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HB-5098, As Passed Senate, November 10, 2005

HOUSE SUBSTITUTE FOR SENATE SUBSTITUTE FOR

HOUSE BILL NO. 5098

(As amended, November 10, 2005)

A bill to amend 1975 PA 228, entitled

"Single business tax act,"

by amending sections 9, 22a, and 38e (MCL 208.9, 208.22a, and

208.38e), section 9 as amended by 2004 PA 258, section 22a as

amended by 1996 PA 578, and section 38e as amended by 2003 PA 273,

and by adding sections 79 and 130.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 9. (1) "Tax base" means business income, before

apportionment or allocation as provided in chapter 3, even if zero

or negative, subject to the adjustments in this section.

(2) Add gross interest income and dividends derived from

obligations or securities of states other than Michigan, in the

same amount that was excluded from federal taxable income, less the

related portion of expenses not deducted in computing federal

taxable income because of sections 265 and 291 of the internal

revenue code.

(3) Add all taxes on or measured by net income and the tax

imposed by this act to the extent the taxes were deducted in

arriving at federal taxable income.

(4) Add the following, to the extent deducted in arriving at

federal taxable income:

(a) A carryback or carryover of a net operating loss.

(b) A carryback or carryover of a capital loss.

or accelerated write-off related to the cost of tangible assets.

(d) A dividend paid or accrued except a dividend that

represents a reduction of premiums to policyholders of insurance

companies.

(e) A deduction or exclusion by a taxpayer due to a

classification as, or the payment of commissions or other fees to,

a domestic international sales corporation or any like special

classification the purpose of which is to reduce or postpone the

federal income tax liability. This subdivision does not apply to

the special provisions of sections 805, 809, and 815(c)(2)(A) of

the internal revenue code.

(f) All interest including amounts paid, credited, or reserved

by insurance companies as amounts necessary to fulfill the policy

and other contract liability requirements of sections 805 and 809

of the internal revenue code. Interest does not include payments or

credits made to or on behalf of a taxpayer by a manufacturer,

distributor, or supplier of inventory to defray any part of the

taxpayer's floor plan interest, if these payments are used by the

taxpayer to reduce interest expense in determining federal taxable

income. For purposes of this section, "floor plan interest" means

interest paid that finances any part of the taxpayer's purchase of

automobile inventory from a manufacturer, distributor, or supplier.

However, amounts attributable to any invoiced items used to provide

more favorable floor plan assistance to a taxpayer than to a person

who is not a taxpayer is considered interest paid by a

manufacturer, distributor, or supplier.

(g) All royalties except for the following:

(i) On and after July 1, 1985, oil and gas royalties that are

excluded in the depletion deduction calculation under the internal

revenue code.

(ii) Cable television franchise fees described in section 622

of part III of title VI of the communications act of 1934, 47

~~U.S.C.~~ USC 542.

(iii) Except as provided in subparagraph (iv), for the tax years

1986 and after 1986, a franchise fee as defined by section 3 of the

franchise investment law, 1974 PA 269, MCL 445.1503, in the

following amounts:

(A) For the tax years 1986, 1987, and 1988, 20% of the

franchise fee.

(B) For the tax years 1989 and 1990, 50% of the franchise fee.

franchise fee.

(iv) For the tax years ending before 1991, this subdivision

does not apply to a fee for services paid by a franchisee that,

with respect to a specific provision of a franchise agreement, a

court of competent jurisdiction, before June 5, 1985, has

determined is not a royalty payment under this act.

(v) Film rental or royalty payments paid by a theater owner to

a film distributor, a film producer, or a film distributor and

producer.

(vi) Royalties, fees, charges, or other payments or

consideration paid or incurred by radio or television broadcasters

for program matter or signals.

(vii) Royalties, fees, charges, or other payments or

consideration paid by a film distributor for copyrighted motion

picture films, program matter, or signals to a film producer.

(viii) For tax years that begin after December 31, 1993,

royalties paid by a licensee of application computer software,

operating system software, or system software pursuant to a license

agreement. As used in this subparagraph and subsection (7)(c)(vii):

(A) "Application computer software" means a set of statements

or instructions that when incorporated in a machine usable medium

is capable of causing a machine or device having information

processing capabilities to indicate, perform, or achieve a

particular business function, task, or result for the nontechnical

end user. Application computer software includes any other computer

software that does not qualify under sub-subparagraph (B) or (C).

(B) "Operating system software" means a set of statements or

instructions that when incorporated into a machine or device having

information processing capabilities is an interface between the

computer hardware and the application computer software or system

software.

instructions that interacts with operating system software that is

developed, licensed, and intended for the exclusive use of data

processing professionals to build, test, manage, or maintain

application computer software for which a license agreement is

signed by the licensor and licensee at the time of the transfer of

the software and that is not transferred to the licensee as part of

or in conjunction with a sale or lease of computer hardware.

