HB-5104, As Passed House, September 24, 2007HB-5104, As Passed House, September 23, 2007

SUBSTITUTE FOR

HOUSE BILL NO. 5104

A bill to amend 2007 PA 36, entitled

"Michigan business tax act,"

by amending section 201 (MCL 208.1201).

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 201. (1) Except as otherwise provided in this act, there

is levied and imposed a business income tax on every taxpayer with

business activity within this state unless prohibited by 15 USC 381

to 384. The business income tax is imposed on the business income

tax base, after allocation or apportionment to this state, at the

rate of 4.95%.

(2) The business income tax base means a taxpayer's business

income subject to the following adjustments, before allocation or

apportionment, and the adjustment in subsection ~~(4)~~ (5) after

allocation or apportionment:

(a) Add interest income and dividends derived from obligations

or securities of states other than this state, 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.

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

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

arriving at federal taxable income.

the extent deducted in arriving at federal taxable income.

(d) To the extent included in federal taxable income, deduct

dividends and royalties received from persons other than United

States persons and foreign operating entities, including, but not

limited to, amounts determined under section 78 of the internal

revenue code or sections 951 to 964 of the internal revenue code.

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

loss or subtract the income from the business income tax base that

is attributable to another entity whose business activities are

taxable under this section or would be subject to the tax under

this section if the business activities were in this state.

(f) Except as otherwise provided under this subdivision, to

the extent deducted in arriving at federal taxable income, add any

royalty, interest, or other expense paid to a person related to the

taxpayer by ownership or control for the use of an intangible asset

if the person is not included in the taxpayer's unitary business

group. The addition of any royalty, interest, or other expense

described under this subdivision is not required to be added if the

taxpayer can demonstrate that the transaction has a nontax business

purpose other than avoidance of this tax, is conducted with arm's-

length pricing and rates and terms as applied in accordance with

sections 482 and 1274(d) of the internal revenue code, and

satisfies 1 of the following:

(i) Is a pass through of another transaction between a third

party and the related person with comparable rates and terms.

(ii) Results in double taxation. For purposes of this

subparagraph, double taxation exists if the transaction is subject

to tax in another jurisdiction.

(iii) Is unreasonable as determined by the treasurer, and the

taxpayer agrees that the addition would be unreasonable based on

the taxpayer's facts and circumstances.

(g) To the extent included in federal taxable income, deduct

interest income derived from United States obligations.

(h) To the extent included in federal taxable income, deduct

any earnings that are net earnings from self-employment as defined

under section 1402 of the internal revenue code of the taxpayer or

a partner or limited liability company member of the taxpayer

except to the extent that those net earnings represent a reasonable

return on capital.

(i) Subject to the limitation provided under this subdivision,

if the book-tax differences for the first fiscal period ending

after July 12, 2007 result in a deferred liability for a person

subject to tax under this act, deduct the following percentages of

the total book-tax difference for each qualifying asset, for each

of the successive 15 tax years beginning with the 2015 tax year:

(i) For the 2015 through 2019 tax years, 4%.

(ii) For the 2020 through 2024 tax years, 6%.

(iii) For the 2025 through 2029 tax years, 10%.

(3) The deduction under subsection (2)(i) shall not exceed the

amount necessary to offset the net deferred tax liability of the

taxpayer as computed in accordance with generally accepted

accounting principles which would otherwise result from the

imposition of the business income tax under this section and the

modified gross receipts tax under section 203 if the deduction

provided under this subdivision were not allowed. For purposes of

the calculation of the deduction under subsection (2)(i), a book-

tax difference shall only be used once in the calculation of the

deduction arising from the taxpayer's business income tax base

under this section and once in the calculation of the deduction

arising from the taxpayer's modified gross receipts tax base under

section 203. The adjustment under subsection (2)(i) shall be

calculated without regard to the federal effect of the deduction.

If the adjustment under subsection (2)(i) is greater than the

taxpayer's business income tax base, any adjustment that is unused

may be carried forward and applied as an adjustment to the

taxpayer's business income tax base before apportionment in future

years. In order to claim this deduction, the department may require

the taxpayer to report the amount of this deduction on a form as

prescribed by the department that is to be filed on or after the

date that the first quarterly return and estimated payment are due

under this act. As used in subsection (2)(i) and this subsection:

(a) "Book-tax difference" means the difference, if any,

House Bill No. 5104 (H-6) as amended September 23, 2007

between the person's qualifying asset's net book value shown on the

person's books and records for the first fiscal period ending after

July 12, 2007 and the qualifying asset's tax basis on that same

date.

(b) "Qualifying asset" means any asset shown on the person's

books and records for the first fiscal period ending after July 12,

2007, in accordance with generally accepted accounting principles.

(4) ~~(3)~~ For purposes of ~~subsection~~ subsections (2) and (3),

the business income of a unitary business group is the sum of the

business income of each person, other than a foreign operating

entity or a person subject to the tax imposed under chapter 2A or

2B, included in the unitary business group less any items of income

and related deductions arising from transactions including

dividends between persons included in the unitary business group.

(5) ~~(4)~~ Deduct any available business loss incurred after

December 31, 2007. As used in this subsection, "business loss"

means a negative business income taxable amount after allocation or

apportionment. The business loss shall be carried forward to the

year immediately succeeding the loss year as an offset to the

allocated or apportioned business income tax base, then

successively to the next 9 taxable years following the loss year or

until the loss is used up, whichever occurs first, but for not more

than 10 taxable years after the loss year.

Enacting section 1. This amendatory act takes effect January

1, 2008.

[Enacting section 2. This amendatory act does not take effect unless House Bill No. 5194 of the 94th Legislature is enacted into law.]