HOUSE BILL No. 5102 September 30, 1997, Introduced by Reps. Law, Palamara, Olshove, Hammerstrom, Middaugh, Green, Voorhees and Llewellyn 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 1997 PA 86. 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 and the adjustments provided in subsections (2) to 5(4)(6): 6 (a) Add gross interest income and dividends derived from 7 obligations or securities of states other than Michigan, in the 8 same amount that has been excluded from adjusted gross income 9 less related expenses not deducted in computing adjusted gross 10 income because of section 265(a)(1) of the internal revenue 11 code. 03516'97 RJA 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 (c) Add losses on the sale or exchange of obligations of the 4 United States government, the income of which this state is pro- 5 hibited from subjecting to a net income tax, to the extent that 6 the loss has been deducted in arriving at adjusted gross income. 7 (d) Deduct, to the extent included in adjusted gross income, 8 income derived from obligations, or the sale or exchange of obli- 9 gations, of the United States government that this state is pro- 10 hibited by law from subjecting to a net income tax, reduced by 11 any interest on indebtedness incurred in carrying the obligations 12 and by any expenses incurred in the production of that income to 13 the extent that the expenses, including amortizable bond premi- 14 ums, were deducted in arriving at adjusted gross income. 15 (e) Deduct, to the extent included in adjusted gross income, 16 compensation, including retirement benefits, received for serv- 17 ices in the armed forces of the United States. 18 (f) Deduct the following to the extent included in adjusted 19 gross income: 20 (i) Retirement or pension benefits received from a federal 21 public retirement system or from a public retirement system of or 22 created by this state or a political subdivision of this state. 23 (ii) Retirement or pension benefits received from a public 24 retirement system of or created by another state or any of its 25 political subdivisions if the income tax laws of the other state 26 permit a similar deduction or exemption or a reciprocal deduction 27 or exemption of a retirement or pension benefit received from a 03516'97 3 1 public retirement system of or created by this state or any of 2 the political subdivisions of this state. 3 (iii) Social security benefits as defined in section 86 of 4 the internal revenue code. 5 (iv) Before October 1, 1994, retirement or pension benefits 6 from any other retirement or pension system as follows: 7 (A) For a single return, the sum of not more than 8 $7,500.00. 9 (B) For a joint return, the sum of not more than 10 $10,000.00. 11 (v) After September 30, 1994, retirement or pension benefits 12 not deductible under subparagraph (i) or subdivision (e) from any 13 other retirement or pension system or benefits from a retirement 14 annuity policy in which payments are made for life to a senior 15 citizen, to a maximum of $30,000.00 for a single return and 16 $60,000.00 for a joint return. The maximum amounts allowed under 17 this subparagraph shall be reduced by the amount of the deduction 18 for retirement or pension benefits claimed under subparagraph (i) 19 or subdivision (e) and for tax years after the 1996 tax year by 20 the amount of a deduction claimed under subdivision (r). For the 21 1995 tax year and each tax year after 1995, the maximum amounts 22 allowed under this subparagraph shall be adjusted by the percen- 23 tage increase in the United States consumer price index for the 24 immediately preceding calendar year. The department shall annu- 25 alize the amounts provided in this subparagraph and subparagraph 26 (iv) as necessary for tax years that end after September 30, 03516'97 4 1 1994. As used in this subparagraph, "senior citizen" means that 2 term as defined in section 514. 3 (vi) The amount determined to be the section 22 amount eli- 4 gible for the elderly and permanently and totally disabled credit 5 provided in section 22 of the internal revenue code. 6 (g) Adjustments resulting from the application of section 7 271. 8 (h) Adjustments with respect to estate and trust income as 9 provided in section 36. 10 (i) Adjustments resulting from the allocation and apportion- 11 ment provisions of chapter 3. 12 (j) Deduct political contributions as described in section 4 13 of the Michigan campaign finance act, 1976 PA 388, MCL 169.204, 14 or section 301 of title III of the federal election campaign act 15 of 1971, Public Law 92-225, 2 U.S.C. 431, not in excess of $50.00 16 per annum, or $100.00 per annum for a joint return. 