subdivision shall be reduced by the amount of 20 a deduction claimed for retirement benefits under subdivision (e) 21 or a deduction claimed under subdivision (f)(i), (ii), (iv), or 22 (v). For the 1995 tax year, for the 1996 tax year, and for each 23 tax year after the 1998 tax year, the maximum amounts allowed 24 under this subdivision shall be adjusted by the percentage 25 increase in the United States consumer price index for the imme- 26 diately preceding calendar year. The department shall annualize 27 the amounts provided in this subdivision as necessary for tax 00233'01 8 1 years that end after September 30, 1994. As used in this 2 subdivision, "senior citizen" means that term as defined in sec- 3 tion 514. 4 (s) Deduct, to the extent included in adjusted gross income, 5 all of the following: 6 (i) The amount of a refund received in the tax year based on 7 taxes paid under this act. 8 (ii) The amount of a refund received in the tax year based 9 on taxes paid under the city income tax act, 1964 PA 284, 10 MCL 141.501 to 141.787. 11 (iii) The amount of a credit received in the tax year based 12 on a claim filed under sections 520 and 522 to the extent that 13 the taxes used to calculate the credit were not used to reduce 14 adjusted gross income for a prior year. 15 (t) Add the amount paid by the state on behalf of the tax- 16 payer in the tax year to repay the outstanding principal on a 17 loan taken on which the taxpayer defaulted that was to fund an 18 advance tuition payment contract entered into under the Michigan 19 education trust act, 1986 PA 316, MCL 390.1421 to 390.1444, if 20 the cost of the advance tuition payment contract was deducted 21 under subdivision (l) and was financed with a Michigan education 22 trust secured loan. 23 (u) For the 1998 tax year and each tax year after the 1998 24 tax year, deduct the amount calculated under section 30d. 25 (v) For tax years that begin on and after January 1, 1994, 26 deduct, to the extent included in adjusted gross income, any 27 amount, and any interest earned on that amount, received in the 00233'01 9 1 tax year by a taxpayer who is a Holocaust victim as a result of a 2 settlement of claims against any entity or individual for any 3 recovered asset pursuant to the German act regulating unresolved 4 property claims, also known as Gesetz zur Regelung offener 5 Vermogensfragen, as a result of the settlement of the action 6 entitled In re: Holocaust victims assets, CV-96-4849, CV-96-6161, 7 and CV-97-0461 (E.D. NY), or as a result of any similar action if 8 the income and interest are not commingled in any way with and 9 are kept separate from all other funds and assets of the 10 taxpayer. As used in this subdivision: 11 (i) "Holocaust victim" means a person, or the heir or bene- 12 ficiary of that person, who was persecuted by Nazi Germany or any 13 Axis regime during any period from 1933 to 1945. 14 (ii) "Recovered asset" means any asset of any type and any 15 interest earned on that asset including, but not limited to, bank 16 deposits, insurance proceeds, or artwork owned by a Holocaust 17 victim during the period from 1920 to 1945, withheld from that 18 Holocaust victim from and after 1945, and not recovered, 19 returned, or otherwise compensated to the Holocaust victim until 20 after 1993. 21 (w) For tax years that begin after December 31, 1999, 22 deduct, to the extent not deducted in determining adjusted gross 23 income, both of the following: 24 (i) The total of all contributions made on and after October 25 1, 2000 by the taxpayer in the tax year to education savings 26 accounts pursuant to the Michigan education savings program act, 27 2000 PA 161, MCL 390.1471 to 390.1486, not to exceed $5,000.00 00233'01 10 1 for a single return or $10,000.00 for a joint return per tax 2 year. A deduction under this subparagraph is not allowed for 3 contributions to an education savings account in the tax year in 4 which the initial withdrawal is made from that account or any 5 subsequent year. 6 (ii) The amount under section 30f. 7 (x) For tax years that begin after December 31, 1999, add to 8 the extent not included in adjusted gross income the amount of 9 money withdrawn by the taxpayer in the tax year from education 10 savings accounts if the withdrawal was not a qualified withdrawal 11 as provided in the Michigan education savings program act, 2000 12 PA 161, MCL 390.1471 to 390.1486. 13 (y) For tax years that begin after December 31, 1999, 14 deduct, to the extent included in adjusted gross income, the 15 amount of a distribution from individual retirement accounts that 16 qualify under section 408 of the internal revenue code if the 17 distribution is used to pay qualified higher education expenses 18 as that term is defined in the Michigan education savings program 19 act, 2000 PA 161, MCL 390.1471 to 390.1486. 