Bill Text: MI HB5376 | 2023-2024 | 102nd Legislature | Introduced
Bill Title: Corporate income tax: business income; definition of federal taxable income and adjustments to income tax base; modify. Amends secs. 607 & 623 of 1967 PA 281 (MCL 206.607 & 206.623).
Spectrum: Partisan Bill (Republican 6-0)
Status: (Introduced) 2023-12-31 - Bill Electronically Reproduced 11/14/2023 [HB5376 Detail]
Download: Michigan-2023-HB5376-Introduced.html
HOUSE BILL NO. 5376
A bill to amend 1967 PA 281, entitled
"Income tax act of 1967,"
by amending sections 607 and 623 (MCL 206.607 and 206.623), section 607 as amended by 2018 PA 38 and section 623 as amended by 2021 PA 135.
the people of the state of michigan enact:
Sec. 607. (1) "Federal taxable income" means, for tax years before the 2023 tax year, taxable income as defined in section 63 of the internal revenue code, except that federal taxable income shall be calculated as if section 168(k) and section 199 of the internal revenue code were not in effect. For the 2023 tax year and each tax year after 2023, "federal taxable income" means taxable income as defined in section 63 of the internal revenue code.
(2) "Flow-through entity" means an entity that for the applicable tax year is treated as a subchapter S corporation under section 1362(a) of the internal revenue code, a general partnership, a trust, a limited partnership, a limited liability partnership, or a limited liability company, that for the tax year is not taxed as a corporation for federal income tax purposes. Flow-through entity does not include any entity disregarded under section 699.
(3) "Foreign operating entity" means a United States corporation that satisfies each of the following:
(a) Would otherwise be a part of a unitary business group that has at least 1 corporation included in the unitary business group that is taxable in this state.
(b) Has substantial operations outside the United States, the District of Columbia, any territory or possession of the United States except for the Commonwealth of Puerto Rico, or a political subdivision of any of the foregoing.
(c) At least 80% of its income is active foreign business income as defined in section 861(c)(1)(B) 871(l)(1)(B)(ii) of the internal revenue code.
(4) "Gross receipts" means the entire amount received by the taxpayer from any activity whether in intrastate, interstate, or foreign commerce carried on for direct or indirect gain, benefit, or advantage to the taxpayer or to others except for the following:
(a) Proceeds from sales by a principal that the taxpayer collects in an agency capacity solely on behalf of the principal and delivers to the principal.
(b) Amounts received by the taxpayer as an agent solely on behalf of the principal that are expended by the taxpayer for any of the following:
(i) The performance of a service by a third party for the benefit of the principal that is required by law to be performed by a licensed person.
(ii) The performance of a service by a third party for the benefit of the principal that the taxpayer has not undertaken a contractual duty to perform.
(iii) Principal and interest under a mortgage loan or land contract, lease or rental payments, or taxes, utilities, or insurance premiums relating to real or personal property owned or leased by the principal.
(iv) A capital asset of a type that is, or under the internal revenue code will become, eligible for depreciation, amortization, or accelerated cost recovery by the principal for federal income tax purposes, or for real property owned or leased by the principal.
(v) Property not described under subparagraph (iv) purchased by the taxpayer on behalf of the principal and that the taxpayer does not take title to or use in the course of performing its contractual business activities.
(vi) Fees, taxes, assessments, levies, fines, penalties, or other payments established by law that are paid to a governmental entity and that are the legal obligation of the principal.
(c) Amounts that are excluded from gross income of a foreign corporation engaged in the international operation of aircraft under section 883(a) of the internal revenue code.
(d) Amounts received by an advertising agency used to acquire advertising media time, space, production, or talent on behalf of another person.
(e) Notwithstanding any other provision of this section, amounts received by a taxpayer that manages real property owned by the taxpayer's client that are deposited into a separate account kept in the name of the taxpayer's client and that are not reimbursements to the taxpayer and are not indirect payments for management services that the taxpayer provides to that client.
(f) Proceeds from the taxpayer's transfer of an account receivable if the sale that generated the account receivable was included in gross receipts for federal income tax purposes. This subdivision does not apply to a taxpayer that during the tax year both buys and sells any receivables.
(g) Proceeds from any of the following:
(i) The original issue of stock or equity instruments.
(ii) The original issue of debt instruments.
(h) Refunds from returned merchandise.
(i) Cash and in-kind discounts.
(j) Trade discounts.
(k) Federal, state, or local tax refunds.
(l) Security deposits.
(m) Payment of the principal portion of loans.
(n) Value of property received in a like-kind exchange.
(o) Proceeds from a sale, transaction, exchange, involuntary conversion, or other disposition of tangible, intangible, or real property that is a capital asset as defined in section 1221(a) of the internal revenue code or land that qualifies as property used in the trade or business as defined in section 1231(b) of the internal revenue code, less any gain from the disposition to the extent that gain is included in federal taxable income.
