March 9, 2005, Introduced by Senators THOMAS, SWITALSKI, BRATER, SCHAUER, JACOBS, CLARK-COLEMAN, BERNERO, PRUSI, CHERRY, LELAND, OLSHOVE, BASHAM, CLARKE and EMERSON and referred to the Committee on Finance.
A bill to amend 1975 PA 228, entitled
"Single business tax act,"
(MCL 208.1 to 208.145) by adding chapter 5A; and to repeal acts and
parts of acts.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
CHAPTER 5A
Sec. 101. The amendatory act that added this chapter shall be
known as the "Michigan jobs and investment act".
Sec. 102. The legislature finds that reducing the tax rate and
broadening the tax base through the elimination of credits and
deductions and increased reliance on positive business income as
provided by this chapter improve the measurement of value added
from all forms of business activity within this state and maintain
the tax imposed under this act as a modified value added tax.
Sec. 103. As used in this act:
(a) "Adjusted gross income" means adjusted business income as
defined in section 108.
(b) "Business income" means federal taxable income plus the
amount of a deduction claimed under section 199 of the internal
revenue code related to domestic production activities, except that
for a person other than a corporation, business income means that
part of federal taxable income derived from business activity plus
the amount of a deduction claimed under section 199 of the internal
revenue code related to domestic production activities. For a
partnership, business income includes payments and items of income
and expense that are attributable to business activity of the
partnership and are separately reported to the partners of the
partnership.
(c) "Client" means an entity whose employment operations are
managed by a professional employer organization.
(d) "Corporation" means a taxpayer that is required or has
elected to file as a corporation for federal income tax purposes.
(e) "Professional employer organization" means an organization
that provides the management and administration of the human
resources of another entity by contractually assuming substantial
employer rights and responsibilities through a professional
employer agreement that establishes an employer relationship with
the leased officers or employees assigned to the other entity by
doing all of the following:
(i) Maintaining the right of direction and control of
employees' work, although this responsibility may be shared with
the other entity.
(ii) Paying wages and employment taxes of the employees out of
its own accounts.
(iii) Reporting, collecting, and depositing state and federal
employment taxes for the employees.
(iv) Retaining the right to hire and fire employees.
(f) "Temporary employee" means an employee who meets both of
the following criteria:
(i) The wages and other compensation of the employee are
determined exclusively by the entity that supplies the temporary
employee.
(ii) The employee is employed by an entity that provides the
employee primarily for the purpose of meeting temporary or seasonal
employee needs of the entity's customers.
Sec. 104. For tax years that begin on or after January 1,
2006, the tax rate under section 31 shall be 1.2%.
Sec. 105. For tax years that begin on or after January 1,
2006, all of the tax base, other than the tax base derived
principally from transportation, financial, or insurance carrier
services or specifically allocated shall be apportioned to this
state by multiplying the tax base by the sales factor.
Sec. 106. (1) For tax years that begin on or after January 1,
2006, a taxpayer that is an industrial processor or a research and
development company may claim a credit equal to 35% of the property
taxes paid in the tax year by the taxpayer on tangible personal
property used for industrial processing, including research or
experimental activities. Except as otherwise provided in subsection
(9)(a), tangible personal property used by an industrial processor
or research and development company for industrial processing
includes property described in section 4t(4) of the general sales
tax act, 1933 PA 167, MCL 205.54t, and excludes property described
in section 4t(5) of the general sales tax act, 1933 PA 167, MCL
205.54t.
(2) Personal property taxes paid on any tangible personal
property, including property used for industrial processing or
research or experimental activities, that has as its primary
purpose the support of sales at retail of tangible personal
property, other than sales to employees, or other commercial
activities shall not be used in the calculation of the credit under
subsections (4) to (6).
(3) To qualify for the credit under this section for an item
of tangible personal property, a taxpayer that is otherwise
eligible to claim the credit allowed under this section shall file
within the time required the statement of personal property
described in section 19 of the general property tax act, 1893 PA
206, MCL 211.19, for that item of tangible personal property used
for industrial processing or for a research or experimental
activity for the location at which the tangible personal property
that is the basis of the credit allowed under this section is
located. Taxpayers shall claim and calculate the credit in the
manner prescribed in subsections (4) to (6).
