HB-5460, As Passed Senate, December 13, 2007

SUBSTITUTE FOR

HOUSE BILL NO. 5460

A bill to amend 2007 PA 36, entitled

"Michigan business tax act,"

by amending section 305 (MCL 208.1305).

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 305. (1) Sales of the taxpayer in this state are

determined as follows:

(a) Sales of tangible personal property are in this state if

the property is shipped or delivered, or, in the case of

electricity and gas, the contract requires the property to be

shipped or delivered, to any purchaser within this state based on

the ultimate destination at the point that the property comes to

rest regardless of the free on board point or other conditions of

the sales.

(b) Receipts from the sale, lease, rental, or licensing of

real property are in this state if that property is located in this

state.

property are sales in this state to the extent that the property is

utilized in this state. The extent of utilization of tangible

personal property in this state is determined by multiplying the

receipts by a fraction, the numerator of which is the number of

days of physical location of the property in this state during the

lease or rental period in the tax year and the denominator of which

is the number of days of physical location of the property

everywhere during all lease or rental periods in the tax year. If

the physical location of the property during the lease or rental

period is unknown or cannot be determined, the tangible personal

property is utilized in the state in which the property was located

at the time the lease or rental payer obtained possession.

(d) Receipts from the lease or rental of mobile transportation

property owned by the taxpayer are in this state to the extent that

the property is used in this state. The extent an aircraft will be

deemed to be used in this state and the amount of receipts that is

to be included in the numerator of this state's sales factor is

determined by multiplying all the receipts from the lease or rental

of the aircraft by a fraction, the numerator of the fraction is the

number of landings of the aircraft in this state and the

denominator of the fraction is the total number of landings of the

aircraft. If the extent of the use of any transportation property

within this state cannot be determined, then the receipts are in

this state if the property has its principal base of operations in

this state.

(e) Royalties and other income received for the use of or for

the privilege of using intangible property, including patents,

know-how, formulas, designs, processes, patterns, copyrights, trade

names, service names, franchises, licenses, contracts, customer

lists, computer software, or similar items, are attributed to the

state in which the property is used by the purchaser. If the

property is used in more than 1 state, the royalties or other

income shall be apportioned to this state pro rata according to the

portion of use in this state. If the portion of use in this state

cannot be determined, the royalties or other income shall be

excluded from both the numerator and the denominator. Intangible

property is used in this state if the purchaser uses the intangible

property or the rights to the intangible property in the regular

course of its business operations in this state, regardless of the

location of the purchaser's customers.

(2) Sales from the performance of services are in this state

and attributable to this state as follows:

(a) Except as otherwise provided in this section, all receipts

from the performance of services are included in the numerator of

the apportionment factor if the recipient of the services receives

all of the benefit of the services in this state. If the recipient

of the services receives some of the benefit of the services in

this state, the receipts are included in the numerator of the

apportionment factor in proportion to the extent that the recipient

receives benefit of the services in this state.

(b) Sales derived from securities brokerage services

attributable to this state are determined by multiplying the total

dollar amount of receipts from securities brokerage services by a

fraction, the numerator of which is the sales of securities

brokerage services to customers within this state, and the

denominator of which is the sales of securities brokerage services

to all customers. Receipts from securities brokerage services

include commissions on transactions, the spread earned on principal

transactions in which the broker buys or sells from its account,

total margin interest paid on behalf of brokerage accounts owned by

the broker's customers, and fees and receipts of all kinds from the

underwriting of securities. If receipts from brokerage services can

be associated with a particular customer, but it is impractical to

associate the receipts with the address of the customer, then the

address of the customer shall be presumed to be the address of the

branch office that generates the transactions for the customer.