17 (k) Deduct, to the extent included in adjusted gross income, 18 wages not deductible under section 280C of the internal revenue 19 code. 20 (l) Deduct the following payments made by the taxpayer in 21 the tax year: 22 (i) The amount of payment made under an advance tuition pay- 23 ment contract as provided in the Michigan education trust act, 24 1986 PA 316, MCL 390.1421 to 390.1444. 25 (ii) The amount of payment made under a contract with a pri- 26 vate sector investment manager that meets all of the following 27 criteria: 03516'97 5 1 (A) The contract is certified and approved by the board of 2 directors of the Michigan education trust to provide equivalent 3 benefits and rights to purchasers and beneficiaries as an advance 4 tuition payment contract as described in subparagraph (i). 5 (B) The contract applies only for a state institution of 6 higher education as defined in the Michigan education trust act, 7 1986 PA 316, MCL 390.1421 to 390.1444, or a community or junior 8 college in Michigan. 9 (C) The contract provides for enrollment by the contract's 10 qualified beneficiary in not less than 4 years after the date on 11 which the contract is entered into. 12 (D) The contract is entered into after either of the 13 following: 14 (I) The purchaser has had his or her offer to enter into an 15 advance tuition payment contract rejected by the board of direc- 16 tors of the Michigan education trust, if the board determines 17 that the trust cannot accept an unlimited number of enrollees 18 upon an actuarially sound basis. 19 (II) The board of directors of the Michigan education trust 20 determines that the trust can accept an unlimited number of 21 enrollees upon an actuarially sound basis. 22 (m) If an advance tuition payment contract under the 23 Michigan education trust act, 1986 PA 316, MCL 390.1421 to 24 390.1444, or another contract for which the payment was deducti- 25 ble under subdivision (l) is terminated and the qualified benefi- 26 ciary under that contract does not attend a university, college, 27 junior or community college, or other institution of higher 03516'97 6 1 education, add the amount of a refund received by the taxpayer as 2 a result of that termination or the amount of the deduction taken 3 under subdivision (l) for payment made under that contract, 4 whichever is less. 5 (n) Deduct from the taxable income of a purchaser the amount 6 included as income to the purchaser under the internal revenue 7 code after the advance tuition payment contract entered into 8 under the Michigan education trust act, 1986 PA 316, MCL 390.1421 9 to 390.1444, is terminated because the qualified beneficiary 10 attends an institution of postsecondary education other than 11 either a state institution of higher education or an institution 12 of postsecondary education located outside this state with which 13 a state institution of higher education has reciprocity. 14 (o) Add, to the extent deducted in determining adjusted 15 gross income, the net operating loss deduction under section 172 16 of the internal revenue code. 17 (p) Deduct a net operating loss deduction for the taxable 18 year as determined under section 172 of the internal revenue code 19 subject to the modifications under section 172(b)(2) of the 20 internal revenue code and subject to the allocation and appor- 21 tionment provisions of chapter 3 of this act for the taxable year 22 in which the loss was incurred. 23 (q) For a tax year beginning after 1986, deduct, to the 24 extent included in adjusted gross income, benefits from a dis- 25 criminatory self-insurance medical expense reimbursement plan. 26 (r) After September 30, 1994 and before the 1997 tax year, a 27 taxpayer who is a senior citizen may deduct, to the extent 03516'97 7 1 included in adjusted gross income, interest and dividends 2 received in the tax year not to exceed $1,000.00 for a single 3 return or $2,000.00 for a joint return. However, for tax years 4 before the 1997 tax year, the deduction under this subdivision 5 shall not be taken if the taxpayer takes a deduction for retire- 6 ment benefits under subdivision (e) or a deduction under 7 subdivision (f)(i), (ii), (iv), or (v). For tax years after the 8 1996 tax year, a taxpayer who is a senior citizen may deduct to 9 the extent included in adjusted gross income, interest, divi- 10 dends, and capital gains received in the tax year not to exceed 11 $3,500.00 for a single return and $7,000.00 for a joint return 12 for the 1997 tax year, and $7,500.00 for a single return and 13 $15,000.00 for a joint return for tax years after the 1997 tax 14 year. For tax years after the 1996 tax year, the maximum amounts 15 allowed under this subdivision shall be reduced by the amount of 16 a deduction claimed for retirement benefits under subdivision (e) 17 or a deduction claimed under subdivision (f)(i), (ii), (iv), or 18 (v). For the 1995 tax year, for the 1996 tax year, and for each 19 tax year after the 1998 tax year, the maximum amounts allowed 20 under this subdivision shall be adjusted by the percentage 21 increase in the United States consumer price index for the imme- 22 diately preceding calendar year. The department shall annualize 23 the amounts provided in this subdivision as necessary for tax 24 years that end after September 30, 1994. As used in this subdi- 25 vision, "senior citizen" means that term as defined in section 26 514. 