(4) For a taxpayer that is an industrial processor whose only
significant business activity is industrial processing and
activities that support its industrial processing, the amount of
personal property taxes used to calculate the credit allowed under
subsection (1) shall be 90% of the personal property taxes paid and
reported on personal property by the industrial processor.
(5) A taxpayer that is an industrial processor that is not
subject to subsection (4) or (6) shall complete and file within the
time required by section 19 of the general property tax act, 1893
PA 206, MCL 211.19, statements of personal property separately for
both the property used for industrial processing and property used
for other purposes and shall claim the credit as provided in
subsection (1) on personal property used for industrial processing
and separately reported as required by this subsection.
(6) A taxpayer that is a research and development company
shall complete and file within the time required the statement of
personal property described in section 19 of the general property
tax act, 1893 PA 206, MCL 211.19, separately for the property used
for research or experimental activities and the property used for
other purposes and shall calculate the credit allowed under
subsection (1) based on taxes paid for research or experimental
property and separately reported as required in this subsection.
(7) If the credit allowed under this section exceeds the tax
liability of the taxpayer for the tax year, the excess shall be
refunded to the taxpayer. The state treasurer shall establish a
reserve account in the department to fund and provide for payment
of the amount of refunds for credits under this section that are
attributable to the fiscal years ending in the tax years for which
credits are claimed.
(8) 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 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 claim the credit
allowed by this section as a research and development company
unless the business activities of the entities are consolidated for
the purpose of determining whether the taxpayer is a research and
development company. For purposes of this subsection, business
activities include all activities within and outside of this state.
(9) As used in this section:
(a) "Industrial processing" means that term as defined in
section 4t(7)(a) of the general sales tax act, 1933 PA 167, MCL
205.54t, and described in section 4t(3) of the general sales tax
act, 1933 PA 167, MCL 205.54t, and excludes those activities
described in section 4t(6) of the general sales tax act, 1933 PA
167, MCL 205.54t, except that for purposes of this section,
industrial processing includes tangible personal property used for
the receiving and storage of materials purchased by an industrial
processor or used at a fixed location for the preservation,
maintenance, warehousing, or shipping of a finished good.
(b) "Industrial processor" means that term as defined in
section 4t(7)(b) of the general sales tax act, 1933 PA 167, MCL
205.54t, but does not include a public utility.
(c) "Property taxes" means a tax levied under any of the
following acts:
(i) The general property tax act, 1893 PA 206, MCL 211.1 to
211.157.
(ii) 1974 PA 198, MCL 207.551 to 207.572.
(iii) The obsolete property rehabilitation act, 2000 PA 146, MCL
125.2781 to 125.2797.
(d) "Research or experimental activities" means that term as
defined in section 4t(7)(e) of the general sales tax act, 1933 PA
167, MCL 205.54t.
(e) "Research and development company" means a taxpayer that
is exclusively performing research or experimental activities.
Sec. 107. (1) For tax years that begin on or after January 1,
2006, a taxpayer that is a research and development company may
claim a credit against the tax imposed by this act equal to 1.2% of
compensation as defined in section 4 for services performed in this
state that are research or experimental activities.
(2) 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 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 claim the credit
allowed by this section as a research and development company
unless the business activities of the entities are consolidated for
the purpose of determining whether the taxpayer is a research and
development company. For purposes of this subsection, business
activities include all activities within and outside of this state.
(3) The credit allowed under this section for the tax year
shall not be refunded and shall not be carried forward as an offset
to the tax liability in subsequent tax years.
(4) The credit under this section shall be claimed against the
taxpayer's tax liability as determined after the application of the
credit allowed under section 106.
Sec. 108. (1) As used in this chapter:
(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) "Adjusted business income" means business income as
defined in section 103 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.
(c) "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.
(d) "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.
(e) "Shareholder" means a person who owns outstanding stock in
the business or a member of a business entity that files as a
corporation for federal income tax purposes. An individual is
considered as the owner of the stock owned, directly or indirectly,
by or for family members as defined in section 318(a)(1) of the
internal revenue code.
(f) "Subchapter S corporation" means a corporation electing
taxation under subchapter S of chapter 1 of subtitle A of the
internal revenue code, 26 USC 1361 to 1379.
