The Michigan Business Tax (MBT) will be no more on January 1, 2012. The controversial tax and surcharge on gross receipts and income was repealed in May in favor of a Corporate Income Tax (CIT) effective January 1, 2012. The CIT is set at a flat six percent rate and will be levied on C Corporations. Pass-through entities are to be taxed according to the ultimate owner and subject to new withholding rules.
In addition, losses generated under the MBT will not be allowed to offset CIT tax, and most business tax credits are being repealed. The tax on insurance companies and financial institutions will remain largely the same. For companies on a fiscal year, the CIT will require both an MBT and CIT calculation for the tax year that contains the January 1, 2012 date.
The current nexus standard and mandatory combined reporting requirements will remain in place. The standard is more than one day of physical presence, or “active solicitation” and $350,000 of Michigan sourced gross receipts. In addition, single-sales factor apportionment was retained with a slight modification to disallow the Multistate Tax Compact (MTC) three-factor apportionment formula. Until further notice, the Kmart decision, which requires a federal disregarded entity to be treated as a reportable entity on a Michigan combined, unitary schedule, has not been repealed.
According to an analysis by the nonpartisan House Fiscal Agency, Michigan’s business tax revenue is estimated to drop by approximately $1.2 billion in fiscal 2013, but increase by $1.5 billion for individual income tax revenue. Businesses widely supported the flat rate, and see the change to an objective, more competitive business tax as good for job creation.
Questions on this and other Michigan state tax changes can be directed to Meredith Theiss at 720-227-0064 or mtheiss@taxops.com.
