SB-0234, As Passed Senate, December 9, 2015

SUBSTITUTE FOR

SENATE BILL NO. 234

A bill to amend 1967 PA 281, entitled

"Income tax act of 1967,"

by amending sections 651, 653, 655, and 657 (MCL 206.651, 206.653,

206.655, and 206.657), section 651 as amended by 2011 PA 171,

section 653 as amended by 2011 PA 183, and sections 655 and 657 as

added by 2011 PA 38.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 651. As used in this chapter:

(a) "Billing address" means the location indicated in the

books and records of the financial institution on the first day of

the tax year or on a later date in the tax year when the customer

relationship began as the address where any notice, statement, or

bill relating to a customer's account is mailed.

(b) "Borrower is located in this state" or "credit card holder

is located in this state" means a borrower, other than a credit

card holder, that is engaged in a trade or business which maintains

its commercial domicile in this state, or a borrower that is not

engaged in a trade or business or a credit card holder whose

billing address is in this state.

or business, that is the place from which the trade or business is

principally managed and directed, or if a financial institution is

organized under the laws of a foreign country, of the Commonwealth

of Puerto Rico, or any territory or possession of the United

States, such financial institution's commercial domicile shall be

deemed for the purposes of this chapter to be the state of the

United States or the District of Columbia from which such financial

institution's trade or business in the United States is principally

managed and directed. It shall be presumed, subject to rebuttal,

that the location from which the financial institution's trade or

business is principally managed and directed is the state of the

United States or the District of Columbia to which the greatest

number of employees are regularly connected or out of which they

are working, irrespective of where the services of such employees

are performed, as of the last day of the tax year.

(d) "Credit card" means a credit, travel, or entertainment

card.

(e) "Credit card issuer's reimbursement fee" means the fee a

financial institution receives from a merchant's bank because 1 of

the persons to whom the financial institution has issued a credit

card has charged merchandise or services to the credit card.

(f) "FFIEC" means the federal financial institutions

examination council established pursuant to section 1004 of the

financial institutions regulatory and interest rate control act of

1978, Public Law 95-630, 12 USC 3303.

(g) ~~(f)~~ "Financial institution" means any of the following:

(i) A bank holding company, a national bank, a state chartered

bank, a state chartered savings bank, a federally chartered savings

association, or a federally chartered farm credit system

institution.

(ii) Any entity, other than an entity subject to the tax

imposed under chapter 12, who is directly or indirectly owned by an

entity described in subparagraph (i) and is a member of the unitary

business group.

(iii) A unitary business group of entities described in

subparagraph (i) or (ii), or both.

(h) ~~(g)~~ "Gross business" means the sum of the following less

transactions between those entities included in a unitary business

group:

(i) Fees, commissions, or other compensation for financial

services.

(ii) Net gains, not less than zero, from the sale of loans and

other intangibles.

(iii) Net gains, not less than zero, from trading in stocks,

bonds, or other securities.

(iv) Interest charged to customers for carrying debit balances

of margin accounts.

(v) Interest and dividends received.

(vi) Any other gross proceeds resulting from the operation as

a financial institution.

(i) ~~(h)~~ "Loan" means any extension of credit resulting from

direct negotiations between the financial institution and its

customer, or the purchase, in whole or in part, of such extension

of credit from another. Loans include participations, syndications,

and leases treated as loans for federal income tax purposes. Loans

shall not include properties treated as loans under section 595 of

the internal revenue code, futures or forward contracts, options,

notional principal contracts such as swaps, credit card

receivables, including purchased credit card relationships, non-

interest-bearing balances due from depository institutions, cash

items in the process of collection, federal funds sold, securities

purchased under agreements to resell, assets held in a trading

account, securities, interests in a real estate mortgage investment

conduit, or other mortgage-backed or asset-backed security, and

other similar items.

(j) ~~(i)~~ "Loan secured by real property" means that 50% or more

of the aggregate value of the collateral used to secure a loan or

other obligation, when valued at fair market value as of the time

the original loan or obligation was incurred, was real property.

(k) ~~(j)~~ "Merchant discount" means the fee or negotiated

discount charged to a merchant by the financial institution for the

privilege of participating in a program whereby a credit card is

accepted in payment for merchandise or services sold to the credit

card holder.

(l) ~~(k)~~ "Michigan obligations" means a bond, note, or other

obligation issued by a governmental unit described in section 3 of

the shared credit rating act, 1985 PA 227, MCL 141.1053.

(m) (l) "Participation" means an extension of credit in which

an undivided ownership interest is held on a pro rata basis in a

single loan or pool of loans and related collateral. In a loan

participation, the credit originator initially makes the loan and

then subsequently resells all or a portion of it to other lenders.

The participation may or may not be known to the borrower.