(ix) For tax years that begin after December 31, 2000,

royalties, fees, or other payments or consideration paid or

incurred by a franchisee to a franchisor to establish or maintain

the franchise relationship other than payments for the sale or

lease of inventory, equipment, fixtures, or real property at fair

rental or fair market value.

(h) A deduction for rent attributable to a lease back that

continues in effect under the former provisions of section

168(f)(8) of the internal revenue code of 1954 as that section

provided immediately before the tax reform act of 1986, Public Law

99-514, became effective or to a lease back of property to which

the amendments made by the tax reform act of 1986 do not apply as

provided in section 204 of the tax reform act of 1986.

(5) Add compensation.

(6) Add a capital gain related to business activity of

individuals to the extent excluded in arriving at federal taxable

income.

(7) Deduct the following, to the extent included in arriving

at federal taxable income:

(a) A dividend received or considered received, including the

foreign dividend gross-up provided for in the internal revenue

code.

(b) All interest except amounts paid, credited, or reserved by

an insurance company as amounts necessary to fulfill the policy and

other contract liability requirements of sections 805 and 809 of

the internal revenue code.

(i) On and after July 1, 1985, oil and gas royalties that are

included in the depletion deduction calculation under the internal

revenue code.

(ii) Except as provided in subparagraph (iii), for the 1986 tax

year and after the 1986 tax year, a franchise fee as defined in

section 3 of the franchise investment law, 1974 PA 269, MCL

445.1503, in the following amounts:

(A) For the tax years 1986, 1987, and 1988, 20% of the

franchise fee.

(B) For the tax years 1989 and 1990, 50% of the franchise fee.

franchise fee.

(iii) For the tax years ending before 1991, this subdivision

does not apply to a fee for services paid by a franchisee that,

with respect to a specific provision of a franchise agreement, a

court of competent jurisdiction, before June 5, 1985, has

determined is not a royalty payment under this act.

(iv) Film rental or royalty payments paid by a theater owner to

a film distributor, a film producer, or a film distributor and

producer.

(v) Royalties, fees, charges, or other payments or

consideration paid or incurred by radio or television broadcasters

for program matter or signals.

(vi) Royalties, fees, charges, or other payments or

consideration paid by a film distributor for copyrighted motion

picture films, program matter, or signals to a film producer.

(vii) For tax years that begin after December 31, 1997,

royalties received by a licensor, distributor, developer, marketer,

or copyright holder of application computer software or operating

system software pursuant to a license agreement. System software is

not included within the exception under this subparagraph.

(viii) For tax years that begin after December 31, 2000,

royalties, fees, or other payments or consideration paid or

incurred by a franchisee to a franchisor to establish or maintain

the franchise relationship other than payments for the sale or

lease of inventory, equipment, fixtures, or real property at fair

rental or fair market value.

(d) Rent attributable to a lease back that continues in effect

under the former provisions of section 168(f)(8) of the internal

revenue code of 1954 as that section provided immediately before

the tax reform act of 1986, Public Law 99-514, became effective or

to a lease back of property to which the amendments made by the tax

reform act of 1986 do not apply as provided in section 204 of the

tax reform act of 1986.

House Bill No. 5098 (H-7) as amended November 10, 2005

as amended November 10, 2005

(8) Deduct a capital loss not deducted in arriving at federal

taxable income in the year the loss occurred.

(9) To the extent included in federal taxable income, add the

loss or subtract the gain from the tax base that is attributable to

another entity whose business activities are taxable under this act

or, for tax years for which [section <<4a or>> 35f is] not in effect,

would be taxable under this act if the business activities were in

this state.

(10) For tax years that begin after December 31, 2004, deduct,

to the extent included in federal taxable income, income received

from either of the following:

(a) Small business innovation research grants and small

business technology transfer programs established under the small

business innovation development act of 1982, Public Law 97-219,

reauthorized under the small business research and development

enhancement act, Public Law 102-564, and subsequently reauthorized

under the small business reauthorization act of 2000, Public Law

106-554.

(b) Grants from the Michigan technology tri-corridor SBIR

emerging business fund administered by the Michigan economic

development corporation.

Sec. 22a. (1) Except as otherwise provided, from August 3,

1987 to September 30, 1987, for the tax year beginning October 1,

1987 and ending September 30, 1988, and each tax year thereafter,

the tax base and adjusted tax base of an insurance company is the

product of .25 times the insurance company's adjusted receipts as

apportioned under section 62.

House Bill No. 5098 as amended November 10, 2005

(2) The tax base and adjusted tax base calculated under this

section shall not be adjusted under sections 23 and 23b.