20 (z) For tax years that begin after December 31, 2000, 21 deduct, to the extent included in adjusted gross income, an 22 amount equal to the qualified charitable distribution made in the 23 tax year by a taxpayer to a charitable organization. The amount 24 allowed under this subdivision shall be equal to the amount 25 deductible by the taxpayer under section 170(c) of the internal 26 revenue code with respect to the qualified charitable 27 distribution in the tax year in which the taxpayer makes the 00233'01 11 1 distribution to the qualified charitable organization, reduced by 2 both the amount of the deduction for retirement or pension bene- 3 fits claimed by the taxpayer under subdivision (f)(i), (ii), 4 (iv), or (v) and by 2 times the total amount of credits claimed 5 under sections 260 and 261 for the tax year. As used in this 6 subdivision, "qualified charitable distribution" means a distri- 7 bution of assets to a qualified charitable organization by a tax- 8 payer not more than 60 days after the date on which the taxpayer 9 received the assets as a distribution from a retirement or pen- 10 sion plan described in subsection (8)(a). A distribution is to a 11 qualified charitable organization if the distribution is made in 12 any of the following circumstances: 13 (i) To an organization described in section 501(c)(3) of the 14 internal revenue code except an organization that is controlled 15 by a political party, an elected official or a candidate for an 16 elective office. 17 (ii) To a charitable remainder annuity trust or a charitable 18 remainder unitrust as defined in section 664(d) of the internal 19 revenue code; to a pooled income fund as defined in section 20 642(c)(5) of the internal revenue code; or for the issuance of a 21 charitable gift annuity as defined in section 501(m)(5) of the 22 internal revenue code. A trust, fund, or annuity described in 23 this subparagraph is a qualified charitable organization only if 24 no person holds any interest in the trust, fund, or annuity other 25 than 1 or more of the following: 26 (A) The taxpayer who received the distribution from the 27 retirement or pension plan. 00233'01 12 1 (B) The spouse of an individual described in 2 sub-subparagraph (A). 3 (C) An organization described in section 501(c)(3) of the 4 internal revenue code. 5 (2) The following personal exemptions multiplied by the 6 number of personal or dependency exemptions allowable on the 7 taxpayer's federal income tax return pursuant to the internal 8 revenue code shall be subtracted in the calculation that deter- 9 mines taxable income: 10 (a) For a tax year beginning during 1987........... $ 1,600.00. 11 (b) For a tax year beginning during 1988........... $ 1,800.00. 12 (c) For a tax year beginning during 1989........... $ 2,000.00. 13 (d) For a tax year beginning after 1989 and before 14 1995................................................. $ 2,100.00. 15 (e) For a tax year beginning during 1995 or 1996... $ 2,400.00. 16 (f) Except as otherwise provided in subsection (7), 17 for a tax year beginning after 1996.................. $ 2,500.00. 18 (3) A single additional exemption determined as follows 19 shall be subtracted in the calculation that determines taxable 20 income in each of the following circumstances: 21 (a) For tax years beginning after 1989 and before 2000, 22 $900.00 in each of the following circumstances: 23 (i) The taxpayer is a paraplegic, a quadriplegic, a hemiple- 24 gic, a person who is blind as defined in section 504, or a person 25 who is totally and permanently disabled as defined in section 26 522. 00233'01 13 1 (ii) The taxpayer is a deaf person as defined in section 2 2 of the deaf persons' interpreters act, 1982 PA 204, MCL 393.502. 3 (iii) The taxpayer is 65 years of age or older. 4 (iv) The return includes unemployment compensation that 5 amounts to 50% or more of adjusted gross income. 6 (b) For tax years beginning after 1999, $1,800.00 for each 7 taxpayer and every dependent of the taxpayer who is 65 years of 8 age or older. When a dependent of a taxpayer files an annual 9 return under this act, the taxpayer or dependent of the taxpayer, 10 but not both, may claim the additional exemption allowed under 11 this subdivision. As used in this subdivision and subdivision 12 (c), "dependent" means that term as defined in section 30e. 13 (c) For tax years beginning after 1999, $1,800.00 for each 14 taxpayer and every dependent of the taxpayer who is a deaf person 15 as defined in section 2 of the deaf persons' interpreters act, 16 1982 PA 204, MCL 393.502; a paraplegic, a quadriplegic, or a 17 hemiplegic; a person who is blind as defined in section 504; or a 18 person who is totally and permanently disabled as defined in sec- 19 tion 522. When a dependent of a taxpayer files an annual return 20 under this act, the taxpayer or dependent of the taxpayer, but 21 not both, may claim the additional exemption allowed under this 22 subdivision. 23 (d) For tax years beginning after 1999, $1,800.00 if the 24 taxpayer's return includes unemployment compensation that amounts 25 to 50% or more of adjusted gross income. 26 (4) For a tax year beginning after 1987, an individual with 27 respect to whom a deduction under section 151 of the internal 00233'01 14 1 revenue code is allowable to another federal taxpayer during the 2 tax year is not considered to have an allowable federal exemption 3 for purposes of subsection (2), but may subtract $500.00 in the 4 calculation that determines taxable income for a tax year begin- 5 ning in 1988, $1,000.00 for a tax year beginning after 1988 and 6 before 2000, and $1,500.00 for a tax year beginning after 1999. 