(n) ~~(m)~~ "Principal base of operations", with respect to

transportation property, means the place of more or less permanent

nature from which said property is regularly directed or

controlled. With respect to an employee, the principal base of

operations means the place of more or less permanent nature from

which the employee regularly does any of the following:

(i) Starts his or her work and to which he or she customarily

returns in order to receive instructions from his or her employer.

(ii) Communicates with his or her customers or other persons.

(iii) Performs any other functions necessary to the exercise

of his or her trade or profession at some other point or points.

(o) ~~(n)~~ "Real property owned" and "tangible personal property

owned" mean real and tangible personal property respectively on

which the financial institution may claim depreciation for federal

income tax purposes or to which the financial institution holds

legal title and on which no other person may claim depreciation for

federal income tax purposes or could claim depreciation if subject

to federal income tax. Real and tangible personal properties do not

include coin, currency, or property acquired in lieu of or pursuant

to a foreclosure.

(p) ~~(o)~~ "Regular place of business" means an office at which

the financial institution carries on its business in a regular and

systematic manner and which is continuously maintained, occupied,

and used by employees of the financial institution. The financial

institution shall have the burden of proving that an investment

asset or activity or trading asset or activity was properly

assigned to a regular place of business outside of this state by

demonstrating that the day-to-day decisions regarding the asset or

activity occurred at a regular place of business outside this

state. Where the day-to-day decisions regarding an investment asset

or activity or trading asset or activity occur at more than 1

regular place of business and 1 such regular place of business is

in this state and 1 such regular place of business is outside this

state, such asset or activity shall be considered to be located at

the regular place of business of the financial institution where

the investment or trading policies or guidelines with respect to

the asset or activity are established. Unless the financial

institution demonstrates to the contrary, such policies and

guidelines shall be presumed to be established at the commercial

domicile of the financial institution.

(q) ~~(p)~~ "Rolling stock" means railroad freight or passenger

cars, locomotives, or other rail cars.

(r) ~~(q)~~ "Syndication" means an extension of credit in which 2

or more persons finance the credit and each person is at risk only

up to a specified percentage of the total extension of the credit

or up to a specified dollar amount.

(s) "Top-tiered parent entity" means the highest level entity

within the unitary business group that is required to file with a

regulatory agency under the standards prescribed by the FFIEC.

(t) "Total equity capital" means that same amount reported by

the financial institution or top-tiered parent entity, in the case

of a unitary business group of financial institutions, and as

reported for the tax year on any of the following forms or

successor forms listed in this section and designated by the FFIEC,

that are filed with the office of the comptroller of the currency,

the Federal Deposit Insurance Corporation, or the Federal Reserve

System:

(i) The consolidated financial statement for holding

companies, FR Y-9C.

(ii) The parent company only financial statements for small

holding companies, FR Y-9SP.

(iii) To the extent that FR Y-9C or FR Y-9SP are not filed for

the tax year, the consolidated reports of condition and income,

call reports, FFIEC 031, 032, 033, or 034.

(iv) A report similar in content and designated by the FFIEC.

(u) ~~(r)~~ "Transportation property" means vehicles and vessels

capable of moving under their own power, such as aircraft, trains,

water vessels, and motor vehicles, as well as any equipment or

containers attached to such property, such as rolling stock,

barges, or trailers.

(v) ~~(s)~~ "United States obligations" means all obligations of

the United States exempt from taxation under 31 USC 3124(a) or

exempt under the United States constitution or any federal statute,

including the obligations of any instrumentality or agency of the

United States that are exempt from state or local taxation under

the United States constitution or any statute of the United States.

Sec. 653. (1) Every financial institution with substantial

nexus in this state is subject to a franchise tax. The franchise

tax is imposed upon the tax base of the financial institution as

determined under section 655 after allocation or apportionment to

this state, at the rate of 0.29%.

(2) For purposes of this section, a financial institution has

substantial nexus in this state if the financial institution

satisfies any of the following:

(a) Has a physical presence in this state for a period of more

than 1 day during the tax year.

(b) Actively solicits sales in this state and has gross

receipts of $350,000.00 or more sourced to this state. As used in

this subdivision, "actively solicits" means that term as defined

under section 621.

flow-through entity, directly or indirectly through 1 or more other

flow-through entities, that has substantial nexus in this state as

provided under this section or section 621.

(3) The tax under this chapter is in lieu of the tax levied

and imposed under ~~chapter 11~~ chapters 11 and 12 of this part.

