Bill Text: MI HB4421 | 2009-2010 | 95th Legislature | Introduced

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Bill Title: Michigan business tax; tax base; income from certain dispositions of property in certain circumstances; exclude from business income tax base. Amends sec. 201 of 2007 PA 36 (MCL 208.1201).

Spectrum: Partisan Bill (Democrat 6-0)

Status: (Introduced - Dead) 2009-02-25 - Printed Bill Filed 02/25/2009 [HB4421 Detail]

Download: Michigan-2009-HB4421-Introduced.html

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HOUSE BILL No. 4421

 

February 24, 2009, Introduced by Reps. Switalski, Haugh, Scripps, Durhal, Bettie Scott and Young and referred to the Committee on Tax Policy.

 

     A bill to amend 2007 PA 36, entitled

 

"Michigan business tax act,"

 

by amending section 201 (MCL 208.1201), as amended by 2008 PA 168.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 201. (1) Except as otherwise provided in this act, there

 

is levied and imposed a business income tax on every taxpayer with

 

business activity within this state unless prohibited by 15 USC 381

 

to 384. The business income tax is imposed on the business income

 

tax base, after allocation or apportionment to this state, at the

 

rate of 4.95%.

 

     (2) The business income tax base means a taxpayer's business

 

income subject to the following adjustments, before allocation or

 

apportionment, and the adjustments in subsections (5), (6), and (7)

 

after allocation or apportionment:

 

     (a) Add interest income and dividends derived from obligations

 

or securities of states other than this state, in the same amount

 

that was excluded from federal taxable income, less the related

 

portion of expenses not deducted in computing federal taxable

 

income because of sections 265 and 291 of the internal revenue

 

code.

 

     (b) Add all taxes on or measured by net income and the tax

 

imposed under this act to the extent the taxes were deducted in

 

arriving at federal taxable income.

 

     (c) Add any carryback or carryover of a net operating loss to

 

the extent deducted in arriving at federal taxable income.

 

     (d) To the extent included in federal taxable income, deduct

 

dividends and royalties received from persons other than United

 

States persons and foreign operating entities, including, but not

 

limited to, amounts determined under section 78 of the internal

 

revenue code or sections 951 to 964 965 of the internal revenue

 

code.

 

     (e) To the extent included in federal taxable income, add the

 

loss or subtract the income from the business income tax base that

 

is attributable to another entity whose business activities are

 

taxable under this section or would be subject to the tax under

 

this section if the business activities were in this state.

 

     (f) Except as otherwise provided under this subdivision, to

 

the extent deducted in arriving at federal taxable income, add any

 

royalty, interest, or other expense paid to a person related to the

 

taxpayer by ownership or control for the use of an intangible asset

 

if the person is not included in the taxpayer's unitary business

 

group. The addition of any royalty, interest, or other expense

 

described under this subdivision is not required to be added if the

 

taxpayer can demonstrate that the transaction has a nontax business

 

purpose other than avoidance of this tax, is conducted with arm's-

 

length pricing and rates and terms as applied in accordance with

 

sections 482 and 1274(d) of the internal revenue code, and

 

satisfies 1 of the following:

 

     (i) Is a pass through of another transaction between a third

 

party and the related person with comparable rates and terms.

 

     (ii) Results in double taxation. For purposes of this

 

subparagraph, double taxation exists if the transaction is subject

 

to tax in another jurisdiction.

 

     (iii) Is unreasonable as determined by the treasurer, and the

 

taxpayer agrees that the addition would be unreasonable based on

 

the taxpayer's facts and circumstances.

 

     (g) To the extent included in federal taxable income, deduct

 

interest income derived from United States obligations.

 

     (h) To the extent included in federal taxable income, deduct

 

any earnings that are net earnings from self-employment as defined

 

under section 1402 of the internal revenue code of the taxpayer or

 

a partner or limited liability company member of the taxpayer

 

except to the extent that those net earnings represent a reasonable

 

return on capital.

 

     (i) Subject to the limitation provided under this subdivision,

 

if the book-tax differences for the first fiscal period ending

 

after July 12, 2007 result in a deferred liability for a person

 

subject to tax under this act, deduct the following percentages of

 

the total book-tax difference for each qualifying asset, for each

 

of the successive 15 tax years beginning with the 2015 tax year:

 

     (i) For the 2015 through 2019 tax years, 4%.

 

     (ii) For the 2020 through 2024 tax years, 6%.

 

     (iii) For the 2025 through 2029 tax years, 10%.

