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HB-5108, As Passed Senate, October 25, 2005

SENATE SUBSTITUTE FOR

HOUSE BILL NO. 5108

A bill to amend 1975 PA 228, entitled

"Single business tax act,"

by amending sections 4a and 36 (MCL 208.4a and 208.36), section 4a

as added by 2003 PA 241 and section 36 as amended by 1995 PA 284,

and by adding section 74.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 4a. (1) For tax years that begin after December 31, 2006

and before January 1, 2008, compensation for purposes of section

4(3) does not include 50% of payments under health and welfare and

noninsured benefit plans for the benefit of persons who are

residents of this state and payments of fees for the administration

of health and welfare and noninsured benefit plans for the benefit

of persons who are residents of this state paid by the taxpayer in

the tax year.

(2) For purposes of section 4(3), compensation does not

include the following percentages of payments under health and

welfare and noninsured benefit plans for the benefit of persons who

are residents of this state and payments of fees for the

administration of health and welfare and noninsured benefit plans

for the benefit of persons who are residents of this state paid by

the taxpayer for the specified tax years:

(a) For tax years that begin after the December 31 for which

the criteria under section 74 are first considered to have been met

until subdivision (b) applies, 62.5%.

(b) For the first tax year that begins after the December 31

for which the criteria under section 74 have been met after the tax

years to which subdivision (a) applies, 75.0%.

for which the criteria under section 74 have been met after the tax

years to which subdivision (b) applies, 87.5%.

(d) For the first tax year that begins after the December 31

for which the criteria under section 74 have been met after the tax

years to which subdivision (c) applies and all tax years after that

tax year, 100%.

Sec. 36. (1) As used in this section:

(a) "Active shareholder" means a shareholder who receives at

least $10,000.00 in compensation, director's fees, or dividends

from the business, and who owns at least 5% of the outstanding

stock.

(b) "Officer" means an officer of a corporation other than a

subchapter S corporation including the chairperson of the board,

president, vice-president, secretary, and treasurer, or persons

performing similar duties.

defined in section 3 with all of the following adjustments:

(i) Add compensation and director's fees of active shareholders

of a corporation.

(ii) Make the adjustments provided in section 9(4)(a) and (b).

(iii) Add compensation and director's fees of officers of a

corporation.

(d) "Shareholder" means a person who owns outstanding stock in

the business or for tax years that begin on and after January 1,

2006, a member of a business entity that files as a corporation for

federal tax purposes. An individual is considered as the owner of

the stock owned, directly or indirectly, by or for family members

as defined by section 318(a)(1) of the internal revenue code.

(e) "Loss adjustment" means the amount by which adjusted

business income was less than zero in any of the 5 tax years

immediately preceding the tax year for which eligibility for the

credit provided by this section is being determined. In determining

the loss adjustment for a tax year, a taxpayer is not required to

use more of the taxpayer's total negative adjusted business income

than the amount needed to qualify the taxpayer for the credit under

this section. A taxpayer shall not be considered to have used any

portion of the taxpayer's negative adjusted business income amount

unless the portion used is necessary to qualify for the credit

under this section. A taxpayer shall not reuse a negative adjusted

business income amount used as a loss adjustment in a previous tax

year or use a negative adjusted business income amount from a year

in which the taxpayer did not receive the credit under this

section.

(f) "Subchapter S corporation" means a corporation electing

taxation under subchapter S of chapter 1 of subtitle A of the

internal revenue code, sections 1361 to 1379 of the internal

revenue code.

(2) The credit provided in this section shall be taken before

any other credit under this act, and is available to any person

whose gross receipts do not exceed $6,000,000.00 for tax years

commencing on or after January 1, 1984 and before January 1, 1989;

$7,000,000.00 for tax years commencing in 1989; $7,250,000.00 for

tax years commencing in 1990; $7,500,000.00 for tax years

commencing in 1991; or $10,000,000.00 for tax years commencing

after 1991, and whose adjusted business income minus the loss

adjustment does not exceed $475,000.00 for tax years commencing on

or after January 1, 1985, subject to the following:

(a) An individual, a partnership, or a subchapter S

corporation is disqualified if the individual, any 1 partner of the

partnership, or any 1 shareholder of the subchapter S corporation

receives more than $95,000.00 for tax years commencing on or after

January 1, 1985 and before January 1, 1998 or more than $115,000.00

for tax years commencing after December 31, 1997 as a distributive

share of the adjusted business income minus the loss adjustment of

the individual, the partnership, or the subchapter S corporation.

