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HB-5108, As Passed Senate, November 10, 2005

HOUSE SUBSTITUTE FOR SENATE SUBSTITUTE FOR

HOUSE BILL NO. 5108

(As amended, November 10, 2005)

A bill to amend 1975 PA 228, entitled

"Single business tax act,"

by amending sections 36 and 71 (MCL 208.36 and 208.71), section 36

as amended by 1995 PA 284 and section 71 as amended by 1999 PA 115,

and by adding section 35f.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 35f. (1) A taxpayer that provides transferred jobs to

this state may claim a credit against the tax imposed by this act

equal to 100% of the property taxes paid on tangible personal

property the use of which is directly related to the transferred

jobs. The credit shall only be available for taxes paid the first

year that the taxpayer pays property taxes on that property which

shall be the same tax year in which the credit under this section

based on those property taxes is claimed.

(2) Except as otherwise provided in subsection (3), the credit

under subsection (1) can be claimed only for taxes paid in the 2007

or 2008 tax year.

(3) A taxpayer may claim a credit against the tax imposed by

this act equal to 100% of the property taxes paid for the first

year that the taxpayer pays property taxes on tangible personal

property the use of which is directly related to the transferred

jobs for the 2009 or 2010 tax year if the taxpayer enters into an

agreement with the Michigan economic growth authority that states

all of the following:

(a) The taxpayer will provide transferred jobs in this state

in excess of the number of jobs the taxpayer maintained in this

state in the immediately preceding tax year.

(b) The taxpayer will locate tangible personal property the

use of which is directly related to those transferred jobs in this

state.

personal property cannot reasonably be completed by the taxpayer

before January 1, 2007.

(4) The Michigan economic growth authority shall issue a

certificate to the taxpayer certifying that the criteria under

subsection (3) have been met, and the taxpayer shall attach the

certificate to the annual return required under this act on which

the credit under this section is claimed.

(5) If the taxpayer does not maintain the total number of

transferred jobs located in this state for 3 years after the year

in which a credit under this section was claimed, the following

percentage of the credit amount previously claimed under this

section shall be added back to the tax liability of the taxpayer in

that year:

(a) If the total number of transferred jobs is less during the

first year after the year in which the credit was claimed, 100%.

(b) If the total number of transferred jobs is less during the

second year after the year in which the credit was claimed, 67%.

third year after the year in which the credit was claimed, 33%.

(6) Personal property taxes used to calculate a credit under

this section shall not be used to calculate a credit under section

35d.

(7) The credit allowed under this section shall be calculated

after application of all other credits allowed under this act.

(8) As used in this section:

(a) "High-technology activity" means that term as defined in

section 3 of the Michigan economic growth authority act, 1995 PA

24, MCL 207.803.

(b) "Manufacturing jobs" are jobs for a company that has a

classification under sector 33, subsector 321, or subsector 322 of

the North American industrial classification system (NAICS).

(i) Taxes collected under the general property tax act, 1893 PA

206, MCL 211.1 to 211.157.

(ii) Taxes levied under 1974 PA 198, MCL 207.551 to 207.572.

(iii) Taxes levied under the obsolete property rehabilitation

act, 2000 PA 146, MCL 125.2781 to 125.2797.

(iv) Any payments made by the taxpayer pursuant to a contract

with the Michigan strategic fund in connection with the creation of

a renaissance zone under the Michigan renaissance zone act, 1996 PA

376, MCL 125.2681 to 125.2696, to the extent that those payments

are made by the taxpayer to reimburse all taxing units for property

taxes that would otherwise be exempt under section 7ff of the

general property tax act, 1893 PA 206, MCL 211.7ff.

(d) "Transferred jobs" means jobs that meet all of the

following criteria:

(i) Are jobs that perform high-technology activity or

manufacturing jobs.

(ii) Were located in a different state or different country

before being moved to this state in the immediately preceding tax

year.

(iii) Represent an overall increase in full-time equivalent jobs

of the taxpayer in this state for the tax year above the total

number of full-time equivalent jobs of the taxpayer in the

immediately preceding tax year.

(iv) Is not a job into which an employee transfers if the

employee worked in this state for the taxpayer, a related entity of

the taxpayer, or an entity with which the taxpayer files a

consolidated return under section 77 in another job prior to

beginning the transferred job.

(v) The benefits for the employee in the transferred job

include coverage under health and welfare and noninsured benefit

plans, including, but not limited to, prescription coverage,

House Bill No. 5108 as amended November 10, 2005

primary health care coverage, and hospitalization that is not

limited to emergency room services or subject to dollar limits,

deductibles, and coinsurance provisions that are not less favorable

than those for physical illness generally.

Sec. 36. (1) As used in this section:

(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) "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.

defined in section 3 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.