 

     (j) To the extent included in federal taxable income, deduct

 

any income derived from the cancellation of debt, or other

 

disposition of property, related to the foreclosure of property

 

owned by the taxpayer used in the taxpayer's regular business

 

activity or any other transaction such as a deed in lieu of

 

foreclosure or sale by a court-appointed receiver entered into

 

under the threat of foreclosure on property owned by the taxpayer

 

and used in the taxpayer's regular business activity.

 

     (3) The deduction under subsection (2)(i) shall not exceed the

 

amount necessary to offset the net deferred tax liability of the

 

taxpayer as computed in accordance with generally accepted

 

accounting principles which would otherwise result from the

 

imposition of the business income tax under this section and the

 

modified gross receipts tax under section 203 if the deduction

 

provided under this subdivision were not allowed. The deduction

 

under subsection (2)(i) is intended to flow through and reduce the

 

surcharge imposed and levied under section 281. For purposes of the

 

calculation of the deduction under subsection (2)(i), a book-tax

 

difference shall only be used once in the calculation of the

 

deduction arising from the taxpayer's business income tax base

 

under this section and once in the calculation of the deduction

 

arising from the taxpayer's modified gross receipts tax base under

 

section 203. The adjustment under subsection (2)(i) shall be

 

calculated without regard to the federal effect of the deduction.

 

If the adjustment under subsection (2)(i) is greater than the

 

taxpayer's business income tax base, any adjustment that is unused

 

may be carried forward and applied as an adjustment to the

 

taxpayer's business income tax base before apportionment in future

 

years. In order to claim this deduction, the department may require

 

the taxpayer to report the amount of this deduction on a form as

 

prescribed by the department that is to be filed on or after the

 

date that the first quarterly return and estimated payment are due

 

under this act. As used in subsection (2)(i) and this subsection:

 

     (a) "Book-tax difference" means the difference, if any,

 

between the person's qualifying asset's net book value shown on the

 

person's books and records for the first fiscal period ending after

 

July 12, 2007 and the qualifying asset's tax basis on that same

 

date.

 

     (b) "Qualifying asset" means any asset shown on the person's

 

books and records for the first fiscal period ending after July 12,

 

2007, in accordance with generally accepted accounting principles.

 

     (4) For purposes of subsections (2) and (3), the business

 

income of a unitary business group is the sum of the business

 

income of each person, other than a foreign operating entity or a

 

person subject to the tax imposed under chapter 2A or 2B, included

 

in the unitary business group less any items of income and related

 

deductions arising from transactions including dividends between

 

persons included in the unitary business group.

 

     (5) Deduct any available business loss incurred after December

 

31, 2007. As used in this subsection, "business loss" means a

 

negative business income taxable amount after allocation or

 

apportionment. The business loss shall be carried forward to the

 

year immediately succeeding the loss year as an offset to the

 

allocated or apportioned business income tax base, then

 

successively to the next 9 taxable years following the loss year or

 

until the loss is used up, whichever occurs first, but for not more

 

than 10 taxable years after the loss year.

 

     (6) Deduct any gain from the sale of any residential rental

 

units in this state to a qualified affordable housing project that

 

enters an agreement to operate the residential rental units as rent

 

restricted units for a minimum of 15 years. If the qualified

 

affordable housing project does not agree to operate all of the

 

residential rental units as rent restricted units, the deduction

 

under this subsection is limited to an amount equal to the gain

 

from the sale multiplied by a fraction, the numerator of which is

 

the number of those residential rental units purchased that are to

 

be operated as a rent restricted unit and the denominator is the

 

number of all residential rental units purchased. In order to claim

 

this deduction, the department may require the taxpayer and the

 

qualified affordable housing project to report the amount of this

 

deduction on a form as prescribed by the department that is to be

 

signed by both the taxpayer and the qualified affordable housing

 

project and filed with the taxpayer's annual return. The department

 

shall record a lien against the property subject to the operation

 

agreement for the total amount of the deduction allowed under this

 

subsection. The department shall notify the qualified affordable

 

housing project of the maximum amount of the lien that the

 

qualified affordable housing project may be liable for if the

 

qualified affordable housing project fails to qualify and operate

 

as provided in the operation agreement within 15 years after the

 

purchase. The lien shall become payable in an amount as provided

 

under this subsection to the state by the qualified affordable

 

housing project if the qualified affordable housing project fails

 

to qualify as a qualified affordable housing project and fails to

 

operate all or some of the residential rental units as rent

 

restricted units in accordance with the operation agreement entered

 

upon the purchase of those units within 15 years after the

 

deduction is claimed by a taxpayer under this subsection. An amount

 

equal to the product of 100% of the amount of the deduction allowed

 

under this subsection multiplied by a fraction, the numerator of

 

which is the difference between 15 and the number of years the

 

affordable housing project qualified and operated rent restricted

 

units in accordance with the agreement and the denominator is 15,

 

shall be added back to the tax liability of the qualified

 

affordable housing project for the tax year that the qualified

 

affordable housing project fails to comply with the agreement.