03516'97 8 1 (s) Deduct, to the extent included in adjusted gross income, 2 all of the following: 3 (i) The amount of a refund received in the tax year based on 4 taxes paid under this act. 5 (ii) The amount of a refund received in the tax year based 6 on taxes paid under the city income tax act, 1964 PA 284, MCL 7 141.501 to 141.787. 8 (iii) The amount of a credit received in the tax year based 9 on a claim filed under sections 520 and 522 to the extent that 10 the taxes used to calculate the credit were not used to reduce 11 adjusted gross income for a prior year. 12 (t) Add the amount paid by the state on behalf of the tax- 13 payer in the tax year to repay the outstanding principal on a 14 loan taken on which the taxpayer defaulted that was to fund an 15 advance tuition payment contract entered into under the Michigan 16 education trust act, 1986 PA 316, MCL 390.1421 to 390.1444, if 17 the cost of the advance tuition payment contract was deducted 18 under subdivision (l) and was financed with a Michigan education 19 trust secured loan. 20 (u) For the 1998 tax year and each tax year after the 1998 21 tax year, deduct the amount calculated under section 30d. 22 (2) The following personal exemptions multiplied by the 23 number of personal or dependency exemptions allowable on the 24 taxpayer's federal income tax return pursuant to the internal 25 revenue code shall be subtracted in the calculation that deter- 26 mines taxable income: 03516'97 9 1 (a) For a tax year beginning during 1987......... $1,600.00. 2 (b) For a tax year beginning during 1988......... $1,800.00. 3 (c) For a tax year beginning during 1989......... $2,000.00. 4 (d) For a tax year beginning after 1989 and before 5 1995.................................................. $2,100.00. 6 (e) For a tax year beginning during 1995 or 1996 $2,400.00. 7 (f) Except as otherwise provided in subsection(7)8 (8), for a tax year beginning after 1996.............. $2,500.00. 9 (3) A single additional exemption of $1,400.00 for a tax 10 year beginning during 1987, $1,200.00 for a tax year beginning 11 during 1988, $1,000.00 for a tax year beginning during 1989, and 12 $900.00 for a tax year beginning after 1989 shall be subtracted 13 in the calculation that determines taxable income in each of the 14 following circumstances: 15 (a) The taxpayer is a paraplegic, a quadriplegic, a hemiple- 16 gic, a person who is blind as defined in section 504, or a 17 totally and permanently disabled person as defined in section 18 522. 19 (b) The taxpayer is a deaf person as defined in section 2 of 20 the deaf persons' interpreters act, 1982 PA 204, MCL 393.502. 21 (c) The taxpayer is 65 years of age or older. 22 (d) The return includes unemployment compensation that 23 amounts to 50% or more of adjusted gross income. 24 (4) For a tax year beginning after 1987, an individual with 25 respect to whom a deduction under section 151 of the internal 26 revenue code is allowable to another federal taxpayer during the 27 tax year is not considered to have an allowable federal exemption 03516'97 10 1 for purposes of subsection (2), but may subtract $500.00 in the 2 calculation that determines taxable income for a tax year begin- 3 ning in 1988 and $1,000.00 for a tax year beginning after 1988. 4 (5) FOR THE 1997 TAX YEAR AND EACH TAX YEAR AFTER THE 1997 5 TAX YEAR, A TAXPAYER WHO PROVIDES PRIMARY CARE FOR A FAMILY 6 MEMBER WHO IS OLDER THAN 60 YEARS OF AGE IS ALLOWED 1 ADDITIONAL 7 EXEMPTION OF $1,500.00 IF THE PRIMARY CARE IS PREVENTING THE 8 INSTITUTIONALIZATION OF THE FAMILY MEMBER, AS DETERMINED BY THE 9 FAMILY INDEPENDENCE AGENCY. AS USED IN THIS SUBSECTION: 10 (A) "FAMILY MEMBER" MEANS THE TAXPAYER'S PRESENT OR FORMER 11 SPOUSE, NATURAL OR ADOPTIVE PARENT, NATURAL OR ADOPTED CHILD, 12 SIBLING, UNCLE, AUNT, NEPHEW, NIECE, FIRST COUSIN, STEPPARENT, 13 STEPBROTHER, OR STEPSISTER; OR A PERSON WHO IS A DEPENDENT OF THE 14 TAXPAYER AS DEFINED IN SECTION 152 OF THE INTERNAL REVENUE CODE. 15 FAMILY MEMBER INCLUDES AN INDIVIDUAL WHO WOULD BE DESCRIBED IN 16 THIS SUBDIVISION EXCEPT THAT THE INDIVIDUAL IS THE TAXPAYER'S 17 HALF-BLOOD RELATIVE, A RELATIVE OF AN ADOPTIVE PARENT OF THE TAX- 18 PAYER, OR A RELATIVE OF THE TAXPAYER FROM A PRECEDING GENERATION 19 AS DENOTED BY THE PREFIX "GRAND", "GREAT", OR "GREAT-GREAT". 