March 23, 2006, Introduced by Senators CASSIS, GOSCHKA, KUIPERS, BISHOP, BARCIA, CROPSEY, GILBERT, GARCIA and ALLEN and referred to the Committee on Finance.
A bill to amend 1975 PA 228, entitled
"Single business tax act,"
by amending section 36 (MCL 208.36), as amended by 1995 PA 284.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
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.
(c) "Adjusted business income" means business income as
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, 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 or $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 exceeds
$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.
(c) Subject to section 36d, for a taxpayer that is eligible
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 business
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 business
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 business
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 business
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%.
(c) Beginning October 1, 1994 and before January 1, 2006, 2%.
(d) Beginning January 1, 2006, 1.0%.
(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,
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.