Technical Amendments Pushed by the MACPA is Intended to Clarify Current Law
Legislation that will clarify several issues with the Michigan Business Tax (MBT) is sitting on the Senate floor. There is a difference of opinion on what the cost will be to the state Treasury.
Senate Bill 1037 was introduced in response to various MBT issues that the Michigan Association of Certified Public Accountants (MACPA) and Certified Public Accountants couldn't get cleared up with the Department of Treasury after implementation of the MBT in 2008.
With various businesses threatening to sue or take the state to court over the discrepancies, Senate Bill 1037 was introduced to prevent lawsuits. Senators were concerned that the litigation resulting from current law would cost the state more than $125 million. If action isn't taken soon, the lawsuits will be coming. Although the MBT is a dead tax, repealed last year, businesses are facing audits of their 2008 returns. Audits being completed in 2012 could cover four years of MBT returns. Businesses fear the potential issues and how they they affect their reporting of their MBT tax base.
The legislation, which deals mostly with "purchases from other firms" should not cost the state additional revenue because the technical amendments merely clarify the original legislative intent. However, the Department of Treasury isn't so sure. The Department of Treasury is opposed to the bill and has fought several other attempts to clarify the law. They point to a Senate Fiscal Agency (SFA) analysis, that says Senate Bill 1037 would reduce General Fund revenue by an "unknown and likely significant amount." One might ask, how can they say revenue will be reduced by a significant amount when it is unknown.
The bill excludes certain items from the tax base, increases the value of some deductions and alters the calculation on certain credits. Added all together, the change dealing with a change in the definition of materials and supplies could cost the state as much as $440 million because it would be retroactive, according to Treasury numbers.
Business owners who prepared, filed and paid the MBT based on the literal reading of the law may be underpaid and consequently may be facing large audit tax deficiencies. On the other hand, business owners who prepared, filed and paid the MBT based on the department of treasury interpretation of the law may be overpaid and entitled to refunds. The department of treasury fears the refunds which could go back to 2008. The retroactive aspects of the bill will hit the state's budget in fiscal year 2012. The Treasury Public Information Officer Terry Stanton said: "It carries a substantial potential cost."