20 (B) "PRIMARY CARE" MEANS ACTS THAT MEET THE PHYSICAL OR 21 MENTAL REQUIREMENTS OF A FAMILY MEMBER WHO CANNOT MEET THOSE 22 REQUIREMENTS WITHOUT ASSISTANCE OR SUPERVISION. THE ACTS MAY 23 INCLUDE, BUT ARE NOT LIMITED TO, THOSE RELATING TO HEALTH, 24 SAFETY, NUTRITION, HYGIENE, HOMEMAKING, OR OTHER ACTIVITIES OF 25 DAILY LIVING. 26 (6)(5)A nonresident or a part-year resident is allowed 27 that proportion of an exemption or deduction allowed under 03516'97 11 1 subsection (2), (3),or(4), OR (5) that the taxpayer's portion 2 of adjusted gross income from Michigan sources bears to the 3 taxpayer's total adjusted gross income. 4 (7)(6)For a tax year beginning after 1987, in calculat- 5 ing taxable income, a taxpayer shall not subtract from adjusted 6 gross income the amount of prizes won by the taxpayer under the 7 McCauley-Traxler-Law-Bowman-McNeely lottery act, 1972 PA 239, MCL 8 432.1 to 432.47. 9 (8)(7)For each tax year after the 1997 tax year, the 10 personal exemption allowed under subsection (2) shall be adjusted 11 by multiplying the exemption for the tax year beginning in 1997 12 by a fraction, the numerator of which is the United States con- 13 sumer price index for the state fiscal year ending in the tax 14 year prior to the tax year for which the adjustment is being made 15 and the denominator of which is the United States consumer price 16 index for the 1995-96 state fiscal year. The resultant product 17 shall be rounded to the nearest $100.00 increment. The personal 18 exemption for the tax year shall be determined by adding $200.00 19 to that rounded amount. As used in this section, "United States 20 consumer price index" means the United States consumer price 21 index for all urban consumers as defined and reported by the 22 United States department of labor, bureau of labor statistics. 23 (9)(8)As used in subsection (1)(f), "retirement or pen- 24 sion benefits" means distributions from all of the following: 25 (a) Except as provided in subdivision (d), qualified pension 26 trusts and annuity plans that qualify under section 401(a) of the 27 internal revenue code, including all of the following: 03516'97 12 1 (i) Plans for self-employed persons, commonly known as Keogh 2 or HR 10 plans. 3 (ii) Individual retirement accounts that qualify under sec- 4 tion 408 of the internal revenue code if the distributions are 5 not made until the participant has reached 59-1/2 years of age, 6 except in the case of death, disability, or distributions 7 described by section 72(t)(2)(iv) of the internal revenue code. 8 (iii) Employee annuities or tax-sheltered annuities pur- 9 chased under section 403(b) of the internal revenue code by 10 organizations exempt under section 501(c)(3) of the internal rev- 11 enue code, or by public school systems. 12 (iv) Distributions from a 401k plan attributable to employee 13 contributions mandated by the plan or attributable to employer 14 contributions. 15 (b) The following retirement and pension plans not qualified 16 under the internal revenue code: 17 (i) Plans of the United States, state governments other than 18 this state, and political subdivisions, agencies, or instrumen- 19 talities of this state. 20 (ii) Plans maintained by a church or a convention or associ- 21 ation of churches. 22 (iii) All other unqualified pension plans that prescribe 23 eligibility for retirement and predetermine contributions and 24 benefits if the distributions are made from a pension trust. 25 (c) Retirement or pension benefits received by a surviving 26 spouse if those benefits qualified for a deduction prior to the 03516'97 13 1 decedent's death. Benefits received by a surviving child are not 2 deductible. 3 (d) Retirement and pension benefits do not include: 4 (i) Amounts received from a plan that allows the employee to 5 set the amount of compensation to be deferred and does not pre- 6 scribe retirement age or years of service. These plans include, 7 but are not limited to, all of the following: 8 (A) Deferred compensation plans under section 457 of the 9 internal revenue code. 10 (B) Distributions from plans under section 401(k) of the 11 internal revenue code other than plans described in 12 subdivision (a)(iv). 13 (C) Distributions from plans under section 403(b) of the 14 internal revenue code other than plans described in 15 subdivision (a)(iii). 16 (ii) Premature distributions paid on separation, withdrawal, 17 or discontinuance of a plan prior to the earliest date the recip- 18 ient could have retired under the provisions of the plan. 19 (iii) Payments received as an incentive to retire early 20 unless the distributions are from a pension trust. 03516'97 Final page. RJA