(p) The proceeds from a policy of insurance, a settlement of a claim, or a judgment in a civil action less any proceeds under this subdivision that are included in federal taxable income.
(5) "Insurance company" means an authorized insurer as defined in section 108 of the insurance code of 1956, 1956 PA 218, MCL 500.108. Insurance company does not include a health maintenance organization authorized under chapter 35 of the insurance code of 1956, 1956 PA 218, MCL 500.3501 to 500.3573.
(6) "Internal revenue code" means the United States internal revenue code of 1986 in effect on January 1, 2018 2023 or, at the option of the taxpayer, in effect for the tax year.
(7) "Member", when used in reference to a flow-through entity, means a shareholder of a subchapter S corporation, a partner in a general partnership, a limited partnership, or a limited liability partnership, a member of a limited liability company, or a beneficiary of a trust that is a flow-through entity.
Sec. 623. (1) Except as otherwise provided in this part, there is levied and imposed a corporate income tax on every taxpayer with business activity within this state or ownership interest or beneficial interest in a flow-through entity that has business activity in this state unless prohibited by 15 USC 381 to 384. The corporate income tax is imposed on the corporate income tax base, after allocation or apportionment to this state, at the rate of 6.0%.
(2) The corporate income tax base means a taxpayer's business income subject to the following adjustments in this subsection and subsection (3), before allocation or apportionment, and the adjustment in subsection (4) (5) 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 including the tax imposed under this part to the extent that the taxes were deducted in arriving at federal taxable income including any direct or indirect allocated share of taxes paid by a flow-through entity under part 4.
(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 965 of the internal revenue code.
(e) 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, 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 1 of the following is true:
(i) The transaction is a pass through of another transaction between a third party and the related person with comparable rates and terms.
(ii) An addition would result in double taxation. For purposes of this subparagraph, double taxation exists if the transaction is subject to tax in another jurisdiction.
(iii) An addition would be unreasonable as determined by the state treasurer.
(iv) The related person recipient of the transaction is organized under the laws of a foreign nation which has in force a comprehensive income tax treaty with the United States.
(f) To the extent included in federal taxable income, deduct interest income derived from United States obligations.
(g) Eliminate all of the following:
(i) Income from producing oil and gas to the extent included in federal taxable income.
(ii) Expenses of producing oil and gas to the extent deducted in arriving at federal taxable income.
(h) For a qualified taxpayer, eliminate all of the following:
(i) Income derived from a mineral to the extent included in federal taxable income.
(ii) Expenses related to the income deductible under subparagraph (i) to the extent deducted in arriving at federal taxable income.
(3) Beginning on and after January 1, 2023, and subject to the limitations under this subsection, to the extent included in federal taxable income, deduct expenditures for business assets that are qualified property or qualified improvement property that are eligible for 100% bonus depreciation as an expense incurred by the taxpayer during the tax year during which the property is placed in service, notwithstanding any changes to federal law related to cost recovery beginning on January 1, 2023, or on any other date. A taxpayer may alternatively treat the depreciation of those business assets in accordance with the schedule provided in section 168 of the internal revenue code. A taxpayer may make an election whether to take a bonus depreciation deduction for those expenditures or to depreciate the expenditures in accordance with section 168 of the internal revenue code, or both. An election under this subsection may be made for any tax year as long as the election is made before the annual due date of the taxpayer's annual or final return, including any extension of time to file the return as provided under section 685. The method elected by the taxpayer is irrevocable unless the treasurer specifically allows a change in the method. In any tax year in which any section 179 property is placed in service, a taxpayer may elect to treat the cost of that property as an expense that is not chargeable to a capital account, and that cost may be deducted for that year and the deduction must conform to section 179 of the internal revenue code in effect for that year. The total of any method or combination of methods of depreciation used to calculate a deduction under this subsection must not exceed 100% of the cost of the subject property.
(4) (3) For purposes of subsection subsections (2) and (3), the business income of a unitary business group is the sum of the business income of each person 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) (4) Deduct any available business loss incurred after December 31, 2011. As used in this subsection, "business loss" means a negative business income taxable amount after allocation or apportionment. For purposes of this subsection, a taxpayer that acquires the assets of another corporation in a transaction described under section 381(a)(1) or (2) of the internal revenue code may deduct any business loss attributable to that distributor or transferor corporation. The business loss shall be carried forward to the year immediately succeeding the loss year as an offset to the allocated or apportioned corporate 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.
(6) (5) As used in this section: , "oil
(a) "Oil and gas" means oil and gas that is subject to severance tax under 1929 PA 48, MCL 205.301 to 205.317.
(b) "Qualified property" and "qualified improvement property" mean those terms as defined in section 168 of the internal revenue code as it existed on January 1, 2021, and apply to property placed in service after December 31, 2022.
(c) "Section 179 property" means that term as defined in section 179 of the internal revenue code.
Enacting section 1. This amendatory act is intended to be retroactive and applies retroactively to all business activity occurring on and after January 1, 2023.