(d) "Shareholder" means a person who owns outstanding stock in

the business or for tax years that begin on and after January 1,

2006 and for tax years for which <<section 35f is>> are in effect,

a member of a business entity that files as a corporation for

federal tax purposes. An individual is considered as the owner of

the stock owned, directly or indirectly, by or for family members

as defined by section 318(a)(1) of the internal revenue code.

(e) "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.

(f) "Subchapter S corporation" means a corporation electing

taxation under subchapter S of chapter 1 of subtitle A of the

internal revenue code, sections 1361 to 1379 of the internal

revenue code.

(2) The credit provided in this section shall be taken before

any other credit under this act, and is available to any person

whose gross receipts do not exceed $6,000,000.00 for tax years

commencing on or after January 1, 1984 and before January 1, 1989;

$7,000,000.00 for tax years commencing in 1989; $7,250,000.00 for

tax years commencing in 1990; $7,500,000.00 for tax years

commencing in 1991; or $10,000,000.00 for tax years commencing

after 1991, and whose adjusted business income minus the loss

adjustment does not exceed $475,000.00 for tax years commencing on

or after January 1, 1985 and before January 1, 2006 and $525,000.00

for tax years commencing on or after January 1, 2006, subject to

the following:

(a) An individual, a partnership, or a subchapter S

corporation is disqualified if the individual, any 1 partner of the

partnership, or any 1 shareholder of the subchapter S corporation

receives more than $95,000.00 for tax years commencing on or after

January 1, 1985 and before January 1, 1998, or more than

$115,000.00 for tax years commencing after December 31, 1997 and

before January 1, 2006, or more than $125,000.00 for tax years

commencing after December 31, 2005 as a distributive share of the

adjusted business income minus the loss adjustment of the

individual, the partnership, 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 $95,000.00 for tax years commencing on or after

January 1, 1985 and before January 1, 1998, or exceed $115,000.00

for tax years commencing after December 31, 1997 and before January

1, 2006, or exceed $125,000.00 for tax years commencing after

December 31, 2005.

(ii) The sum of the following amounts exceeds $95,000.00 for

tax years commencing on or after January 1, 1985 and before January

1, 1998, or exceeds $115,000.00 for tax years commencing after

December 31, 1997 and before January 1, 2006, or exceed $125,000.00

for tax years commencing after December 31, 2005:

(A) Compensation and director's fees of a shareholder.

(B) The product of the percentage 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.

for the credit under this subsection for tax years beginning after

December 31, 1997, 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, 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, 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 for tax years

that begin before January 1, 2006 or more than $105,000.00 but less

than $110,000.00 for tax years that begin on and after January 1,

2006, the credit is reduced by 20%.

(ii) If an individual, any 1 partner of the partnership, 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, 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 for tax years that

begin before January 1, 2006 or $110,000.00 or more but less than

$115,000.00 for tax years that begin on and after January 1, 2006,

the credit is reduced by 40%.

(iii) If an individual, any 1 partner of the partnership, 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, 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 for tax years that

begin before January 1, 2006 or $115,000.00 or more but less than

$120,000.00 for tax years that begin on and after January 1, 2006,

the credit is reduced by 60%.

(iv) If an individual, any 1 partner of the partnership, 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, 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 for tax years that

begin before January 1, 2006 or $120,000.00 or more but less than

or equal to $125,000.00 for tax years that begin on and after

January 1, 2006, 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. For tax

years commencing before January 1, 1989, the credit is a percentage

reduction in tax liability. ~~For tax years commencing on and after~~

~~January 1, 1989~~ ~~and through tax years commencing in 1991, the~~

~~credit is the greater of the amount by which the tax imposed by~~

~~section 31 exceeds 4% of adjusted business income or 3% of adjusted~~

~~business income for tax years commencing after 1991 or a percentage~~

~~reduction in tax liability. However, beginning~~ ~~October 1, 1994, the~~

~~percentage of adjusted business income shall be 2%.~~ The department

shall annualize the rates provided under this subsection as

necessary for tax years that end after September 30, 1994 and the

applicable annualized rate shall be imposed for those tax years.

The credit under this subsection is the greater of the amount by

which the tax imposed by section 31 exceeds the following

percentage of adjusted business income for the specified tax years

or a percentage reduction in tax liability:

(a) For tax years commencing on and after January 1, 1989 and

through tax years commencing in 1991, 4%.

(b) For tax years commencing after 1991 and before October 1,

1994, 3%.

(d) Beginning January 1, 2006, 1.9%.

House Bill No. 5108 as amended November 10, 2005

(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 tax base.

