SB-1104, As Passed House, June 14, 2012

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 1104

A bill to amend 1967 PA 281, entitled

"Income tax act of 1967,"

by amending section 703 (MCL 206.703), as amended by 2011 PA 188.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 703. (1) A person who disburses pension or annuity

payments, except as otherwise provided under this section, shall

withhold a tax in an amount computed by applying the rate

prescribed in section 51 on the taxable part of payments from an

employer pension, annuity, profit-sharing, stock bonus, or other

deferred compensation plan as well as from an individual retirement

arrangement, an annuity, an endowment, or a life insurance contract

issued by a life insurance company. Withholding shall be calculated

on the taxable disbursement after deducting from the taxable

portion the same proportion of the total amount of personal and

dependency exemptions of the individual allowed under this act.

Withholding is not required on any part of a distribution that is

not expected to be includable in the recipient's gross income or

that is deductible from adjusted gross income under section

30(1)(e) or (f).

(2) Every employer in this state required under the provisions

of the internal revenue code to withhold a tax on the compensation

of an individual, except as otherwise provided, shall deduct and

withhold a tax in an amount computed by applying, except as

provided by subsection (14), the rate prescribed in section 51 to

the remainder of the compensation after deducting from compensation

the same proportion of the total amount of personal and dependency

exemptions of the individual allowed under this act that the period

of time covered by the compensation is of 1 year. The department

may prescribe withholding tables that may be used by employers to

compute the amount of tax required to be withheld.

(3) ~~Every~~ Except as otherwise provided under this section,

every flow-through entity in this state shall withhold a tax in an

amount computed by applying the rate prescribed in section 51 to

the distributive share of taxable income reasonably expected to

accrue after allocation and apportionment under chapter 3 of each

nonresident member who is an individual after deducting from that

distributive income the same proportion of the total amount of

personal and dependency exemptions of the individual allowed under

this act. All of the taxes withheld under this section shall accrue

to the state on April 15, ~~June~~ July 15, and ~~September~~ October 15 of

the flow-through entity's tax year and January 15 of the following

year, except a flow-through entity that is not on a calendar year

basis shall substitute the appropriate due dates in the flow-

through entity's fiscal year that correspond to those in a calendar

year. Withholding for each period shall be equal to 1/4 of the

total withholding calculated on the distributive share that is

reasonably expected to accrue during the tax year of the flow-

through entity.

(4) ~~Every~~ Except as otherwise provided under this section,

every flow-through entity with business activity in this state that

has more than $200,000.00 of business income reasonably expected to

accrue in the tax year after allocation or apportionment ~~under~~

~~chapter 14~~ shall withhold a tax in an amount computed by applying

the rate prescribed in section 623 to the distributive share of the

business income of each member that is a corporation or that is a

flow-through entity. For purposes of calculating the $200,000.00

withholding threshold, the business income of a flow-through entity

shall be apportioned to this state by multiplying the business

income by the sales factor of the flow-through entity. The sales

factor of the flow-through entity is a fraction, the numerator of

which is the total sales of the flow-through entity in this state

during the tax year and the denominator of which is the total sales

of the flow-through entity everywhere during the tax year. As used

in this subsection, "business income" means that term as defined in

section 603(2). For a partnership or S corporation, business income

includes payments and items of income and expense that are

attributable to business activity of the partnership or S

corporation and separately reported to the members. As used in this

subsection, "sales" means that term as defined in section 609 and

sales in this state is determined as provided in sections 665 and

669. All of the taxes withheld under this section shall accrue to

the state on April 15, ~~June~~ July 15, and ~~September~~ October 15 of

the flow-through entity's tax year and January 15 of the following

year, except a flow-through entity that is not on a calendar year

basis shall substitute the appropriate due dates in the flow-

through entity's fiscal year that correspond to those in a calendar

year. Withholding for each period shall be equal to 1/4 of the

total withholding calculated on the distributive share of business

income that is reasonably expected to accrue during the tax year of

the flow-through entity.

(5) If a flow-through entity is subject to the withholding

requirements of subsection (4), then a member of that flow-through

entity that is itself a flow-through entity shall withhold a tax on

the distributive share of business income as described in

subsection (4) of each of its members. The department shall apply

tax withheld by a flow-through entity on the distributive share of

business income of a member flow-through entity to the withholding

required of that member flow-through entity. All of the taxes

withheld under this section shall accrue to the state on April 15,

~~June~~ July 15, and ~~September~~ October 15 of the flow-through entity's

tax year and January 15 of the following year, except a flow-

through entity that is not on a calendar year basis shall

substitute the appropriate due dates in the flow-through entity's

fiscal year that correspond to those in a calendar year.

Withholding for each period shall be equal to 1/4 of the total

withholding calculated on the distributive share of business income

that is reasonably expected to accrue during the tax year of the

flow-through entity.

(6) Every casino licensee shall withhold a tax in an amount

computed by applying the rate prescribed in section 51 to the

winnings of a nonresident reportable by the casino licensee under

the internal revenue code.

(7) Every race meeting licensee or track licensee shall

withhold a tax in an amount computed by applying the rate

prescribed in section 51 to a payoff price on a winning ticket of a

nonresident reportable by the race meeting licensee or track

licensee under the internal revenue code that is the result of

pari-mutuel wagering at a licensed race meeting.