Sec. 655. (1) For a financial institution, ~~tax base means the~~

~~financial institution's net capital. Net capital means equity~~

~~capital as computed in accordance with generally accepted~~

~~accounting principles less the average daily book value of United~~

~~States obligations and Michigan obligations. If the financial~~

~~institution does not maintain its books and records in accordance~~

~~with generally accepted accounting principles, net capital shall be~~

~~computed in accordance with the books and records used by the~~

~~financial institution, so long as the method fairly reflects the~~

~~financial institution's net capital for purposes of the tax levied~~

~~by this chapter. Net capital does not include up to 125% of the~~

~~minimum regulatory capitalization requirements of a person subject~~

~~to the tax imposed under chapter 12.~~ the tax base is the total

equity capital of the financial institution or top-tiered parent

entity, in the case of a unitary business group of financial

institutions, and, to the extent that the following items are

included in total equity capital, deduct each of the following

before allocation or apportionment:

(a) The average daily book value of United States obligations

owned by members of the unitary business group.

(b) The average daily book value of Michigan obligations owned

by members of the unitary business group.

the equity capital of a person that is subject to the tax imposed

under chapter 12, not to exceed 125% of the minimum regulatory

capitalization requirements of the member. For purposes of this

subdivision, "equity capital" means equity capital as calculated in

accordance with generally accepted accounting principles.

(2) ~~Net capital~~ The tax base shall be determined ~~by adding the~~

~~financial institution's net capital~~ as of the close of the ~~current~~

tax year. ~~and preceding 4 tax years and dividing the resulting sum~~

~~by 5. If a financial institution has not been in existence for a~~

~~period of 5 tax years, net capital shall be determined by adding~~

~~together the financial institution's net capital for the number of~~

~~tax years the financial institution has been in existence and~~

~~dividing the resulting sum by the number of years the financial~~

~~institution has been in existence. For purposes of this section, a~~

~~partial year shall be treated as a full year.~~

~~(3) For a unitary business group of financial institutions,~~

~~net capital calculated under this section does not include the~~

~~investment of 1 member of the unitary business group in another~~

~~member of that unitary business group.~~

(3) ~~(4)~~ For purposes of this section, each of the following

applies:

(a) A change in identity, form, or place of organization of 1

financial institution shall be treated as if a single financial

institution had been in existence for the entire tax year in which

the change occurred and each tax year after the change.

(b) The combination of 2 or more financial institutions into 1

shall be treated as if the constituent financial institutions had

been a single financial institution in existence for the entire tax

year in which the combination occurred and each tax year after the

combination, and the book values and ~~deductions~~ adjustments for

United States obligations and Michigan obligations of the

constituent institutions shall be combined. A combination shall

include any acquisition required to be accounted for by the

surviving financial institution in accordance with generally

accepted accounting principles or a statutory merger or

consolidation.

group of financial institutions or a financial institution combined

return is subject to tax under chapter 11 or 12, any business

income or equity capital attributable to that person shall be

eliminated from the total equity capital of the unitary business

group and any sales or gross business attributable to that person

shall be eliminated from the apportionment formula under this

chapter.

Sec. 657. (1) Except as otherwise provided under this chapter,

the tax base of a financial institution whose business activities

are confined solely to this state shall be allocated to this state.

The tax base of a financial institution whose business activities

are subject to tax both within and outside of this state shall be

apportioned to this state by multiplying the tax base by the gross

business factor.

(2) A financial institution whose business activities are

subject to tax both within and outside of this state is subject to

tax in another state in either of the following circumstances:

(a) The financial institution is subject to a business

privilege tax, a net income tax, a franchise tax measured by net

income, a franchise tax for the privilege of doing business, or a

corporate stock tax or a tax of the type imposed under this part in

that state.

(b) That state has jurisdiction to subject the financial

institution to 1 or more of the taxes listed in subdivision (a)

regardless of whether that state does or does not subject the

financial institution to that tax.

(3) Except as otherwise provided in this subsection or

subsection (4), the gross business factor is a fraction, the

numerator of which is the total gross business of the financial

institution in this state during the tax year and the denominator

of which is the total gross business of the financial institution

everywhere during the tax year. The denominator shall not include

any gross business attributable to the foreign business of a

controlled foreign corporation.

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

~~financial institution that is included in a~~ unitary business group

of financial institutions, gross business includes gross business

in this state of every financial institution included in the

unitary business group without regard to whether the financial

institution has nexus in this state. Gross business between

financial institutions included in a unitary business group must be

eliminated in calculating the gross business factor.

(5) For a unitary business group of financial institutions,

the gross business factor shall include the gross business of all

members of the unitary group during the tax year. For those members

that were acquired or disposed of by the unitary business group

during the tax year, the gross business factor shall include the

gross business of the part-year member for that portion of the tax

year during which the member met the control and relationship

parameters under section 611(6), or for the portion of the tax year

for which the member filed as a part of an affiliated group under

section 691(2).

Enacting section 1. This amendatory act is effective for tax