from the sale of management, distribution, administration, or

securities brokerage services to, or on behalf of, a regulated

investment company or its beneficial owners, including receipts

derived directly or indirectly from trustees, sponsors, or

participants of employee benefit plans that have accounts in a

regulated investment company, shall be attributable to this state

to the extent that the shareholders of the regulated investment

company are domiciled within this state. For purposes of this

subdivision, "domicile" means the shareholder's mailing address on

the records of the regulated investment company. If the regulated

investment company or the person providing management services to

the regulated investment company has actual knowledge that the

shareholder's primary residence or principal place of business is

different than the shareholder's mailing address, then the

shareholder's primary residence or principal place of business is

the shareholder's domicile. A separate computation shall be made

with respect to the receipts derived from each regulated investment

company. The total amount of sales attributable to this state shall

be equal to the total receipts received by each regulated

investment company multiplied by a fraction determined as follows:

(i) The numerator of the fraction is the average of the sum of

the beginning-of-year and end-of-year number of shares owned by the

regulated investment company shareholders who have their domicile

in this state.

(ii) The denominator of the fraction is the average of the sum

of the beginning-of-year and end-of-year number of shares owned by

all shareholders.

(iii) For purposes of the fraction, the year shall be the tax

year of the regulated investment company that ends with or within

the tax year of the taxpayer.

(3) Receipts from the origination of a loan or gains from the

sale of a loan secured by residential real property is deemed a

sale in this state only if 1 or more of the following apply:

(a) The real property is located in this state.

(b) The real property is located both within this state and 1

or more other states and more than 50% of the fair market value of

the real property is located within this state.

state and the borrower is located in this state.

(4) Interest from loans secured by real property is in this

state if the property is located within this state or if the

property is located both within this state and 1 or more other

states, if more than 50% of the fair market value of the real

property is located within this state, or if more than 50% of the

fair market value of the real property is not located within any 1

state, if the borrower is located in this state. The determination

of whether the real property securing a loan is located within this

state shall be made as of the time the original agreement was made

and any and all subsequent substitutions of collateral shall be

disregarded.

(5) Interest from a loan not secured by real property is in

this state if the borrower is located in this state.

(6) Gains from the sale of a loan not secured by real

property, including income recorded under the coupon stripping

rules of section 1286 of the internal revenue code, are in this

state if the borrower is in this state.

(7) Receipts from credit card receivables, including interest,

fees, and penalties from credit card receivables and receipts from

fees charged to cardholders, such as annual fees, are in this state

if the billing address of the ~~card holder~~ cardholder is in this

state.

(8) Receipts from the sale of credit card or other receivables

is in this state if the billing address of the customer is in this

state. Credit card issuer's reimbursements fees are in this state

if the billing address of the cardholder is in this state. Receipts

from merchant discounts, computed net of any cardholder

chargebacks, but not reduced by any interchange transaction fees or

by any issuer's reimbursement fees paid to another for charges made

by its cardholders, are in this state if the commercial domicile of

the merchant is in this state.

(9) Loan servicing fees derived from loans of another secured

by real property are in this state if the real property is located

in this state, or the real property is located both within and

outside of this state and 1 or more states if more than 50% of the

fair market value of the real property is located in this state, or

more than 50% of the fair market value of the real property is not

located in any 1 state, and the borrower is located in this state.

Loan servicing fees derived from loans of another not secured by

real property are in this state if the borrower is located in this

state. If the location of the security cannot be determined, then

loan servicing fees for servicing either the secured or the

unsecured loans of another are in this state if the lender to whom

the loan servicing service is provided is located in this state.

(10) Receipts from the sale of securities and other assets

from investment and trading activities, including, but not limited

to, interest, dividends, and gains are in this state in either of

the following circumstances:

(a) The person's customer is in this state.