(3) 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, for

tax years for which <<section 35f is >> in effect, taxes

imposed under the general sales tax act, 1933 PA 167, MCL 205.51 to

205.78, and taxes imposed under the use tax act, 1937 PA 94, MCL

205.91 to 205.111, and except as otherwise provided in this act and

in ~~Act No. 218 of the Public Acts of 1956~~ the insurance code of

1956, 1956 PA 218, MCL 500.100 to 500.8302.

(4) As used in this section:

(a) "Adjusted receipts" means, except as provided in

subdivision (b), the sum of all of the following:

(i) Rental and royalty receipts from a person that is not

either of the following:

(A) An affiliated insurance company.

(B) An insurance agent of the taxpayer licensed under chapter

12 of the insurance code of 1956, ~~Act No. 218 of the Public Acts~~

~~of 1956, being sections 500.1200 to 500.1244 of the Michigan~~

~~Compiled Laws~~ 1956 PA 218, MCL 500.1200 to 500.1247.

(ii) Gross direct premiums received for insurance on property

or risk, deducting premiums on policies not taken and returned

premiums on canceled policies.

(iii) Receipts from administrative services only contracts with

a person who is not an affiliated insurance company or an

affiliated nonprofit corporation.

(iv) Receipts from business activity other than the business of

insurance. As used in this subparagraph, "business of insurance"

means any activity related to the sale of insurance, payment of

claims, or claims handling, on policies written by the taxpayer.

(v) Charges not including interest charges attributable to

premiums paid on a deferred or installment basis.

(vi) Receipts from servicing carrier fees received from the

Michigan auto insurance placement facility.

(b) Adjusted receipts do not include any of the following:

(i) Receipts from interest, dividends, or proceeds from the

sale of assets.

(ii) Receipts, other than receipts described in subsection

(4)(a)(i) or (ii), from an affiliated insurance company, an

affiliated nonprofit corporation, an employee of the taxpayer, or

an insurance agent of the taxpayer licensed under chapter 12 of the

insurance code of 1956, ~~Act No. 218 of the Public Acts of 1956,~~

~~being sections 500.1200 to 500.1244 of the Michigan Compiled Laws~~

1956 PA 218, MCL 500.1200 to 500.1247.

(iii) Receipts on the sale of annuities.

(iv) Receipts on all reinsurance transactions.

that is a member of an affiliated group with the taxpayer or if the

insurance company does not issue stock, 50% or more of the members

of that insurance company's board of directors are members of the

taxpayer's board of directors.

(d) "Affiliated nonprofit corporation" means a nonprofit

corporation, of which 80% or more of the members of the board of

directors are members of the taxpayer's board of directors.

(5) A refund for taxes paid for tax years before the 1996 tax

year shall not be paid under this section if the refund claim is

made after June 30, 1997 and is based on this section as it ~~exists~~

~~on the effective date of the amendatory act that added this~~

~~subsection~~ existed on January 1, 1991.

Sec. 38e. (1) A taxpayer may claim a credit against the tax

imposed by this act equal to the sum of 50% of the qualified

expenses as defined in subsection ~~(5)(d)(~~i) (6)(d)(i) and (ii) and

100% of the qualified expenses as defined in subsection ~~(5)(d)(~~~~iii~~)

(6)(d)(iii) paid by the taxpayer in the tax year in each of the

following circumstances:

(a) Except for apprentices trained under subdivision (b) or

amount not to exceed $2,000.00 for each apprentice trained by the

taxpayer in the tax year.

(b) ~~For~~ Except as otherwise provided under subsection (2),

for companies that have a classification under the North American

industrial classification system (NAICS) of 333511, 333512, 333513,

333514, or 333515 and for tax years that begin after December 31,

2003, an amount not to exceed $4,000.00 for each apprentice trained

by the taxpayer in the tax year.

companies that have a classification under the North American

industrial classification system (NAICS) of 333511, 333512, 333513,

333514, or 333515 and for tax years that begin after December 31,

2003, an amount not to exceed $1,000.00 for each special apprentice

House Bill No. 5098 (H-7) as amended November 10, 2005

as amended November 10, 2005

trained by the taxpayer in the tax year.

(d) For tax years for which <<section 35f is >> in effect,

for companies that have a classification under the North American

industrial classification system (NAICS) of 236115 to 238990 and

for tax years that begin after December 31, 2005, an amount not to

exceed $2,000.00 for each apprentice trained by the taxpayer in the

tax year.

(2) For tax years that begin after December 31, 2005, the

credits allowed under subsection (1)(a) to (c) shall be claimed

only in tax years for which [section <<4a or>> 35f is] not in effect.

