HOUSE BILL No. 5614 February 25, 1998, Introduced by Reps. Middleton, Dobb, LeTarte, Galloway, Lowe, Brackenridge, Whyman, Cassis and Perricone and referred to the Committee on Tax Policy. A bill to amend 1975 PA 228, entitled "Single business tax act," by amending sections 35 and 73 (MCL 208.35 and 208.73), section 35 as amended by 1997 PA 124 and section 73 as amended by 1995 PA 80. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 35. (1) The following are exempt from the tax imposed 2 by this act: 3 (a) For tax years beginningafter 1976 and before4January 1, 1989, the first $40,000.00; for tax years beginning in51989, the first $41,000.00; for tax years beginning in 1990, the6first $42,000.00; for tax years beginning in 1991, the first7$43,000.00; for tax years beginningin 1992, the first 8 $44,000.00,;and for tax years beginning after 1992, the first 9 $45,000.00 of the tax base of every person. This exemption shall 05614'98 RJA 2 1 be increased by $12,000.00 for each partner of a partnership or 2 shareholder of a subchapter S corporation or professional corpo- 3 ration in excess of 1 who is a full-time employee of the taxpay- 4 er, whose business income from that business is at least 5 $12,000.00, and who owns at least 10% of that business. The 6 total increase in the exemption shall be not more than 7 $48,000.00. For a taxpayer whose business activity is for a 8 fractional part of a year, the exemption provided in this subdi- 9 vision including the increase in the exemption shall be prorated 10 for the period of the taxpayer's business activity. This exemp- 11 tion shall be reduced by $2.00 for each $1.00 that business 12 income exceeds the amount of the exemption. For the purposes of 13 computing the exemption, "business income" means that term as 14 defined in section 3 plus compensation and director's fees of 15 shareholders of a corporation and any carryback or carryover of a 16 net operating loss or capital loss to the extent deducted in 17 arriving at federal taxable income. In calculating eligibility 18 for the exemption provided in this subdivision, a person who is 19 not a corporation may elect to average its business income for 20 the current year and the previous 4 taxable years. Business 21 income as defined in this subdivision shall not be less than 22 zero. For the purposes of this subdivision, tax base shall be 23 after allocation and apportionment provided in chapter 3 and the 24 adjustments provided in sections 23 and 23b. This subdivision 25 does not apply to an adjusted tax base under section 22a. 26 (b) The United States, this state, other states, and the 27 agencies, political subdivisions, and enterprises of each. 05614'98 3 1 (c) A person who is exempt from federal income tax under the 2 internal revenue code, and, for tax years that begin after 3 December 31, 1995, a partnership, limited liability company, 4 joint venture, general partnership, limited partnership, unincor- 5 porated association, or other group or combination of entities 6 acting as a unit if the activities of the entity are exclusively 7 related to the charitable, educational, or other purpose or func- 8 tion that is the basis for the exemption under the internal reve- 9 nue code from federal income taxation of the partners or members 10 and if all of the partners or members of the entity are exempt 11 from federal income tax under the internal revenue code, except 12 the following: 13 (i) An organization included under section 501(c)(12) or 14 501(c)(16) of the internal revenue code. 15 (ii) An organization exempt under section 501(c)(4) of the 16 internal revenue code that would be exempt under section 17 501(c)(12) of the internal revenue code but for its failure to 18 meet the requirements in section 501(c)(12) that 85% or more of 19 its income must consist of amounts collected from members. 20 (iii) The adjusted tax base attributable to the activities 21 giving rise to the unrelated taxable business income of an exempt 22 person. 23 (d) Before August 3, 1987, a foreign or alien insurance com- 24 pany subject to the provisions of the premium tax under sections 25 440 to 446 of the insurance code of 1956, 1956 PA 218, as those 26 sections were in effect on December 27, 1987. This exemption 05614'98 4 1 does not apply to the tax base derived from a business activity 2 other than insurance carrier services. 3 (e) Before August 3, 1987, that portion of the payroll of a 4 domestic insurer or of a marketing corporation that constitutes 5 insurance sales commissions paid to employees and salaries of 6 employees primarily concerned with the adjustment of claims. 7 This exemption does not apply to a marketing corporation that is 8 not controlled, directly or indirectly, by stock ownership or 9 common management, by the domestic insurer or insurers from which 10 it derives all or substantially all of its gross income, exclu- 11 sive of income from investments. 