(b) If the location of the person's customer cannot be

determined, both of the following:

(i) Interest, dividends, and other income from investment

assets and activities and from trading assets and activities,

including, but not limited to, investment securities; trading

account assets; federal funds; securities purchased and sold under

agreements to resell or repurchase; options; futures contracts;

forward contracts; notional principal contracts such as swaps;

equities; and foreign currency transactions are in this state if

the average value of the assets is assigned to a regular place of

business of the taxpayer within this state. Interest from federal

funds sold and purchased and from securities purchased under resale

agreements and securities sold under repurchase agreements are in

this state if the average value of the assets is assigned to a

regular place of business of the taxpayer within this state. The

amount of receipts and other income from investment assets and

activities is in this state if assets are assigned to a regular

place of business of the taxpayer within this state.

(ii) The amount of receipts from trading assets and activities,

including, but not limited to, assets and activities in the matched

book, in the arbitrage book, and foreign currency transactions, but

excluding amounts otherwise sourced in this section, are in this

state if the assets are assigned to a regular place of business of

the taxpayer within this state.

(11) Receipts from transportation services rendered by a

person subject to tax in another state are in this state and shall

be attributable to this state as follows:

(a) Except as otherwise provided in subdivisions (b) through

(e), receipts shall be proportioned based on the ratio that revenue

miles of the person in this state bear to the revenue miles of the

person everywhere.

(b) Receipts from maritime transportation services shall be

attributable to this state as follows:

(i) 50% of those receipts that either originate or terminate in

this state.

(ii) 100% of those receipts that both originate and terminate

in this state.

business activity consists of the transportation both of property

and of individuals shall be proportioned based on the total gross

receipts for passenger miles and ton mile fractions, separately

computed and individually weighted by the ratio of gross receipts

from passenger transportation to total gross receipts from all

transportation, and by the ratio of gross receipts from freight

transportation to total gross receipts from all transportation,

respectively.

(d) Receipts attributable to this state of a person whose

business activity consists of the transportation of oil by pipeline

shall be proportioned based on the ratio that the gross receipts

for the barrel miles transported in this state bear to the gross

receipts for the barrel miles transported by the person everywhere.

(e) Receipts attributable to this state of a person whose

business activities consist of the transportation of gas by

pipeline shall be proportioned based on the ratio that the gross

receipts for the 1,000 cubic feet miles transported in this state

bear to the gross receipts for the 1,000 cubic feet miles

transported by the person everywhere.

(12) For purposes of subsection (11), if a taxpayer can show

that revenue mile information is not available or cannot be

obtained without unreasonable expense to the taxpayer, receipts

attributable to this state shall be that portion of the revenue

derived from transportation services everywhere performed that the

miles of transportation services performed in this state bears to

the miles of transportation services performed everywhere. If the

department determines that the information required for the

calculations under subsection (11) are not available or cannot be

obtained without unreasonable expense to the taxpayer, the

department may use other available information that in the opinion

of the department will result in an equitable allocation of the

taxpayer's receipts to this state.

(13) Except as provided in subsections (14) through (19),

receipts from the sale of telecommunications service or mobile

telecommunications service are in this state if the customer’s

place of primary use of the service is in this state. As used in

this subsection, "place of primary use" means the customer's

residential street address or primary business street address where

the customer’s use of the telecommunications service primarily

occurs. For mobile telecommunications service, the customer's

residential street address or primary business street address is

the place of primary use only if it is within the licensed service

area of the customer’s home service provider.

(14) Receipts from the sale of telecommunications service sold

on an individual call-by-call basis are in this state if either of

the following applies:

(a) The call both originates and terminates in this state.

(b) The call either originates or terminates in this state and

the service address is located in this state.

(15) Receipts from the sale of postpaid telecommunications

service are in this state if the origination point of the

telecommunication signal, as first identified by the service

provider’s telecommunication system or as identified by information

received by the seller from its service provider if the system used

to transport telecommunication signals is not the seller's, is

located in this state.

(16) Receipts from the sale of prepaid telecommunications

service or prepaid mobile telecommunications service are in this

state if the purchaser obtains the prepaid card or similar means of

conveyance at a location in this state. Receipts from recharging a

prepaid telecommunications service or mobile telecommunications

service is in this state if the purchaser’s billing information

indicates a location in this state.

