Legislative & Regulatory
Tax, Tax, Tax
By John D. Lindley, MACPA Vice President of Government Relations & Regulatory Affairs

State tax issues have dominated the agendas of many in the Capitol over recent weeks – including the administration of Governor Rick Snyder, CPA, the State Legislature and the MACPA. Although some items have been more “headline grabbing” than others, all are clearly important to MACPA members, and their clients and employers.

MBT Elimination and Replacement
Thursday, May 12th saw the most significant overhaul of Michigan’s business and individual tax structures in years. With a final concurrence by the House of Representatives following a Senate vote, Gov. Snyder claimed victory on one of the major agenda items of his administration (and previously a major platform item for his campaign). He eliminated the Michigan Business Tax (MBT) and replaced it with a six-percent corporate income tax.

The S-5 Substitute for House Bill 4361 passed the Senate Thursday afternoon when Lt. Governor Brian Calley broke a 19-19 tie with his “yes” vote. All 12 Democratic senators voted “no.” They were joined by six Republicans including Jack Brandenburg (Harrison Township), Patrick Colbeck (Canton), Dave Hildenbrand (Lowell), Joe Hune (Hamburg), Rick Jones (Grand Ledge), Dave Roberston (Grand Blanc) and Tory Rocca (Sterling Heights).

Following the narrow vote on the Senate floor, the measure was returned to the House for concurrence where the rules were suspended and the House concurred in the Senate substitute 56-52. The package of legislation, also including HB 4362, HB 4479, HB 4480, HB 4481, HB 4482, HB 4483 and HB 4484, is awaiting the Governor’s signature.

Significant elements of the pending law, which become effective January 1, 2012, include:
  • Elimination of the MBT and imposition of a six-percent Corporate Income Tax (CIT) on C-Corporations
  • Elimination of all credits previously available under the MBT, with the exception of a small business credit.
  • Ability of taxpayers to elect to remain subject to the MBT instead of moving to the CIT, if said taxpayers have “certified credits” that extend beyond 2011.
  • Eliminate the Multistate Tax Compact apportionment election beginning January 1, 2011.
  • Elimination of most credits available under the Individual Income Tax.
  • Reduction in individual income tax rate from 4.35 percent to 4.25 percent effective January 1, 2013.
  • Narrowing of retirement income exemptions under the Individual Income Tax.
MBT Technical Corrections and Ambiguity Clarification Initiative
Beginning in earnest last fall, the MACPA’s leading MBT experts on the State & Local Tax Task Force and Business Tax Restructuring Subcommittee have been laboring on a legislative measure to correct some of the more glaring MBT technical issues and unintended consequences. A 10-page report encompassing 17 issues was finalized in late 2010 and has since developed into Senate Bill 369, introduced by Senate Finance Committee Chair Jack Brandenburg on May 10. With the goal of achieving some clarity in areas currently presenting ambiguities, the MACPA hopes to work with the Department of Treasury and the Legislature toward passing legislation before summer’s end.

Those issues addressed in the legislation, and the manner in which they are addressed, are likely to evolve over coming weeks. Questions regarding details or requests for more information should be directed to the MACPA Government Relations Department at legislation@michcpa.org or 248.267.3700.

Among the significant measures included in the legislation, as introduced, are:
  • Clarification of the treatment of personal investment income within the business income base (Senate Bill 368 is a companion bill amending the Revenue Act to provide the same clarity in the former Single Business Tax or SBT).
  • Clarification of the treatment of domestic and foreign disregarded entities under the MBT.
  • Clarification that “materials and supplies” has the plain meaning of tangible items consumed and not otherwise deducted as a component of purchases from other firm’s modified gross receipts base.

Tax Amnesty Program
Passed in conjunction with the fiscal year 2011 budget by the State Legislature and former Michigan Governor Jennifer Granholm, the 2011 Michigan Tax Amnesty Program is an opportunity for taxpayers to pay delinquent state taxes without penalties and without fear of criminal prosecution. The program runs from May 15 – June 30, 2011.

The Department of Treasury has recently released considerable guidance regarding the 2011 Amnesty Program, available online here. The information includes the amnesty application (Form 3855), an estimator and extensive frequently asked questions. Important to note, the Department’s interpretation of the amnesty provisions in the law allows for amnesty applications from those who are in the informal conference process, or currently litigating before the Michigan Tax Tribunal or Appellate courts. Taxpayers who are litigating before the Court of Claims or taxpayers under tax-related criminal investigation, prosecution or who have been convicted of a felony under the Michigan Revenue Act of Internal Revenue Code are not eligible.