SENATE BILL NO. 557

September 18, 2025, Introduced by Senators WEBBER, KLINEFELT, HUIZENGA and WOJNO and referred to Committee on Finance, Insurance, and Consumer Protection.

"Income tax act of 1967,"

(MCL 206.1 to 206.847) by adding sections 279 and 679.

the people of the state of michigan enact:

Sec. 279. (1) Subject to the limitations under this subsection, for tax years beginning on and after January 1, 2026 through December 31, 2029, a qualified taxpayer that is located in an aerospace defense zone or plans to relocate in or expand its current location in an aerospace defense zone may claim a credit against the tax imposed under this part equal to 30% of the qualified taxpayer's research and development expenses incurred in this state during the tax year that are in excess of the base amount as certified by the Michigan strategic fund. The Michigan strategic fund shall not approve and certify more than $100,000,000.00 in total tax credits under this subsection and section 679(1) for a single calendar year. The maximum amount of the credit allowed under this subsection must not exceed $10,000,000.00 per tax year per qualified taxpayer. A qualified taxpayer that claims a credit under this section is not prohibited from claiming a credit under section 717. However, the taxpayer shall not claim a credit under this section and section 717 based on the same research and development expenses.

(2) Subject to the limitations under this subsection, for tax years beginning on and after January 1, 2026 through December 31, 2029, a qualified taxpayer that is located in an aerospace defense zone or plans to relocate in or expand its current location in an aerospace defense zone may claim a credit against the tax imposed under this part equal to 20% of the qualified taxpayer's expenses incurred during the tax year that are attributable to the storage and maintenance of the qualified taxpayer's finished goods inventory. The Michigan strategic fund shall not approve and certify more than $25,000,000.00 in total tax credits under this subsection and section 679(2) for a single calendar year. The maximum amount of the credit allowed under this subsection must not exceed $1,000,000.00 per tax year per qualified taxpayer. For purposes of this subsection only, qualified taxpayer does not include a taxpayer designated under subsection (6)(d)(ii) and includes only a taxpayer designated under subsection (6)(d)(i) that has less than $5,000,000.00 in annual gross revenue.

(3) For a qualified taxpayer who is a member of a flow-through entity that qualifies for the credit under this section, that taxpayer may claim a credit against the member's tax liability under this part based on the member's distributive share of business income reported from that flow-through entity or an alternative method approved by the department.

(4) A qualified taxpayer shall not claim a credit under this section unless the Michigan strategic fund has issued a certificate to the qualified taxpayer. The qualified taxpayer shall attach the certificate received under section 88v of the Michigan strategic fund act, 1984 PA 270, MCL 125.2088v, to the annual return filed under this part on which a credit under this section is claimed.

(5) The credit allowed under this section must be claimed after all other allowable nonrefundable credits under this part. If the amount of the credit allowed under this section exceeds the tax liability of the qualified taxpayer for the tax year, that portion of the credit that exceeds the tax liability of the qualified taxpayer for the tax year may be refunded or carried forward to offset tax liability in subsequent tax years or until used up, whichever occurs first. Amounts carried forward do not affect the maximum amount of credits that may be claimed in subsequent tax years.

(6) As used in this section:

(a) "Aerospace defense zone" means an aerospace defense zone designated under section 88v of the Michigan strategic fund act, 1984 PA 270, MCL 125.2088v.

(b) "Base amount" means the average amount of research and development expenses incurred in this state for the 3 tax years immediately preceding the tax year for which the credit is being claimed under this section.

(c) "Michigan strategic fund" means the Michigan strategic fund created under section 5 of the Michigan strategic fund act, 1984 PA 270, MCL 125.2005.

(d) "Qualified taxpayer" means a taxpayer that was designated as a qualified business by the Michigan strategic fund under the aerospace defense incentive program created under section 88v of the Michigan strategic fund act, 1984 PA 270, MCL 125.2088v, as either of the following:

(i) A business whose primary business activity is defense contracting, aerospace defense, aerospace equipment manufacturing, or other aerospace and defense technology activities.

(ii) A business that is a tier 1, tier 2, or tier 3 defense supplier, aerospace supplier, aerospace defense supplier, or aerospace defense contractor with less than $5,000,000.00 in annual gross revenue.

(e) "Research and development expenses" means qualified research expenses as that term is defined in section 41(b) of the internal revenue code.

