Business Tax Proposal Creates Reaction from Business Community
The following is from MIRS Weekly Report. I am providing it in the interest of transparency. The future business tax system for Michigan is of upmost importance to Michigan CPAs and their clients.
Gov. Rick SNYDER's administration gave business groups a peek of its vision of a stripped-down six-percent corporate income tax that eliminates the MEGA, brownfield, film and every other state business tax credit outside of one small business tax credit.
The proposed "Michigan Corporate Income Tax" would replace the Michigan's Business Tax's (MBT) 4.95 income tax rate, .8 percent gross receipts tax and 21.99 percent surcharge. The tax would apply to any in-state company with sales over $350,000, the same floor set by the MBT, which represents roughly a quarter of Michigan businesses.
One source told MIRS that under the Snyder proposal "all lobbyists would be starting from scratch in getting their credits back."
However, it also is consistent with Snyder's campaign pledge to create a simplified corporate income tax. Only 29-pages long, the proposal eliminates the current situation where certain companies are given massive credits against the comparatively large MBT.
Also, as promised, the proposed Michigan Corporate Income Tax would bring in the ballpark of the $1.5 billion less than the MBT brings in.
"The Governor said during the campaign that he wanted to create a much more simple tax," the source said. "He does that with this."
The proposal's lone tax credit is for small business with receipts lower than $20 million and adjusted (income minus allowed deductions) of less than $1.3 million. If Snyder did not create this tax credit these particular small businesses would be see their income tax tripled.
According to Rich STUDLEY, president of the Michigan Chamber of Commerce, the group met with the administration regarding the tax.
"Our understanding is, it's a preliminary or rough draft," Studley said. "I think it's an encouraging sign that the new administration is really trying to flush out the details of their proposal in writing and is circulating a draft to taxpayers."
Studley said the Chamber will be reviewing the proposal with its tax committee but that at first blush the proposal does attempt "to accomplish all they said they were going to do."
"Our new governor was a CPA and a business man, every meeting of ours with the Governor has shown he has a really high level of personal knowledge," Studley added. "It's really very impressive."
Chuck HADDEN of the Michigan Manufacturers Association (MMA) said his group's members are also reviewing the draft proposal to its members.
As written, the tax does not touch the personal property tax on business or the current credit written into that law, leaving that aspect of business tax with the property tax portion of state law.
That means the School Aid Fund isn't specifically reimbursed for the personal property tax exemptions under this draft proposal.
One of the industry sectors always wary of business tax rewrites is the state's insurance industry.
The proposal mimics nearly word for word the treatment insurance companies in Michigan receive under the current Michigan Business Tax (MBT) that protects them from a "retaliatory tax."
Under a retaliatory tax, if Michigan's business tax on insurance companies goes up, companies domiciled here must pay the same higher tax rate to other states. Under the 29-page draft tax proposal being circulated, those companies would be subject to the same 1.25 percent tax on gross premiums they currently pay under the MBT.
Some in the insurance industry also were looking to see if long-standing credits for industry contributions to so-called "guarantee" funds were included. Under existing law, when an insurance company goes under -- other companies must stand in and cover the policies and obligations of the failed firm.
Under the current MBT, when that happens companies are allowed to write off the contributions they make to those guarantee funds. In some years, without those credits, insurance companies could see a fairly substantial tax increase.
As drafted, the tax applies to corporations that:
- Have $350,000 in sales sourced to the state of Michigan
- Has a physical presence (any activity conducted by the taxpayer or on the taxpayers behalf) in the state more than one day a year
- The proposal would apply a financial institutions franchise tax for qualifying entities however the rate of the franchise tax is left blank in the draft proposal.