HB-5010, As Passed House, November 7, 2013

SUBSTITUTE FOR

HOUSE BILL NO. 5010

A bill to amend 1967 PA 281, entitled

"Income tax act of 1967,"

by amending sections 625 and 663 (MCL 206.625 and 206.663), section

625 as amended by 2011 PA 175 and section 663 as amended by 2011 PA

308.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 625. (1) Except as otherwise provided in this section,

the following are exempt from the tax imposed by this part:

(a) The United States, this state, other states, and the

agencies, political subdivisions, and enterprises of the United

States, this state, and other states.

(b) A person who is exempt from federal income tax under the

internal revenue code except the following:

(i) An organization included under section 501(c)(12) or

501(c)(16) of the internal revenue code.

(ii) An organization exempt under section 501(c)(4) of the

internal revenue code that would be exempt under section 501(c)(12)

of the internal revenue code except that it failed to meet the

requirements in section 501(c)(12) that 85% or more of its income

consist of amounts collected from members.

(iii) The tax base attributable to unrelated business activities

giving rise to the unrelated business taxable income of an exempt

person.

the North American free trade agreement is not subject to taxation

under this part if the foreign person is domiciled in a subnational

jurisdiction that does not impose an income tax on a similarly

situated person domiciled in this state whose presence in the

foreign country is the same as the foreign person's presence in the

United States. If a qualifying foreign person is domiciled in a

subnational jurisdiction that does not impose an income tax on

businesses, but instead imposes some other type of subnational

business tax, that foreign person is not subject to taxation under

this part if that subnational business tax is not imposed on a

similarly situated person domiciled in this state whose presence in

the foreign country is the same as the foreign person's presence in

the United States.

(d) A person that qualifies as a domestic international sales

corporation as defined in section 992 of the internal revenue code

for the portion of the year that it has in effect a valid election

to be treated as a domestic international sales corporation.

(2) Notwithstanding any other provision of this part to the

contrary, a foreign person subject to tax under this part shall

calculate its corporate income tax base under this section. Except

as otherwise provided in this section, the corporate income tax

base of a foreign person is subject to all adjustments and other

provisions of this part. However, the corporate income tax base

shall not include net income from sales of tangible personal

property where title passes outside the United States.

(3) Except as otherwise provided in this section, the

corporate income tax base of a foreign person includes the sum of

business income and the adjustments under section 623 that are

related to United States business activity.

(4) The sales factor for a foreign person is a fraction, the

numerator of which is the taxpayer's total sales in this state

during the tax year and the denominator of which is the taxpayer's

total sales in the United States during the tax year. For purposes

of this subsection, for sales of tangible personal property, only

those sales where title passes inside the United States shall be

used in the sales factor, and for sales of property other than

tangible personal property, those sales shall be apportioned in

accordance with chapter 14.

(5) As used in this section:

(a) "Business income" means, for a foreign person, gross

income attributable to the taxpayer's United States business

activity and gross income derived from sources within the United

States minus the deductions allowed under the internal revenue code

that are related to that gross income. Gross income includes the

proceeds from sales shipped or delivered to any purchaser within

the United States and for which title transfers within the United

States; proceeds from services performed within the United States;

and a pro rata proportion of the proceeds from services performed

both within and outside the United States to the extent the

recipient receives benefit of the services within the United

States.

(b) "Domiciled" means the location of the headquarters of the

trade or business from which the trade or business of the foreign

person is principally managed and directed.

foreign country or a political subdivision of a foreign country,

whether or not the person is subject to taxation under the internal

revenue code.

Sec. 663. (1) Except as otherwise provided in subsection (2)

and section 669, the sales factor is a fraction, the numerator of

which is the total sales of the taxpayer in this state during the

tax year and the denominator of which is the total sales of the

taxpayer everywhere during the tax year. The numerator of a

taxpayer shall include its proportionate share of the total sales

in this state of a flow-through entity that is unitary with the

taxpayer. The denominator of a taxpayer shall include its

proportionate share of the total sales everywhere of a flow-through

entity that is unitary with the taxpayer. A flow-through entity is

unitary with a taxpayer when that taxpayer owns or controls,

directly or indirectly, more than 50% of the ownership interests

with voting rights or ownership interests that confer comparable

rights to voting rights of the flow-through entity, and that has

business activities or operations which result in a flow of value

between the taxpayer and the flow-through entity, or between the

flow-through entity and another flow-through entity unitary with

the taxpayer, or has business activities or operations that are

integrated with, are dependent upon, or contribute to each other.

(2) Except as otherwise provided under this subsection, for a

taxpayer that is a unitary business group, sales include sales in

this state of every person included in the unitary business group

without regard to whether the person has nexus in this state. Sales

between persons included in a unitary business group must be

eliminated in calculating the sales factor. Sales between a

taxpayer and a flow-through ~~entities~~ entity unitary with that

taxpayer ~~, or between flow-through entities unitary with a~~

~~taxpayer, must~~ shall, to the extent of the taxpayer's interest in

the flow-through entity, be eliminated in calculating the sales

factor. Sales between a flow-through entity unitary with a taxpayer

and another flow-through entity unitary with that same taxpayer

shall, to the extent of the taxpayer's interest in the selling

flow-through entity, be eliminated in calculating the sales factor.

(3) It is the intent of the legislature that the tax base of a

taxpayer is apportioned to this state by multiplying the tax base

by the sales factor multiplied by 100% and that apportionment shall

not be based on property, payroll, or any other factor

notwithstanding section 1 of 1969 PA 343, MCL 205.581.

Enacting section 1. This amendatory act is retroactive and