(2) The credit provided in this section shall be taken after
the credit allowed under section 35a but before any other credit
under this act, and is available to any person whose gross receipts
do not exceed $10,000,000.00 and whose adjusted business income
minus the loss adjustment does not exceed $475,000.00, subject to
the following:
(a) An individual, a partnership, a business entity that files
as a partnership for federal income tax purposes, or a subchapter S
corporation is disqualified if the individual, any 1 partner of the
partnership, any 1 member of the business entity that files as a
partnership for federal income tax purposes, or any 1 shareholder
of the subchapter S corporation receives more than $115,000.00 as a
distributive share of the adjusted business income minus the loss
adjustment of the individual, the partnership, the business entity
that files as a partnership for federal income tax purposes, 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 $115,000.00.
(ii) The sum of the following amounts exceeds $115,000.00:
(A) Compensation and director's fees of a shareholder.
(B) The product of the percentage of outstanding ownership or
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.
(c) Subject to the provisions for determining the reduction
percentage under section 36d as it is applied through former
section 36, 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, any 1
member of the business entity that files as a partnership for
federal income tax purposes, or any 1 shareholder of the subchapter
S corporation receives as a distributive share of adjusted gross
income minus the loss adjustment of the individual, partnership,
business entity that files as a partnership for federal income tax
purposes, 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, any 1
member of a business entity that files as a partnership for federal
income tax purposes, or any 1 shareholder of the subchapter S
corporation receives as a distributive share of adjusted gross
income minus the loss adjustment of the individual, partnership,
business entity that files as a partnership for federal income tax
purposes, 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, any 1
member of a business entity that files as a partnership for federal
income tax purposes, or any 1 shareholder of the subchapter S
corporation receives as a distributive share of adjusted gross
income minus the loss adjustment of the individual, partnership,
business entity that files as a partnership for federal income tax
purposes, 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, any 1
member of a business entity that files as a partnership for federal
income tax purposes, or any 1 shareholder of the subchapter S
corporation receives as a distributive share of adjusted gross
income minus the loss adjustment of the individual, partnership,
business entity that files as a partnership for federal income tax
purposes, 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. The credit
is the greater of the amount by which the tax imposed by section 31
exceeds 1.2% of adjusted business income or a percentage reduction
in tax liability.
(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 the tax base.
(6) If gross receipts exceed $9,000,000.00, the credit shall
be reduced by a fraction, the numerator of which is the amount of
gross receipts over $9,000,000.00 and the denominator of which is
$1,000,000.00. The credit shall not exceed 100% 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 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) This section shall apply to tax years that begin on and
after January 1, 2006.
Sec. 109. For tax years that begin on or after January 1,
2006, the tax base for a corporation other than an S corporation
shall be determined by adding the sum of the following amounts, if
the sum is greater than zero, multiplying that result by 2 and
adding the total to the tax base as calculated under section 9:
(a) Business income as defined in section 103, reduced by the
amount of dividends deducted by the taxpayer for the tax year under
section 9(7).
(b) The adjustment provided in section 9(4)(a).
Sec. 110. (1) Except as provided in subsection (2), for tax
years that begin on and after January 1, 2006, compensation of a
client includes compensation paid by a professional employer
organization to the officers of the client.
(2) For tax years that begin on or after January 1, 2006 with
respect to a professional employer organization that has 1% or more
of the common ownership with a client, a professional employer
organization in which a client has more than 1% ownership interest,
or a professional employer organization that has more than a 1%
ownership interest in a client, compensation of the client includes
compensation paid by the professional employer organization to the
officers of the client and to employees of the professional
employer organization who are assigned to and perform services for
the client. However, a professional employer organization and its
client may jointly elect, in a manner determined by the department,
not to be subject to the provisions of this subsection and to
include compensation that is required by this subsection to be
included in the tax base of the client to be included in the tax
base of the professional employer organization. Taxpayers making
this election shall not claim the credit under section 108.
(3) For purposes of this section, officers and employees of
the client also includes employees for whom the professional
employer organization is required to withhold taxes for federal
income tax purposes. However, this subsection does not apply to
compensation paid to a temporary employee.
(4) A professional employer organization to which subsection
(1) or (2) applies shall, within 30 days after the end of each
client’s tax year, submit to the client a statement reporting the
compensation as defined in section 4 paid to employees and officers
of the client that was reimbursed by the client. If the report
required by this subsection is not submitted, the amount of
compensation shall be considered to be the entire amount paid by
the client to the professional employer organization.
