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HB-5108, As Passed House, August 31, 2005

SUBSTITUTE FOR

HOUSE BILL NO. 5108

A bill to amend 1975 PA 228, entitled

"Single business tax act,"

by amending sections 4a, 31, and 36 (MCL 208.4a, 208.31, and

208.36), section 4a as added by 2003 PA 241, section 31 as amended

by 1999 PA 115, and section 36 as amended by 1995 PA 284.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 4a. (1) For tax years that begin after December 31, 2006

and before January 1, 2008, compensation for purposes of section

4(3) does not include 50% of payments under health and welfare and

noninsured benefit plans for the benefit of persons who are

residents of this state and payments of fees for the administration

of health and welfare and noninsured benefit plans for the benefit

of persons who are residents of this state paid by the taxpayer in

the tax year.

(2) For purposes of section 4(3), compensation does not

include the following percentages of payments under health and

welfare and noninsured benefit plans for the benefit of persons who

are residents of this state and payments of fees for the

administration of health and welfare and noninsured benefit plans

for the benefit of persons who are residents of this state paid by

the taxpayer for the specified tax years:

(a) For tax years that begin after December 31, 2007 and

before January 1, 2009, 62.5%.

(b) For tax years that begin after December 31, 2008 and

before January 1, 2010, 75%.

before January 1, 2011, 87.5%.

(d) For tax years that begin after December 31, 2010, 100%.

Sec. 31. (1) Except as provided in subsections (5) and (6),

there is levied and imposed a specific tax upon the adjusted tax

base of every person with business activity in this state that is

allocated or apportioned to this state at the following rates for

the specified periods:

(a) Before October 1, 1994, 2.35%.

(b) After September 30, 1994 and before January 1, 1999,

2.30%.

the rate under this subsection shall be reduced as provided in

subsection (5).

(d) On January 1, 2007 and January 1, 2008, the rate under

this subsection shall be reduced as provided in subsection (6).

(e) On January 1, 2009, the rate in effect pursuant to

subsection (6)(b) shall be reduced as provided in subsections (5)

and (7).

(f) Beginning January 1, 2010 and each January 1 after 2010,

the rate in effect for the immediately preceding tax year under

this section shall be reduced as provided in subsections (5) and

(7).

(2) As used in this section, "adjusted tax base" means the tax

base allocated or apportioned to this state pursuant to chapter 3

with the adjustments prescribed by sections 23 and 23b and the

exemptions prescribed by section 35. ~~If the adjusted tax base~~

~~exceeds 50% of the sum of gross receipts plus the adjustments~~

~~provided in section 23b(a) to (g), apportioned or allocated to~~

~~Michigan with the apportionment fraction calculated pursuant to~~

~~chapter 3, the adjusted tax base may, at the option of the~~

~~taxpayer, be reduced by that excess.~~ If a taxpayer reduces the

adjusted tax base under this subsection, the taxpayer is not

entitled to the adjustment provided in subsection (4) for the same

taxable year. This subsection does not apply to an adjusted tax

base under section 22a. For the specified years and except as

otherwise provided in subsection (8), if the adjusted tax base

exceeds the following percentages of the sum of gross receipts plus

the adjustments provided in section 23b(a) to (g), apportioned or

allocated to Michigan with the apportionment fraction calculated

pursuant to chapter 3, the adjusted tax base may, at the option of

the taxpayer, be reduced by that excess:

(a) For tax years that begin before January 1, 2007, 50.0%.

(b) For tax years that begin on and after January 1, 2007 and

before January 1, 2008, 52.7%.

56%.

(3) The tax levied under this section and imposed is upon the

privilege of doing business and not upon income.

(4) In lieu of the reduction provided in subsection (2), a

person may elect to reduce the adjusted tax base ~~by the percentage~~

~~that the compensation divided by the tax base exceeds 63%. The~~

~~deduction shall not exceed 37% of the adjusted tax base.~~ pursuant

to this subsection. For purposes of computing the deduction allowed

by this subsection, as effective for the respective tax year,

compensation does not include amounts of compensation exempt from

tax under section 35(1)(e). This subsection does not apply to an

adjusted tax base under section 22a. Except as otherwise provided in

subsection (8), a person may elect to reduce the adjusted tax base

by the percentage that the compensation divided by the tax base

exceeds the following percentages for the specified years and the

deduction shall not exceed the following percentages of the

adjusted tax base:

(a) For tax years that begin before January 1, 2007, the

percentage that compensation divided by the tax base exceeds 63%

and the deduction shall not exceed 37% of adjusted tax base.

(b) For tax years that begin on and after January 1, 2007 and

before January 1, 2008, the percentage that compensation divided by

the tax base exceeds 66% and the deduction shall not exceed 34% of

adjusted tax base.

percentage that compensation divided by the tax base exceeds 70%

and the deduction shall not exceed 30% of adjusted tax base.

