SB-0367, As Passed Senate, December 12, 2013

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 367

A bill to amend 1967 PA 281, entitled

"Income tax act of 1967,"

by amending sections 603, 611, and 691 (MCL 206.603, 206.611, and

206.691), section 603 as amended by 2011 PA 173, section 611 as

amended by 2011 PA 170, and section 691 as amended by 2012 PA 70.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 603. (1) "Affiliated group" means that term as defined in

section 1504 of the internal revenue code except that it shall

include all United States persons that are corporations, insurance

companies, or financial institutions, other than a foreign

operating entity, that are commonly owned, directly or indirectly,

by any member of such affiliated group and other members of which

more than 50% of the ownership interests with voting rights or

ownership interests that confer comparable rights to voting rights

of the member is directly or indirectly owned by a common owner or

owners.

(2) ~~(1)~~ "Business activity" means a transfer of legal or

equitable title to or rental of property, whether real, personal,

or mixed, tangible or intangible, or the performance of services,

or a combination thereof, made or engaged in, or caused to be made

or engaged in, whether in intrastate, interstate, or foreign

commerce, with the object of gain, benefit, or advantage, whether

direct or indirect, to the taxpayer or to others, but does not

include the services rendered by an employee to his or her employer

or services as a director of a corporation. Although an activity of

a taxpayer may be incidental to another or to others of his or her

business activities, each activity shall be considered to be

business engaged in within the meaning of this part.

(3) ~~(2)~~ "Business income" means federal taxable income. For a

tax-exempt taxpayer, business income means only that part of

federal taxable income derived from unrelated business activity.

Sec. 611. (1) "Tangible personal property" means that term as

defined in section 2 of the use tax act, 1937 PA 94, MCL 205.92.

(2) "Tax" means the tax imposed under this part, including

interest and penalties under this part, unless the term is given a

more limited meaning in the context of this part or a provision of

this part.

(3) "Tax-exempt person" means an organization that is exempt

from federal income tax under section 501(a) of the internal

revenue code, except the following:

(a) An organization exempt under section 501(c)(12) or (16) of

the internal revenue code.

(b) An organization exempt under section 501(c)(4) of the

internal revenue code that would be exempt under section 501(c)(12)

of the internal revenue code but for its failure to meet the

requirement in section 501(c)(12) that 85% or more of its income

must consist of amounts collected from members.

(4) "Tax year" means the calendar year, or the fiscal year

ending during the calendar year, upon the basis of which the tax

base of a taxpayer is computed under this part. If a return is made

for a fractional part of a year, tax year means the period for

which the return is made. Except for the first return required by

this part, a taxpayer's tax year is for the same period as is

covered by its federal income tax return. A taxpayer that has a 52-

or 53-week tax year beginning not more than 7 days before the end

of any month is considered to have a tax year beginning on the

first day of the subsequent month. A person included in a unitary

business group that joins or departs the unitary business group

other than at the end of that person's federal tax year shall have

a tax year beginning with its federal income tax period and ending

on the date of joining or departing the unitary business group, and

another tax year beginning on the date immediately after joining or

departing the unitary business group and ending with its federal

income tax period. If the term tax year in this part is used in

reference to 1 or more previous or preceding tax years and those

referenced tax years are before January 1, 2012, then those

referenced tax years are deemed those same tax years during which

former 1975 PA 228 or the Michigan business tax act, 2007 PA 36,

MCL 208.1101 to 208.1601, applied.

(5) "Taxpayer" means a corporation, insurance company,

financial institution, or unitary business group, whichever is

applicable under each chapter, that is liable for a tax, interest,

or penalty under this part. For purposes of chapters 11 and 14,

taxpayer does not include an insurance company or a financial

institution. For purposes of chapter 12, unless specifically

included in the section, taxpayer does not include a corporation or

a financial institution. For purposes of chapter 13, taxpayer does

not include a corporation or an insurance company.

(6) "Unitary business group" means a group of United States

persons that are corporations, insurance companies, or financial

institutions, other than a foreign operating entity, 1 of which

owns or controls, directly or indirectly, more than 50% of the

ownership interest with voting rights or ownership interests that

confer comparable rights to voting rights of the other members, and

that has business activities or operations which result in a flow

of value between or among members included in the unitary business

group or has business activities or operations that are integrated

with, are dependent upon, or contribute to each other. Unitary

business group includes an affiliated group that makes the election

to be treated, and to file, as a unitary business group under

section 691(2).

(7) "United States person" means that term as defined in

section 7701(a)(30) of the internal revenue code.

(8) "Unrelated business activity" means, for a tax-exempt

person, business activity directly connected with an unrelated

trade or business as defined in section 513 of the internal revenue

code.

Sec. 691. (1) Except as otherwise provided under section

680(3), a unitary business group shall file a combined return that

includes each United States person that is included in the unitary

business group. Each United States person included in a unitary

business group or included in a combined return shall be treated as

a single person, and all transactions between those persons

included in the unitary business group shall be eliminated from the

corporate income tax base and the apportionment formulas under this

part. If a United States person included in a unitary business

group or included in a combined return is subject to the tax under

chapter 12 or 13, any corporate income attributable to that person

shall be eliminated from the corporate income tax base and any

sales attributable to that person shall be eliminated from the

apportionment formula under this part.

(2) A person that is part of an affiliated group may elect

without the consent of the department to have all of the persons

that are included in that affiliated group to be treated as a

unitary business group. A taxpayer that elects to file as a unitary

business group pursuant to this subsection shall compute its tax

under this part in accordance with all other provisions of this

part that apply to a unitary business group. The taxpayer shall

make the election under this subsection on a form or in a format as

prescribed by the department that is to be filed in a timely manner

with the taxpayer's annual return. Each person included in the

affiliated group is deemed to have agreed to be bound by the

election made under this subsection and any renewal of that

election and to have waived any objection to its inclusion in the

affiliated group and treatment as a unitary business group. Each

person that subsequently enters the affiliated group after the tax

year for which the election is made is deemed to have consented to

the application of and is bound by the election and to have waived

any objection to its inclusion in the affiliated group and

treatment as a unitary business group. An election made pursuant to

this subsection is irrevocable and binding for and applicable to

the tax year for which it is made and for the next 9 tax years. The

election shall remain in effect for the time period in which the

ownership requirements under this section are met irrespective of

whether a federal consolidated group to which the unitary business

group belongs discontinues the filing of a federal consolidated

return or whether the common parent changes due to a reverse

acquisition or acquisition by a related person. Upon the expiration

of the election after it has been in effect for 10 tax years, an

election may be renewed for another 10 tax years, without the

consent of the department; provided however, that in the case of a

nonrenewal a new election under this subsection is not permitted in

any of the immediately following 3 tax years. The renewal shall be

made on a form or in a format as prescribed by the department that

is to be filed in a timely manner with the taxpayer's annual return

after the completion of a 10-year period for which an election

under this subsection was in place.

Enacting section 1. This amendatory act is effective for tax