(b) A corporation other than a subchapter S corporation is

disqualified if either of the following occur for the respective

tax year:

(i) Compensation and director's fees of a shareholder or

officer exceed $95,000.00 for tax years commencing on or after

January 1, 1985 and before January 1, 1998 or exceed $115,000.00

for tax years commencing after December 31, 1997.

(ii) The sum of the following amounts exceeds $95,000.00 for

tax years commencing on or after January 1, 1985 and before January

1, 1998 or exceeds $115,000.00 for tax years commencing after

December 31, 1997:

(A) Compensation and director's fees of a shareholder.

(B) The product of the percentage of outstanding stock owned

by that shareholder multiplied by the difference between the sum of

business income and the adjustments provided in section 9(4)(a) and

(b) minus the loss adjustment.

for the credit under this subsection for tax years beginning after

December 31, 1997 the credit determined under this subsection shall

be reduced by the following percentages in the following

circumstances:

(i) If an individual, any 1 partner of the partnership, or any

1 shareholder of the subchapter S corporation receives as a

distributive share of adjusted ~~gross~~ business income minus the

loss adjustment of the individual, partnership, or subchapter S

corporation; if compensation and directors' fees of a shareholder

or officer of a corporation other than a subchapter S corporation

are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B)

is more than $95,000.00 but less than $100,000.00, the credit is

reduced by 20%.

(ii) If an individual, any 1 partner of the partnership, or any

1 shareholder of the subchapter S corporation receives as a

distributive share of adjusted ~~gross~~ business income minus the

loss adjustment of the individual, partnership, or subchapter S

corporation if compensation and directors' fees of a shareholder or

officer of a corporation other than a subchapter S corporation are;

or if the sum of the amounts in subdivision (b)(ii)(A) and (B) is

$100,000.00 or more but less than $105,000.00, the credit is

reduced by 40%.

(iii) If an individual, any 1 partner of the partnership, or any

1 shareholder of the subchapter S corporation receives as a

distributive share of adjusted ~~gross~~ business income minus the

loss adjustment of the individual, partnership, or subchapter S

corporation if compensation and directors' fees of a shareholder or

officer of a corporation other than a subchapter S corporation are;

or if the sum of the amounts in subdivision (b)(ii)(A) and (B) is

$105,000.00 or more but less than $110,000.00, the credit is

reduced by 60%.

(iv) If an individual, any 1 partner of the partnership, or any

1 shareholder of the subchapter S corporation receives as a

distributive share of adjusted ~~gross~~ business income minus the

loss adjustment of the individual, partnership, or subchapter S

corporation if compensation and directors' fees of a shareholder or

officer of a corporation other than a subchapter S corporation are;

or if the sum of the amounts in subdivision (b)(ii)(A) and (B) is

$110,000.00 or more but less than $115,000.00, the credit is

reduced by 80%.

(3) For the purposes of determining disqualification under

subsection (2), an active shareholder's share of business income

shall not be attributed to another active shareholder.

(4) A person who qualifies pursuant to subsection (2) is

allowed a credit against the tax imposed by section 31. For tax

years commencing before January 1, 1989, the credit is a percentage

reduction in tax liability. ~~For tax years commencing on and after~~

~~January 1, 1989 and through tax years commencing in 1991, the~~

~~credit is the greater of the amount by which the tax imposed by~~

~~section 31 exceeds 4% of adjusted business income or 3% of adjusted~~

~~business income for tax years commencing after 1991 or a percentage~~

~~reduction in tax liability. However, beginning October 1, 1994, the~~

~~percentage of adjusted business income shall be 2%.~~ The department

shall annualize the rates provided under this subsection as

necessary for tax years that end after September 30, 1994 and the

applicable annualized rate shall be imposed for those tax years.

The credit under this subsection is the greater of the amount by

which the tax imposed by section 31 exceeds the following

percentage of adjusted business income for the specified tax years

or a percentage reduction in tax liability:

(a) For tax years commencing on and after January 1, 1989 and

through tax years commencing in 1991, 4%.

(b) For tax years commencing after 1991 and before October 1,

1994, 3%.

(d) Beginning January 1, 2006, 1.7%.

(5) The percentage reduction provided in subsection (4) is

calculated by subtracting from 100% the percentage computed by

dividing adjusted business income by 45% of tax base.