(3) ~~(2)~~ If the credit allowed under this section exceeds the

tax liability of the taxpayer under this act for the tax year, that

portion of the credit that exceeds the tax liability shall be

refunded.

(4) ~~(3)~~ The credit allowed under this section shall be

claimed on the annual return required under section 73, or for a

taxpayer that is not required to file an annual return, the

department shall provide that the credit under this subsection may

be claimed on the C-8044 form, a successor form for persons not

required to file an annual return, or other simplified form

prescribed by the department.

(5) ~~(4)~~ For each year that this credit is in effect, the

department of labor and economic growth shall prepare a report

containing information including, but not limited to, the number of

companies taking advantage of the apprenticeship credit, the number

of apprentices participating in the program, the number of

apprentices who complete a program the costs of which were the

basis of a credit under this section, the number of apprentices

that were hired by the taxpayer after the apprenticeship training

was completed for which the taxpayer claimed a credit under this

section for the costs of training that apprentice, information on

the employment status of individuals who have completed an

apprenticeship to the extent the information is available, and the

fiscal impact of the apprenticeship credit. This report shall then

be transmitted to the house tax policy and senate finance

committees and to the house and senate appropriations committees.

This report shall be due no later than the first day of March each

year.

(6) ~~(5)~~ As used in this section:

(a) "Apprentice" means a person who is a resident of this

state, is 16 years of age or older but younger than 20 years of

age, has not obtained a high school diploma, is enrolled in high

school or a general education development (G.E.D.) test preparation

program, and is trained by a taxpayer through a program that meets

all of the following criteria:

(i) The program is registered with the bureau of apprenticeship

and training of the United States department of labor.

(ii) The program is provided pursuant to an apprenticeship

agreement signed by the taxpayer and the apprentice.

(iii) The program is filed with a local workforce development

board.

(iv) The minimum term in hours for the program shall be not

less than 4,000 hours.

(b) "Enrolled" means currently enrolled or expecting to enroll

after a period of less than 3 months during which the program is

not in operation and the apprentice is not enrolled.

established by the chief elected official of a local unit of

government pursuant to the job training partnership act, Public Law

97-300, 96 Stat. 1322, that has the responsibility to ensure that

the workforce needs of the employers in the geographic area

governed by the local unit of government are met.

(d) "Qualified expenses" means all of the following expenses

paid by the taxpayer in a tax year that begins after December 31,

1996 for expenses used to calculate a credit under subsection

(1)(a) and after December 31, 2003 for expenses used to calculate a

credit under subsection (1)(b) that were not paid for with funds

the taxpayer received or retained that the taxpayer would not

otherwise have received or retained and that are used for training

an apprentice:

(i) Salary and wages paid to an apprentice.

(ii) Fringe benefits and other payroll expenses paid for the

benefit of an apprentice.

(iii) Costs of classroom instruction and related expenses

identified as costs for which the taxpayer is responsible under an

apprenticeship agreement, including but not limited to tuition,

fees, and books for college level courses taken while the

apprentice is enrolled in high school.

(e) "Special apprentice" means a person who is not an

apprentice as defined by section (5)(a), is a resident of this

state, is 16 years of age or older but younger than 25 years of

House Bill No. 5098 as amended November 10, 2005

age, and is trained by a taxpayer through a program that meets all

of the criteria under subdivision (a)(i) to (iv).

Sec. 79. For tax years that begin on and after January 1, 2006

and for which <<section 35f is >> in effect, a taxpayer that

files a return under this act that includes a disregarded entity

under an election pursuant to 26 CFR 301.7701-1 to 301.7701-3,

section 1361(b)(3) of the internal revenue code, or any other

section of the internal revenue code, shall not claim on that

return a credit carryforward or business loss deduction under

section 23b from a year in which the entity from whom the credit

carryforward or business loss deduction under section 23b

originated did not file a return on a disregarded entity basis in

an amount greater than the total credit carryforward or business

loss deduction under section 23b that could have been claimed by

that entity if that entity had filed a separate return.

Sec. 130. 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.

House Bill No. 5098 (H-7) as amended November 10, 2005

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. 4342.

(b) House Bill No. 4972.

(d) House Bill No. 4980.

(e) House Bill No. 5095.

(f) House Bill No. 5096.

(g) House Bill No. 5097.

(h) House Bill No. 5106.

(i) House Bill No. 5107.

(j) House Bill No. 5108.

(k) Senate Bill No. 633.

[(l) Senate Bill No. 634.]

Enacting section 2. Sections 9 and 22a of the single business

tax act, 1975 PA 228, MCL 208.9 and 208.22a, as amended by this

amendatory act, take effect for tax years that begin on and after

January 1, 2006.