The Michigan Business Tax (MBT) was created by enactment of the "Michigan Business Tax Act" (MBTA), Public Act 36 of 2007, signed into law on July 12, 2007. The date of enactment was January 1, 2008, and the MBT applies to all Michigan business activity occurring after December 31, 2007 [2007 P.A. 36 Enacting Section 1].
The MBT is a combination of four different taxes:
· Business income tax
· Modified gross receipts tax
· Gross premiums tax on insurance companies
· Net worth tax on financial institutions
Most companies pay both of the first two taxes. Insurance companies and financial institutions, on the other hand, pay special taxes in lieu of the other two.
The small business credit provisions [MCL 208.36] from the Single Business Tax (SBT) [1975 P.A. 228] have been retained in the MBT and greatly expanded. Taxpayers who qualify for the small business credit simply pay an alternate tax equal to 1.8% of adjusted business income and they may file a short form tax return [form 4583].
The MBT also includes over fifty credits that reward Michigan business activity. The compensation credit, investment tax credit, research and development credit, technology innovation credit and the entrepreneurial credit are available only when the taxpayer is engaged in a business activity in Michigan. Many of the credits in the MBT were brought over from the SBT.
The nexus, apportionment, and unitary filing provisions are designed to extend the reach of the tax beyond Michigan's borders. The physical presence nexus standard of the SBT has been extended to include an economic nexus standard. The MBT is apportioned by a single-factor, sales only, apportionment formula.
Sales are sourced to Michigan on a destination basis:
Tangible personal property if the point the property ultimately comes to rest, and
Services where the benefit is received by the purchaser.
The biggest change in the MBT from the SBT is the statutory enactment of the unitary concept. Under the single return filing methodology of the SBT, multistate companies could avoid the SBT or pay just a small tax by utilizing planning techniques. The MBT's unitary business group concept renders these planning techniques useless and thereby expands the reach of the MBT to multistate and multinational companies that exploit the Michigan market and have sales into the state of Michigan.
The MBT is a unique form of taxation imposed on Michigan business activity unlike any other in this country or elsewhere. It combines a multilayered taxation system with a series of deductions and credits "to improve the economic condition of this state, foster continued and diverse economic growth in this state, and enable this state to compete fairly and effectively in the world marketplace for economic development opportunities that will provide for and protect the health, safety, and welfare of the citizens of this state, now and in the future" [2007 P.A. 36, § 101(2) MCL 208.1101(2)].