 

     (7) Subject to the limitations provided in this subsection,

 

for a person that is a qualified affordable housing project, deduct

 

an amount equal to the product of that person's taxable income that

 

is attributable to residential rental units in this state owned by

 

the qualified affordable housing project multiplied by a fraction,

 

the numerator of which is the number of rent restricted units in

 

this state owned by that qualified affordable housing project and

 

the denominator of which is the number of all residential rental

 

units in this state owned by the qualified affordable housing

 

project. The amount of the deduction calculated under this

 

subsection shall be reduced by the amount of limited dividends or

 

other distributions made to the partners, members, or shareholders

 

of the qualified affordable housing project. Taxable income that is

 

attributable to residential rental units does not include income

 

received by the management, construction, or development company

 

for completion and operation of the project and those rental units.

 

     (8) If a qualified an affordable housing project no longer

 

meets the requirements of satisfies the definition of a qualified

 

affordable housing project under subsection (9)(b) or fails to

 

operate those residential rental units as rent restricted units in

 

accordance with the operation agreement and the requirements of

 

described under subsection (9)(c), the taxpayer is entitled to the

 

deductions under subsections (6) and (7) as long as the qualified

 

affordable housing project continues to offer some of the

 

residential rental units purchased as rent restricted units in

 

accordance with the operation agreement.

 

     (9) For purposes of subsections (6), (7), and (8) and this

 

subsection:

 

     (a) "Limited dividend housing association" means a limited

 

dividend housing association, corporation, or cooperative organized

 

and qualified pursuant to chapter 7 of the state housing

 

development authority act of 1966, 1966 PA 346, MCL 125.1491 to

 

125.1496.

 

     (b) "Qualified affordable housing project" means a person that

 

is organized, qualified, and operated as a limited dividend housing

 

association that has a limitation on the amount of dividends or

 

other distributions that may be distributed to its owners in any

 

given year and has received funding, subsidies, grants, operating

 

support, or construction or permanent funding through 1 or more of

 

the following sources and programs:

 

     (i) Mortgage or other financing provided by the Michigan state

 

housing development authority created in section 21 of the state

 

housing development authority act of 1966, 1966 PA 346, MCL

 

125.1421, the United States department of housing and urban

 

development, the United States department of agriculture for rural

 

housing service, the Michigan interfaith housing trust fund,

 

Michigan housing and community development fund, federal home loan

 

bank, housing commission loan, community development financial

 

institution, or mortgage or other funding or guaranteed by Fannie,

 

Ginnie, federal housing association, United States department of

 

agriculture, or federal home loan mortgage corporation.

 

     (ii) A tax-exempt bond issued by a nonprofit organization,

 

local governmental unit, or other authority.

 

     (iii) A payment in lieu of tax agreement or other tax abatement.

 

     (iv) Funding from the state or a local governmental unit

 

through a HOME investments partnership program authorized under 42

 

USC 12741 to 12756.

 

     (v) A grant or other funding from a federal home loan bank's

 

affordable housing program.

 

     (vi) Financing or funding under the new markets tax credit

 

program under section 45D of the internal revenue code.

 

     (vii) Financed in whole or in part under the United States

 

department of housing and urban development's hope VI program as

 

authorized by section 803 of the national affordable housing act,

 

42 USC 8012.

 

     (viii) Financed in whole or in part under the United States

 

department of housing and urban development's section 202 program

 

authorized by section 202 of the national housing act, 12 USC

 

1701q.

 

     (ix) Financing or funding under the low-income housing tax

 

credit program under section 42 of the internal revenue code.

 

     (x) Financing or other subsidies from any new programs similar

 

to any of the above.

 

     (c) "Rent restricted unit" means any residential rental unit's

 

rental income is restricted in accordance with section 42(g)(1) of

 

the internal revenue code as if it was a qualified low-income

 

housing project, or receives rental assistance in the form of HUD

 

section 8 subsidies or HUD housing assistance program subsidies, or

 

rental assistance from the United States department of agriculture

 

rural housing programs, or from any of the other programs described

 

under subdivision (b).