(5) If the comprehensive annual financial report of this state

for a state fiscal year, published pursuant to section 494 of the

management and budget act, 1984 PA 431, MCL 18.1494, reports an

ending balance of more than $250,000,000.00 in the countercyclical

budget and economic stabilization fund created under section 351 of

the management and budget act, 1984 PA 431, MCL 18.1351, for that

state fiscal year, the tax rate under this section shall be reduced

by 0.1 percentage point on the January 1 following the end of the

state fiscal year for which the report was issued.

(6) Except as otherwise provided in subsection (8), the rate

under this section, after application of subsection (5), shall be

reduced as follows and the resulting rate shall be the rate for the

specified tax years:

(a) On January 1, 2007, the rate as determined under

subsection (1) and reduced, if applicable, under subsection (5),

shall be further reduced by 0.1 percentage point.

(b) On January 1, 2008, the rate determined under subdivision

(a) shall be reduced, if applicable, under subsection (5) and then

further reduced by 0.1 percentage point.

(7) Except as otherwise provided in this subsection, beginning

in calendar year 2009 and each calendar year after 2009 if the

revenue estimating conference that meets in May, as provided in

section 367b of the management and budget act, 1984 PA 431, MCL

18.1367b, determines that the amount estimated by that revenue

estimating conference for revenues under this act for that state

fiscal year exceeds the revenues under this act for the state

fiscal year immediately preceding the state fiscal year in which

the revenue estimating conference meets by $80,000,000.00 or more,

the tax rate under this section shall be reduced by 0.05 percentage

point on the January 1 immediately preceding the May in which the

revenue estimating conference met. A reduction under this

subsection shall be made after the application of subsection (5)

for the same January 1. A maximum of 4 reductions under this

subsection is allowed.

(8) All of the following apply for tax years beginning on and

after January 1, 2007:

(a) A taxpayer may elect to reduce its tax base using the

percentage allowed under subsection (2)(a) if the taxpayer

calculates tax liability using the rate determined pursuant to

subsection (1)(c).

(b) A taxpayer may elect to reduce its tax base and claim a

deduction using the percentages allowed under subsection (4)(a) if

the taxpayer calculates tax liability using the rate determined

pursuant to subsection (1)(c).

(9) ~~(6)~~ The department shall annualize the rate under this

section as necessary, and the applicable annualized rate shall be

imposed.

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,

2007, 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, subject to the following:

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

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

2007, a business entity that files as a partnership for federal tax

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

partnership, or any 1 shareholder of the subchapter S

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

2007, any 1 member of a business entity that files as a partnership

for federal tax purposes 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, 2007, or more than

$175,000.00 as adjusted under subsection (9) for tax years

commencing after December 31, 2006 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, 2007, or exceed $175,000.00 as adjusted under subsection (9) for

tax years commencing after December 31, 2006.

(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, 2007, or exceed $175,000.00

as adjusted under subsection (9) for tax years commencing after

December 31, 2006:

(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, or, for tax

years that begin on and after January 1, 2007, any 1 member of a

business entity that files as a partnership for federal tax

purposes receives as a distributive share of adjusted gross income

minus the loss adjustment of the individual, partnership, or

subchapter S corporation, or, for tax years that begin on and after

January 1, 2007, business entity that files as a partnership for

federal tax purposes; 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, 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, or, for tax

years that begin on and after January 1, 2007, any 1 member of a

business entity that files as a partnership for federal tax

purposes receives as a distributive share of adjusted gross income

minus the loss adjustment of the individual, partnership, or

subchapter S corporation, or, for tax years that begin on and after

January 1, 2007, business entity that files as a partnership for

federal tax purposes; 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,

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, or, for tax

years that begin on and after January 1, 2007, any 1 member of a

business entity that files as a partnership for federal tax

purposes receives as a distributive share of adjusted gross income

minus the loss adjustment of the individual, partnership, or

subchapter S corporation, or, for tax years that begin on and after

January 1, 2007, business entity that files as a partnership for

federal tax purposes; 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,

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, or, for tax

years that begin on and after January 1, 2007, any 1 member of a

business entity that files as a partnership for federal tax

purposes receives as a distributive share of adjusted gross income

minus the loss adjustment of the individual, partnership, or

subchapter S corporation, or, for tax years that begin on and after

January 1, 2007, business entity that files as a partnership for

federal tax purposes; 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,

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, 2008 and before January 1, 2009,

1.8%.

(e) Beginning January 1, 2009 and before January 1, 2010,

1.6%.

(f) Beginning January 1, 2010, 1.4%.

(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. 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,

business 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) For tax years that begin after December 31, 2007, the

maximum amount under subsection (2)(a), (b)(i), (b)(ii), and (c)(iv)

shall be adjusted by the percentage increase in the rate of

personal income growth as reported by the federal government for

the immediately preceding calendar year.

(10) As used in this section, the term "corporation" includes

a business entity that files as a corporation for federal tax

purposes.

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. 4972.

(b) House Bill No. 4973.

(d) House Bill No. 5095.

(e) House Bill No. 5096.

(f) House Bill No. 5097.

(g) House Bill No. 5098.

(h) House Bill No. 5106.

(i) House Bill No. 5107.