(5) As used in this section, "officer" means that term as
defined in section 108.
Sec. 111. (1) For tax years beginning after December 31, 2006,
each insurance company shall pay a tax determined under this
section.
(2) Except as otherwise provided by this section, the tax
imposed by this act on each insurance company shall be a tax equal
to 2% of gross direct premiums written on property or risk located
or residing in this state. Direct premiums do not include any of
the following:
(a) Premiums on policies not taken.
(b) Returned premiums on canceled policies.
(c) Receipts from the sale of annuities.
(d) Receipts on reinsurance premiums if the tax has been paid
on the original premiums.
(3) An insurance company is subject to the tax under
subsection (2) or under section 476a of the insurance code of 1956,
1956 PA 218, MCL 500.476a, if applicable, whichever is greater.
(4) The tax year for an insurance company shall be the
calendar year.
(5) Notwithstanding section 73, an insurance company shall
file the annual return required under this act before March 2 after
the end of the insurance company's tax year, and an automatic
extension under section 73(3) is not available.
(6) For the purpose of calculating an estimated payment
required by section 71, the greater of the amount of tax imposed on
an insurance company under this act or under section 476a of the
insurance code of 1956, 1956 PA 218, MCL 500.476a, shall be
considered the insurance company's tax liability for the
immediately preceding tax year.
(7) The requirements of section 28(1)(f) of 1941 PA 122, MCL
205.28, that prohibit an employee or authorized representative of,
a former employee or authorized representative of, or anyone
connected with the department from divulging any facts or
information obtained in connection with the administration of a tax
do not apply to disclosure of a tax return required by this
section.
(8) The tax calculated under this section is in lieu of all
other privilege or franchise fees or taxes imposed by any other law
of this state, except taxes on real and personal property, and
except as otherwise provided in this act and in the insurance code
of 1956, 1956 PA 218, MCL 500.100 to 500.8302.
(9) Section 35a does not apply to an insurance company subject
to tax under this section.
Sec. 112. If a final order of a court of competent
jurisdiction for which all rights of appeal have been exhausted or
have expired determines that any provision of this act that
provides a deduction, credit, or exemption with respect to
employment, persons, services, taxes, investment, or any other
activity that is limited only to this state is unconstitutional or
applies to employment, persons, services, taxes, investment, or any
other activity outside of this state, then that deduction, credit,
or exemption shall be severed from this act in its entirety and
shall not be effective for any tax year for which the final ruling
applies and the remaining provisions of this act shall remain in
effect.
Sec. 113. If a final order of a court of competent
jurisdiction for which all rights of appeal have been exhausted or
have expired determines that any provision of this act is subject
to the limitations of 15 USC 381(a), then all of the following
apply for any tax year for which the ruling applies:
(a) Section 109 is severed from this act.
(b) All of the remaining provisions of this act shall remain
in effect.
(c) As a replacement for the portion of the tax levied under
section 31 attributable to the addition required under section 109,
there is imposed on corporations, other than S corporations, and
subject to the provisions of 15 USC 381(a), for the privilege of
doing business in this state, a separate levy equal to 2.4% of the
sum of the following amounts subject to consolidation as provided
in this act and apportioned as provided in section 105:
(i) Business income as defined in section 103 and reduced by
the amount of dividends deducted under section 9(7).
(ii) The adjustment provided in section 9(4)(a).
Sec. 114. The following provisions of this act shall not be
effective for tax years that begin on or after January 1, 2006:
(a) Section 4(4).
(b) Section 3(3).
(c) Sections 22a to 22f.
(d) Section 31(2), (4), and (5).
(e) Section 36.
(f) Section 37.
(g) Section 39.
(h) Section 45.
(i) Section 45a.
Sec. 115. For purposes of this act, a taxpayer that has a 52-
or 53-week tax year beginning not more than 7 days before December
31 of any year is considered to have a tax year that begins after
December 31 of that year.
Enacting section 1. Enacting section 1 of 2002 PA 531 is
repealed.
Enacting section 2. Enacting section 3 of 1999 PA 115 is
repealed.
Enacting section 3. This amendatory act does not take effect
unless Senate Bill No. 295
of the 93rd Legislature is enacted into law.