SB 687, As Passed Senate

SB-0687, As Passed Senate, September 5, 2007

SUBSTITUTE FOR

SENATE BILL NO. 687

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) 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 difference for the first fiscal period ending on or

after July 12, 2007 results in a deferred liability, deduct 10% of

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

successive 10 tax years beginning with the 2013 tax year. The

deduction under this subdivision 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 this subdivision, 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 this subdivision shall be calculated without regard to the

federal effect of the deduction. If the adjustment under this

subdivision 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. As used in this subdivision:

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

the taxpayer's qualifying asset's net book value shown on the

taxpayer's books and records for the first fiscal period ending on

or after July 12, 2007 and the qualifying asset's adjusted federal

tax basis on that same date.

(ii) "Qualifying asset" means any asset shown on the taxpayer's

books and records for the first fiscal period ending on or after

July 12, 2007, in accordance with generally accepted accounting

principles.

(3) For purposes of subsection (2), 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.

(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.