(6) If gross receipts exceed $5,000,000.00 for tax years

commencing on or after January 1, 1984 and before January 1, 1989;

$6,000,000.00 for tax years commencing in 1989; $6,250,000.00 for

tax years commencing in 1990; $6,500,000.00 for tax years

commencing in 1991; or $9,000,000.00 for tax years commencing after

1991, the credit shall be reduced by a fraction, the numerator of

which is the amount of gross receipts over $5,000,000.00 for tax

years commencing on or after January 1, 1984 and before January 1,

1989; $6,000,000.00 for tax years commencing in 1989; $6,250,000.00

for tax years commencing in 1990; $6,500,000.00 for tax years

commencing in 1991; or $9,000,000.00 for tax years commencing after

1991, and the denominator of which is $1,000,000.00. The credit

shall not exceed 50% for tax years commencing before January 1,

1984; 90% for tax years commencing on or after January 1, 1984 and

before January 1, 1988; or 100% for tax years commencing on and

after January 1, 1988 of the tax liability imposed by section 31.

(7) An affiliated group as defined in this act, a controlled

group of corporations as defined in section 1563 of the internal

revenue code and further described in 26 ~~C.F.R.~~ CFR 1.414(b)-1

and 1.414(c)-1 to 1.414(c)-5, or an entity under common control as

defined by the internal revenue code shall not take the credit

allowed by this section unless the business activities of the

entities are consolidated. For purposes of this subsection,

business activities include all activities within and outside of

this state.

(8) The department shall permit a taxpayer who elects to claim

the credit allowed by this section based on the amount by which the

tax imposed by section 31 exceeds the percentage of adjusted

business income for the tax year as determined under subsection

(4), and who is not required to reduce the credit pursuant to

subsection (2) or (6), to file and pay the tax imposed by this act

without computing the tax imposed under section 31.

(9) For tax years that begin after December 31, 2007 and for

which the criteria under section 74 are considered to have been

met, the maximum amount under subsection (2)(a), (b)(i), (b)(ii), and

(c)(iv) shall be adjusted by the percentage increase in the rate of

personal income growth as reported by the federal government for

the immediately preceding calendar year.

(10) As used in this section, the term "corporation" includes

a business entity that files as a corporation for federal tax

purposes.

Sec. 74. (1) The state treasurer and the house and senate

fiscal agencies shall jointly do all of the following during

December 2006 and during each subsequent December through December

2010:

(a) Determine the amount of specified revenues collected for

the state fiscal year ending on the immediately preceding September

30 and the amount of the specified revenues for the state fiscal

year immediately preceding that state fiscal year.

(b) Calculate the difference between the specified revenues

for each of the 2 state fiscal years under subdivision (a).

fiscal year immediately preceding the state fiscal year ending on

the immediately preceding September 30 by the consumer price index

plus 1%.

(2) If the amount determined under subsection (1)(b) exceeds

the amount calculated under subsection (1)(c) plus $50,000,000.00

or more, the criteria under this section are considered to have

been met.

(3) If the amount determined under subsection (1)(b) is more

than the amount calculated under subsection (1)(c) plus

$50,000,000.00, the amount in excess of $50,000,000.00 shall be

used as follows:

(a) Deposit 50% of the amount in excess of $50,000,000.00 into

the countercyclical budget and economic stabilization fund created

under section 351 of the management and budget act, 1984 PA 431,

MCL 18.1351.

(b) Reduce the tax rate under section 31, as provided by law,

to a rate that provides for a reduction equal to 50% of the amount

in excess of $50,000,000.00.

(4) "Specified revenues" means the revenues collected pursuant

to the following acts and parts of acts:

(a) Income tax act of 1967, 1967 PA 281, MCL 206.1 to 206.532.

(b) General sales tax act, 1933 PA 167, MCL 205.51 to 205.78.

(d) Single business tax act, 1975 PA 228, MCL 208.1 to

208.145.

(e) Section 476a of the insurance code of 1956, 1956 PA 218,

MCL 500.476a.

(f) Tobacco products tax act, 1993 PA 327, MCL 205.421 to

205.436.

(g) Michigan gaming control and revenue act, the Initiated Law

of 1996, MCL 432.201 to 432.226.

(h) State education act, 1993 PA 331, MCL 211.901 to 211.906.

(i) Real estate transfer tax act, 1966 PA 134, MCL 207.501 to

207.513.

(j) 1929 PA 48, MCL 205.301 to 205.317

Enacting section 1. This amendatory act does not take effect

unless all of the following bills of the 93rd Legislature are

enacted into law:

(a) House Bill No. 4972.

(b) House Bill No. 4980.

(d) House Bill No. 5096.

(e) House Bill No. 5097.

(f) House Bill No. 5098.

(g) House Bill No. 5106.

(h) House Bill No. 5107.

(i) Senate Bill No. 633.

(j) Senate Bill No. 634.