(8) Every casino licensee or race meeting licensee or track

licensee shall report winnings of a resident reportable by the

casino licensee or race meeting licensee or track licensee under

the internal revenue code to the department in the same manner and

format as required under the internal revenue code.

(9) Every eligible production company shall, to the extent not

withheld by a professional services corporation or professional

employer organization, deduct and withhold a tax in an amount

computed by applying the rate prescribed in section 51 to the

remainder of the payments made to the professional services

corporation or professional employer organization for the services

of a performing artist or crew member after deducting from those

payments the same proportion of the total amount of personal and

dependency exemptions of the individuals allowed under this part.

(10) Every publicly traded partnership that has equity

securities registered with the securities and exchange commission

under section 12 of title I of the securities and exchange act of

1934, 15 USC 78l, shall not be subject to withholding.

(11) Except as otherwise provided under this subsection, all

of the taxes withheld under this section shall accrue to the state

on the last day of the month in which the taxes are withheld but

shall be returned and paid to the department by the employer,

eligible production company, casino licensee, or race meeting

licensee or track licensee within 15 days after the end of any

month or as provided in section 705. For an employer or flow-

through entity that has entered into an agreement with a community

college pursuant to chapter 13 of the community college act of

1966, 1966 PA 331, MCL 389.161 to 389.166, a portion of the taxes

withheld under this section that are attributable to each employee

in a new job created pursuant to the agreement shall accrue to the

community college on the last day of the month in which the taxes

are withheld but shall be returned and paid to the community

college by the employer or flow-through entity within 15 days after

the end of any month or as provided in section 705 for as long as

the agreement remains in effect. For purposes of this act and 1941

PA 122, MCL 205.1 to 205.31, payments made by an employer or flow-

through entity to a community college under this subsection shall

be considered income taxes paid to this state.

(12) A person required by this section to deduct and withhold

taxes on compensation, a share of income available for distribution

on which withholding is required under subsection (3), (4), or (5),

winnings on which withholding is required under subsection (6), or

a payoff price on which withholding is required under subsection

(7) holds the amount of tax withheld as a trustee for this state

and is liable for the payment of the tax to this state or, if

applicable, to the community college and is not liable to any

individual for the amount of the payment.

(13) An employer in this state is not required to deduct and

withhold a tax on the compensation paid to a nonresident individual

employee, who, under section 256, may claim a tax credit equal to

or in excess of the tax estimated to be due for the tax year or is

exempted from liability for the tax imposed by this act. In each

tax year, the nonresident individual shall furnish to the employer,

on a form approved by the department, a verified statement of

nonresidence.

(14) A person required to withhold a tax under this act, by

the fifteenth day of the following month, shall provide the

department with a copy of any exemption certificate on which the

employee, member, or person subject to withholding under subsection

(6) or (7) claims more than 9 personal or dependency exemptions,

claims a status that exempts the employee, member, or person

subject to withholding under subsection (6) or (7) from withholding

under this section.

(15) A person who disburses annuity payments pursuant to the

terms of a qualified charitable gift annuity is not required to

deduct and withhold a tax on those payments as prescribed under

subsection (1). As used in this subsection, "qualified charitable

gift annuity" means an annuity described under section 501(m)(5) of

the internal revenue code and issued by an organization exempt

under section 501(c)(3) of the internal revenue code.

(16) Notwithstanding the requirements of subsections (4) and

(5), if a flow-through entity receives an exemption certificate

from a corporation, the flow-through entity shall not withhold a

tax on the distributive share of the business income of that

corporation if all of the following conditions are met:

(a) The exemption certificate is completed by the corporation

in the form and manner prescribed by the department and certifies

that the corporation will do all of the following:

(i) File the returns required under part 2.

(ii) Pay the tax required under part 2 on the distributive

share of the business income received from any flow-through entity

in which the corporation is a member or in which the corporation

has an ownership or beneficial interest, directly or indirectly

through 1 or more other flow-through entities.

(iii) Submit to the taxing jurisdiction of this state for

purposes of collection of the tax under part 2 together with

related interest and penalties under 1941 PA 122, MCL 205.1 to

205.31, imposed on the corporation with respect to the distributive

share of the business income of that corporation.

(b) The corporation shall file the exemption certificate with

the department and provide a copy to the flow-through entity.

certificate shall attach a copy of the exemption certificate to the

annual reconciliation return as required by section 711. A flow-

through entity that is entirely exempt from the withholding

requirements of subsection (4) or (5) by this subsection shall

furnish a copy of the exemption certificate in a manner prescribed

by the department.

(d) A copy of the exemption certificate shall be retained by

the corporation and flow-through entity and made available to the

department upon request. Any copy of the exemption certificate

shall be maintained in a format and for the period required by 1941

PA 122, MCL 205.1 to 205.31.

(17) The department may revoke the election provided for in

subsection (16) if it determines that the corporation or a flow-

through entity is not abiding by the terms of the exemption

certificate or the requirements of subsection (16). If the

department does revoke the election option under subsection (16),

the department shall notify the affected flow-through entities that

withholding is required on the corporation under subsection (4) or

(5), beginning 60 days after notice of revocation is received.

(18) Notwithstanding the requirements of subsections (4) and

(5), a flow-through entity is not required to withhold in

accordance with this section for a member that voluntarily elects

to file a return and pay the tax imposed by the Michigan business

tax act under section 680 or section 500 of the Michigan business

tax act, 2007 PA 36, MCL 208.1500.