7 (5) A nonresident or a part-year resident is allowed that 8 proportion of an exemption or deduction allowed under subsection 9 (2), (3), or (4) that the taxpayer's portion of adjusted gross 10 income from Michigan sources bears to the taxpayer's total 11 adjusted gross income. 12 (6) For a tax year beginning after 1987, in calculating tax- 13 able income, a taxpayer shall not subtract from adjusted gross 14 income the amount of prizes won by the taxpayer under the 15 McCauley-Traxler-Law-Bowman-McNeely lottery act, 1972 PA 239, 16 MCL 432.1 to 432.47. 17 (7) For each tax year after the 1997 tax year, the personal 18 exemption allowed under subsection (2) shall be adjusted by 19 multiplying the exemption for the tax year beginning in 1997 by a 20 fraction, the numerator of which is the United States consumer 21 price index for the state fiscal year ending in the tax year 22 prior to the tax year for which the adjustment is being made and 23 the denominator of which is the United States consumer price 24 index for the 1995-96 state fiscal year. The resultant product 25 shall be rounded to the nearest $100.00 increment. The personal 26 exemption for the tax year shall be determined by adding $200.00 27 to that rounded amount. As used in this section, "United States 00233'01 15 1 consumer price index" means the United States consumer price 2 index for all urban consumers as defined and reported by the 3 United States department of labor, bureau of labor statistics. 4 For each year after the 2000 tax year, the exemptions allowed 5 under subsection (3) shall be adjusted by multiplying the exemp- 6 tion amount under subsection (3) for the tax year beginning in 7 2000 by a fraction, the numerator of which is the United States 8 consumer price index for the state fiscal year ending the tax 9 year prior to the tax year for which the adjustment is being made 10 and the denominator of which is the United States consumer price 11 index for the 1998-1999 state fiscal year. The resultant product 12 shall be rounded to the nearest $100.00 increment. 13 (8) As used in subsection (1)(f), "retirement or pension 14 benefits" means distributions from all of the following: 15 (a) Except as provided in subdivision (d), qualified pension 16 trusts and annuity plans that qualify under section 401(a) of the 17 internal revenue code, including all of the following: 18 (i) Plans for self-employed persons, commonly known as Keogh 19 or HR 10 plans. 20 (ii) Individual retirement accounts that qualify under sec- 21 tion 408 of the internal revenue code if the distributions are 22 not made until the participant has reached 59-1/2 years of age, 23 except in the case of death, disability, or distributions 24 described by section 72(t)(2)(A)(iv) of the internal revenue 25 code. 26 (iii) Employee annuities or tax-sheltered annuities 27 purchased under section 403(b) of the internal revenue code by 00233'01 16 1 organizations exempt under section 501(c)(3) of the internal 2 revenue code, or by public school systems. 3 (iv) Distributions from a 401(k) plan attributable to 4 employee contributions mandated by the plan or attributable to 5 employer contributions. 6 (b) The following retirement and pension plans not qualified 7 under the internal revenue code: 8 (i) Plans of the United States, state governments other than 9 this state, and political subdivisions, agencies, or instrumen- 10 talities of this state. 11 (ii) Plans maintained by a church or a convention or associ- 12 ation of churches. 13 (iii) All other unqualified pension plans that prescribe 14 eligibility for retirement and predetermine contributions and 15 benefits if the distributions are made from a pension trust. 16 (c) Retirement or pension benefits received by a surviving 17 spouse if those benefits qualified for a deduction prior to the 18 decedent's death. Benefits received by a surviving child are not 19 deductible. 20 (d) Retirement and pension benefits do not include: 21 (i) Amounts received from a plan that allows the employee to 22 set the amount of compensation to be deferred and does not pre- 23 scribe retirement age or years of service. These plans include, 24 but are not limited to, all of the following: 25 (A) Deferred compensation plans under section 457 of the 26 internal revenue code. 00233'01 17 1 (B) Distributions from plans under section 401(k) of the 2 internal revenue code other than plans described in 3 subdivision (a)(iv). 4 (C) Distributions from plans under section 403(b) of the 5 internal revenue code other than plans described in 6 subdivision (a)(iii). 7 (ii) Premature distributions paid on separation, withdrawal, 8 or discontinuance of a plan prior to the earliest date the recip- 9 ient could have retired under the provisions of the plan. 10 (iii) Payments received as an incentive to retire early 11 unless the distributions are from a pension trust. 00233'01 Final page. MRM