|
|
|
            
|
 Governor Gives Nod to MBT After countless hours of work-group meetings and a debate that often
turned nasty, the Michigan Legislature overwhelmingly approved a new
business tax structure. The Michigan Business Tax (MBT) became law with the
Governor’s signature on July 12. The MBT replaces the expiring Single
Business Tax (SBT) on January 1, 2008.
Viewed as a hybrid of plans introduced by the House and Senate, the MBT captures the House’s priority in the Personal Property Tax relief it provides. Further, it reflects the Senate’s preference for a combined gross receipts and business income tax base. Policymakers expect the new tax structure to be more competitive and quickly attract business to Michigan, mostly based on the rewards it provides through a credit system for investing in the state. An analysis, compiled by the House Fiscal Agency, is available here. The MBT calls for a tax on 0.80 percent of a taxpayer's modified gross receipts and 4.95 percent of a taxpayer's business income. As approved, for both bases, the tax package imposes a unitary combined reporting system, a single sales factor apportionment formula, expanded "active solicitation" economic nexus standards, and new credits for wages, investment and research and development activity within the state. It also provides that neither financial institutions nor insurance companies will be subject to these taxes, and instead financial institutions will pay a tax on their net capital and insurance companies will pay on gross direct premiums. The act takes effect on January 1, 2008, and applies to all business activity occurring after December 31, 2007. "Modified gross receipts" is generally defined as gross receipts less purchases of tangible personal property from other firms, including both inventory and capital assets. This unique tax has aspects of a value added tax, but unlike a VAT it does not allow a deduction for the purchase of services other than in limited instances, such as for services purchased by real estate contractors. The definition of gross receipts is largely carried over from the SBT, but since there was limited guidance under the SBT related to that definition, significant questions exist regarding the inclusion of certain items of receipts under this tax base. Many of the expected points of controversy and potential technical corrections relate to this novel component of the new tax structure. There are a number of other aspects of the bill that are controversial and raise technical issues. The adoption of a unitary filing requirement presents a host of new challenges for taxpayers, since it is a dramatic departure from the former SBT separate entity and elective combination provisions. This will present particular challenges for non-corporate entities under common control that could be required to file on a combined basis. Other points of controversy include the adoption of a broad economic nexus standard, the lack of a non-business income or casual transaction provision in the income tax, and the adoption of new market-based sourcing rules for apportionment purposes that differ in many respects from the former SBT provisions. There are also important questions regarding the appropriate financial reporting treatment of the new tax, including whether the modified gross receipts tax should be accounted for as an income tax under FAS 109. A relief provision is also being sought immediately for companies in a net deferred tax liability position to relieve the impact on book earnings from the implementation of the new tax. Public companies will need to address these issues in the current accounting period, including the impact of any deferred liability relief which is enacted, and will likely be seeking the assistance of their audit firms in determining the appropriate accounting treatment. The Michigan Association of CPAs was intimately involved, down to the last minute, lobbying to ensure the balanced treatment of partnerships and other flow-through entities. The original proposal would have been detrimental to many MACPA members by not permitting a deduction for the income of partners and LLC members comparable to the deduction available to S Corporation shareholders. The bill provides a deduction from the income tax for the earnings of partners and LLC members subject to self employment tax, less amounts representing a "reasonable return of capital." The determination of the "reasonable return of capital" adjustment is another issue expected to generate some controversy. To provide a valuable resource to members, the MACPA has designed an online Q & A forum where practitioners can submit questions on the MBT that will be answered by volunteer CPAs well versed in the new law. Additionally, the Michigan chapter of the National Federation of Independent Businesses (NFIB) has released an MBT calculator on their web site. In coming weeks, the MACPA will be developing workshops, seminars and other CPE on the MBT, including the 1st Annual Michigan Tax Conference scheduled for November 7 and 8. Watch E-Lert and the MACPA web site for updates. |
 |
  |
|||||||||||||||
|
| PO Box 5068 Troy, MI 48007-5068 Phone: 248.267.3700 Fax: 248.267.3737 E-mail: macpa@michcpa.org | |