12 (f) Beginning August 3, 1987 and after being apportioned 13 under section 62, the first $130,000,000.00 of disability insur- 14 ance premiums written in Michigan, or, for the 1991 tax year 15 only, the first $162,500,000.00 of disability insurance premiums 16 written in Michigan, other than credit insurance and disability 17 income insurance premiums, of each insurer subject to tax under 18 this act. This exemption shall be reduced by $2.00 for each 19 $1.00 by which the insurer's gross premiums from insurance car- 20 rier services in this state and outside this state exceed 21 $180,000,000.00, or, for the 1991 tax year only, 22 $225,000,000.00. 23 (g) A nonprofit cooperative housing corporation. As used in 24 this subdivision, "nonprofit cooperative housing corporation" 25 means a cooperative housing corporation that is engaged in pro- 26 viding housing services to its stockholders and members and that 27 does not pay dividends or interest upon stock or membership 05614'98 5 1 investment but that does distribute all earnings to its 2 stockholders or members. This exemption does not apply to a 3 business activity of a nonprofit cooperative housing corporation 4 other than providing housing services to its stockholders and 5 members. 6 (h) That portion of the tax base attributable to the produc- 7 tion of agricultural goods by a person whose primary activity is 8 the production of agricultural goods. "Production of agricul- 9 tural goods" means commercial farming including, but not limited 10 to, cultivation of the soil; growing and harvesting of an agri- 11 cultural, horticultural, or floricultural commodity; dairying; 12 raising of livestock, bees, fish, fur-bearing animals, or poul- 13 try; or turf or tree farming, but not including the marketing at 14 retail of agricultural goods except for sales of nursery stock 15 grown by the seller and sold to a nursery dealer licensed under 16 section2099 of the insect pest and plant disease act, 1931 17 PA 189, MCL 286.209. 18 (i) Except as provided in subsection (3), a farmers' cooper- 19 ative corporation organized within the limitations of section 98 20 of 1931 PA 327, MCL 450.98, that was at any time exempt under 21 subdivision (c) because the corporation was exempt from federal 22 income taxes under section 521 of the internal revenue code and 23 that would continue to be exempt under section 521 of the inter- 24 nal revenue code except for either of the following activities: 25 (i) The corporation's repurchase from nonproducer customers 26 of portions or components of commodities the corporation markets 27 to those nonproducer customers and the corporation's subsequent 05614'98 6 1 manufacturing or marketing of the repurchased portions or 2 components of the commodities. 3 (ii) The corporation's incidental or emergency purchases of 4 commodities from nonproducers to facilitate the manufacturing or 5 marketing of commodities purchased from producers. 6 (j) That portion of the tax base attributable to the direct 7 and indirect marketing activities of a farmers' cooperative cor- 8 poration organized within the limitations of section 98 of 1931 9 PA 327, MCL 450.98, if those marketing activities are provided on 10 behalf of the members of that corporation and are related to the 11 members' direct sales of their products to third parties, or, for 12 livestock, are related to the members' direct or indirect sales 13 of that product to third parties. Marketing activities for a 14 product that is not livestock are not exempt under this subdivi- 15 sion if the farmers' cooperative corporation takes physical pos- 16 session of the product. As used in this subdivision, "marketing 17 activities" includes, but is not limited to, activities under the 18 agricultural commodities marketing act, 1965 PA 232, MCL 290.651 19 to 290.674, and the agricultural marketing and bargaining act, 20 1972 PA 344, MCL 290.701 to 290.726; dissemination of market 21 information; establishment of price and other terms of trade; 22 promotion; and research relating to members' products. 23 (K) IN ADDITION TO ANY OTHER EXEMPTION ALLOWED UNDER THIS 24 SECTION, $250,000.00 OF THE TAX BASE OF EVERY PERSON. FOR THE 25 PURPOSES OF THIS SUBDIVISION, "TAX BASE" MEANS TAX BASE AFTER 26 ALLOCATION AND APPORTIONMENT PROVIDED IN CHAPTER 3 AND THE 05614'98 7 1 ADJUSTMENTS PROVIDED IN SECTIONS 23 AND 23B. THIS SUBDIVISION 2 DOES NOT APPLY TO AN ADJUSTED TAX BASE UNDER SECTION 22A. 3 (2) An affiliated group, a controlled group of corporations 4 as defined by section 1563 of the internal revenue code, or an 5 entity under common control as defined by the internal revenue 6 code is entitled to only 1 exemption allowed by subsection (1)(a) 7 whether or not a combined or consolidated return is filed. 