Sec. 679. (1) Subject to the limitations under this subsection, for tax years beginning on and after January 1, 2026 through December 31, 2029, a qualified taxpayer that is located in an aerospace defense zone or plans to relocate in or expand its current location in an aerospace defense zone may claim a credit against the tax imposed under this part equal to 30% of the qualified taxpayer's research and development expenses incurred in this state during the tax year that are in excess of the base amount as certified by the Michigan strategic fund. The Michigan strategic fund shall not approve and certify more than $100,000,000.00 in total tax credits under this subsection or section 279(1) for a single calendar year. The maximum amount of the credit allowed under this subsection must not exceed $10,000,000.00 per tax year per qualified taxpayer. A qualified taxpayer that claims a credit under this section is not prohibited from claiming a credit under section 677. However, the taxpayer shall not claim a credit under this section and section 677 based on the same research and development expenses.

(2) Subject to the limitations under this subsection, for tax years beginning on and after January 1, 2026 through December 31, 2029, a qualified taxpayer that is located in an aerospace defense zone or plans to relocate in or expand its current location in an aerospace defense zone may claim a credit against the tax imposed under this part equal to 20% of the qualified taxpayer's expenses incurred during the tax year that are attributable to the storage and maintenance of the qualified taxpayer's finished goods inventory. The Michigan strategic fund shall not approve and certify more than $25,000,000.00 in total tax credits under this subsection and section 279(2) for a single calendar year. The maximum amount of the credit allowed under this subsection must not exceed $1,000,000.00 per tax year per qualified taxpayer. For purposes of this subsection only, qualified taxpayer does not include a taxpayer designated under subsection (6)(d)(ii) and includes only a taxpayer designated under subsection (6)(d)(i) that has less than $5,000,000.00 in annual gross revenue.

(3) A qualified taxpayer shall not claim a credit under this section unless the Michigan strategic fund has issued a certificate to the qualified taxpayer. The qualified taxpayer shall attach the certificate received under section 88v of the Michigan strategic fund act, 1984 PA 270, MCL 125.2088v, to the annual return filed under this part on which a credit under this section is claimed.

(4) The credit allowed under this section must be claimed after all other allowable nonrefundable credits under this part. If the amount of the credit allowed under this section exceeds the tax liability of the qualified taxpayer for the tax year, that portion of the credit that exceeds the tax liability of the qualified taxpayer for the tax year may be refunded or carried forward to offset tax liability in subsequent tax years for 5 years or until used up, whichever occurs first. Amounts carried forward do not affect the maximum amount of credits that may be claimed in subsequent tax years.

(5) By July 1 of each year, the department, in cooperation with the Michigan strategic fund, shall submit to each member of the legislature, the governor, the clerk of the house of representatives, the secretary of the senate, and the senate and house fiscal agencies an annual report concerning the operation and effectiveness of the tax credits created under this section and section 279. The report shall include all of the following:

(a) A brief assessment of the overall effectiveness of the aerospace defense incentive program created under section 88v of the Michigan strategic fund act, 1984 PA 270, MCL 125.2088v, and the tax credits created under this section and section 279. The department may use the applicable provisions of the economic development incentive evaluation prepared under the economic development incentive evaluation act, 2018 PA 540, MCL 18.1751 to 18.1759, to satisfy this subdivision.

(b) The number of businesses applying and filing tentative claims for a tax credit for the immediately preceding calendar year.

(c) The name of each qualified taxpayer submitting claims for a credit with an annual return and the amount of the tax credit allowed for the immediately preceding calendar year.

(6) As used in this section:

(a) "Aerospace defense zone" means an aerospace defense zone designated under section 88v of the Michigan strategic fund act, 1984 PA 270, MCL 125.2088v.

(c) "Michigan strategic fund" means the Michigan strategic fund created under section 5 of the Michigan strategic fund act, 1984 PA 270, MCL 125.2005.

(i) A business whose primary business activity is defense contracting, aerospace defense, aerospace equipment manufacturing, or other aerospace and defense technology activities.

(e) "Research and development expenses" means qualified research expenses as that term is defined in section 41(b) of the internal revenue code.

Enacting section 1. This amendatory act does not take effect unless Senate Bill No. ____ (request no. S00386'25) or House Bill No. ____ (request no. H00386'25) of the 103rd Legislature is enacted into law.