(6) If gross receipts exceed $5,000,000.00 for tax years

commencing on or after January 1, 1984 and before January 1, 1989;

$6,000,000.00 for tax years commencing in 1989; $6,250,000.00 for

tax years commencing in 1990; $6,500,000.00 for tax years

commencing in 1991; or $9,000,000.00 for tax years commencing after

1991, the credit shall be reduced by a fraction, the numerator of

which is the amount of gross receipts over $5,000,000.00 for tax

years commencing on or after January 1, 1984 and before January 1,

1989; $6,000,000.00 for tax years commencing in 1989; $6,250,000.00

for tax years commencing in 1990; $6,500,000.00 for tax years

commencing in 1991; or $9,000,000.00 for tax years commencing after

1991, and the denominator of which is $1,000,000.00. The credit

shall not exceed 50% for tax years commencing before January 1,

1984; 90% for tax years commencing on or after January 1, 1984 and

before January 1, 1988; or 100% for tax years commencing on and

after January 1, 1988 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 ~~C.F.R.~~ 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 and for

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

House Bill No. 5108 as amended November 10, 2005

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) As used in this section, for tax years for which <<section

35f is >> in effect, the term "corporation" includes a

business entity that files as a corporation for federal tax

purposes.

Sec. 71. (1) A taxpayer that reasonably expects liability for

the tax year to exceed $600.00 or adjustments under section 23 to

exceed $100,000.00 shall file an estimated return and pay an

estimated tax for each quarter of the taxpayer's tax year.

(2) For taxpayers on a calendar year basis the quarterly

returns and estimated payments shall be made by April 30, July 31,

October 31, and January 31. Taxpayers not on a calendar year basis

shall file quarterly returns and make estimated payments on the

appropriate due date which in the taxpayer's fiscal year

corresponds to the calendar year.

(3) The estimated payment made with each quarterly return of

each tax year shall be for the estimated tax base for the quarter

or 25% of the estimated annual liability. The second, third, and

fourth estimated payments in each tax year shall include

adjustments, if necessary, to correct underpayments or overpayments

from previous quarterly payments in the tax year to a revised

estimate of the annual tax liability.

(4) The interest and penalty provided by this act shall not be

assessed if any of the following occur:

(a) If the sum of the estimated payments equals at least 85%

of the liability or 1% of the gross receipts for the tax year and

the amount of each estimated payment reasonably approximates the

tax liability incurred during the quarter for which the estimated

payment was made.

(b) If the preceding year's tax liability was $20,000.00 or

less and if the taxpayer submitted 4 equal installments the sum of

which equals the previous year's tax liability.

the amendatory act that added this subdivision became effective, if

the underpayment is due to the changes made to section 36 by the

amendatory act that added this subdivision.

(5) Each estimated return shall be made on a form prescribed

by the department and shall include an estimate of the annual tax

liability and other information required by the commissioner. This

form may be combined with any other tax reporting form prescribed

by the department.

(6) With respect to a taxpayer filing an estimated tax return

for the taxpayer's first tax year of less than 12 months, the

amounts paid with each return shall be proportional to the number

of payments made in the first tax year.

(7) Payments made under this section shall be a credit against

the payment required with the annual tax return required in section

73.

(8) When the commissioner considers it necessary to insure

payment of the tax or to provide a more efficient administration of

the tax, the commissioner may require filing of the returns and

payment of the tax for other than quarterly or annual periods.

(9) A taxpayer that elects under the internal revenue code to

file an annual federal income tax return by March 1 in the year

following the taxpayer's tax year and does not make a quarterly

estimate or payment, or does not make a quarterly estimate or

payment and files a tentative annual return with a tentative

payment by January 15, in the year following the taxpayer's tax

year and a final return by April 15 in the year following the

taxpayer's tax year, shall have the same option in filing the

estimated and annual returns required by this act.

(10) Instead of the quarterly return prescribed in subsections

(1) and (2) the taxpayer may elect either of the following options:

(a) To file and pay before the sixteenth day of each month an

estimated return computed at the rate of 1% of the gross receipts

for the preceding month.

(b) To file and pay before the sixteenth day of the months

specified in subsection (2) an estimated return computed at the

rate of 1% of the gross receipts for the preceding quarter.

(11) A penalty for underpayment of an estimated tax under this

act shall not be assessed for the taxpayer's first tax year

beginning after December 31, 1999 if the taxpayer claimed a credit

under section 35a for the first time on the taxpayer's annual

return for that tax year and a penalty would not have applied if

House Bill No. 5108 (H-5) as amended November 10, 2005

the taxpayer had made adjustments under section 23 or 23b on that

return.

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. 5098.

(i) House Bill No. 5106.

(j) House Bill No. 5107.

(k) Senate Bill No. 633.

[(l) Senate Bill No. 634.]