8 (3) Subsection (1)(i) does not exempt a farmers' cooperative 9 corporation if the total dollar value of the corporation's inci- 10 dental and emergency purchases described in subsection (1)(i)(ii) 11 are equal to or greater than either of the following: 12 (a) For tax years that end before January 1, 1995, 5% of the 13 total dollar value of the corporation's repurchases described in 14 subsection (1)(i)(i). 15 (b) For tax years that end after December 31, 1994, 5% of 16 the corporation's total purchases. 17 (4) For tax years that end after December 31, 1996 and 18 except as otherwise provided in THIS section,35,a farmers' 19 cooperative corporation shall exclude from adjusted tax base the 20 revenue and expenses attributable to business transacted with 21 farmer or farmer cooperative corporation patrons to whom net 22 earnings are allocated in the form of patronage dividends as 23 defined in section 1388 of the internal revenue code. In comput- 24 ing the adjusted tax base of a farmers' cooperative corporation, 25 each of the additions and deductions under sections 9, 23, and 26 23b shall be multiplied by a fraction, the numerator of which is 27 the gross profit of the nonpatronage sourced business of the 05614'98 8 1 farmers' cooperative corporation and the denominator of which is 2 the gross profits of the farmers' cooperative corporation. As 3 used in this subsection only, "farmers' cooperative corporation" 4 means a farmers' cooperative corporation organized within the 5 limitations of section 98 of 1931 PA 327, MCL 450.98. 6 (5) As used in subsection (1)(c), "exclusively" means that 7 term as applied for purposes of section 501(c)(3) of the internal 8 revenue code. 9 Sec. 73. (1) An annual or final return shall be filed with 10 the department in the form and content prescribed by the depart- 11 ment by the last day of the fourth month after the end of the 12 taxpayer's tax year. Any final liability shall be remitted with 13 this return. A person whose apportioned or allocated gross 14 receipts plus the adjustments provided in section 23b(a), (b),15and (c)TO (G) are less than the following amount for the appro- 16 priate year need not file a return or pay the tax provided under 17 this act: 18(a) $40,000.00 for tax years beginning before January 1,191991.20(b) $60,000.00 for tax years beginning after December 31,211990 and before January 1, 1992.22 (A)(c)$100,000.00 for tax years beginning after 23 December 31, 1991 and before January 1, 1994. 24 (B)(d)$137,500.00 for tax years beginning after December 25 31, 1993 and before January 1, 1995. 26 (C)(e)$250,000.00 for tax years beginning after December 27 31, 1994 AND BEFORE JANUARY 1, 1999. 05614'98 9 1 (2) For a person whose apportioned or allocated gross 2 receipts plus the adjustments provided in section 23b(a), (b),3and (c),TO (G) are for a tax year less than 12 months, the 4 amount in subsection (1) shall be multiplied by a fraction, the 5 numerator of which is the number of months in the tax year and 6 the denominator of which is 12. 7 (3) The commissioner upon application of the taxpayer and 8 for good cause shown may extend the date for filing the annual 9 return. Interest at the rate of 9% per annum shall be added to 10 the amount of the tax unpaid for the period of the extension. 11 The commissioner shall require a tentative return and payment of 12 an estimated tax. 13 (4) If a taxpayer is granted an extension of time within 14 which to file the federal income tax return for any taxable year, 15 the filing of a copy of the request for extension together with a 16 tentative return and payment of an estimated tax with the commis- 17 sioner by the due date provided in subsection (1) shall automati- 18 cally extend the due date for the filing of a final return under 19 this act for an equivalent period plus 60 days. Interest at the 20 rate of 9% per annum shall be added to the amount of the tax 21 unpaid for the period of the extension. 22 (5) For tax years that end after July 6, 1994, an affiliated 23 group as defined in this act, a controlled group of corporations 24 as defined in section 1563 of the internal revenue code and fur- 25 ther described in 26 C.F.R. 1.414(b)-1 and 1.414(c)-1 to 26 1.414(c)-5, or an entity under common control as defined in the 27 internal revenue code shall consolidate the gross receipts of the 05614'98 10 1 members of the affiliated group, member corporations of the 2 controlled group, or entities under common control that have 3 apportioned or allocated gross receipts, plus the adjustments 4 provided in section 23b(a), (b), and (c)TO (G), of 5 $100,000.00 or more to determine if the group or entity shall pay 6 a tax or file a return as provided under subsection (1). An 7 individual member of an affiliated group or controlled group of 8 corporations or an entity under common control is not required to 9 file a return or pay the tax under this act if that member or 10 entity has apportioned or allocated gross receipts, plus the 11 adjustments provided in section 23b(a), (b), and (c)TO (G), 12 of less than $100,000.00. 05614'98 Final page. RJA