(17) Receipts from the sale of private communication services

are in this state as follows:

(a) 100% of the receipts from the sale of each channel

termination point within this state.

(b) 100% of the receipts from the sale of the total channel

mileage between each termination point within this state.

a channel between 2 customer channel termination points, 1 of which

is located in this state and the other is located outside of this

state, which segments are separately charged.

(d) The receipts from the sale of service for segments with a

channel termination point located in this state and in 2 or more

other states or equivalent jurisdictions, and which segments are

not separately billed, are in this state based on a percentage

determined by dividing the number of customer channel termination

points in this state by the total number of customer channel

termination points.

(18) Receipts from the sale of billing services and ancillary

services for telecommunications service are in this state based on

the location of the purchaser’s customers. If the location of the

purchaser's customers is not known or cannot be determined, the

sale of billing services and ancillary services for

telecommunications service are in this state based on the location

of the purchaser.

(19) Receipts to access a carrier's network or from the sale

of ~~telecommunication~~ telecommunications services for resale are in

this state as follows:

(a) 100% of the receipts from access fees attributable to

intrastate telecommunications service that both originates and

terminates in this state.

(b) 50% of the receipts from access fees attributable to

interstate telecommunications service if the interstate call either

originates or terminates in this state.

charges, if the customer’s service address is in this state. As

used in this subdivision, "interstate end user access line charges"

includes, but is not limited to, the surcharge approved by the

federal communications commission and levied pursuant to 47 CFR 69.

(d) Gross receipts from sales of ~~telecommunication~~

telecommunications services to other telecommunication service

providers for resale shall be sourced to this state using the

apportionment concepts used for non-resale receipts of

telecommunications services if the information is readily available

to make that determination. If the information is not readily

available, then the taxpayer may use any other reasonable and

consistent method.

(20) Except as otherwise provided under this subsection, for a

taxpayer whose business activities include live radio or television

programming as described in subsector code 7922 of industry group

792 under the standard industrial classification code as compiled

by the United States department of labor or are included in

industry groups 483, 484, 781, or 782 under the standard industrial

classification code as compiled by the United States department of

labor, or any combination of the business activities included in

those groups, media receipts are in this state and attributable to

this state only if the commercial domicile of the customer is in

this state and the customer has a direct connection or relationship

with the taxpayer pursuant to a contract under which the media

receipts are derived. For media receipts from the sale of

advertising, if the customer of that advertising is commercially

domiciled in this state and receives some of the benefit of the

sale of that advertising in this state, the media receipts from the

advertising to that customer are included in the numerator of the

apportionment factor in proportion to the extent that the customer

receives the benefit of the advertising in this state. For purposes

of this subsection, if the taxpayer is a broadcaster and if the

customer receives some of the benefit of the advertising in this

state, the media receipts for that sale of advertising from that

customer shall be proportioned based on the ratio that the

broadcaster's viewing or listening audience in this state bears to

its total viewing or listening audience everywhere. As used in this

subsection:

(a) "Media property" means motion pictures, television

programs, internet programs and websites, other audiovisual works,

and any other similar property embodying words, ideas, concepts,

images, or sound without regard to the means or methods of

distribution or the medium in which the property is embodied.

(b) "Media receipts" means receipts from the sale, license,

broadcast, transmission, distribution, exhibition, or other use of

media property and receipts from the sale of media services. Media

receipts do not include receipts from the sale of media property

that is a consumer product that is ultimately sold at retail.

media property is integral to the performance of those services.

(21) ~~(20)~~ Terms used in subsections (13) through ~~(19)~~ (20)

have the same meaning as those terms defined in the streamlined

sales and use tax agreement administered under the streamlined

sales and use tax administration act, 2004 PA 174, MCL 205.801 to

205.833.

(22) ~~(21)~~ For purposes of this section, a borrower is

considered located in this state if the borrower's billing address