Bill Text: MI SB0516 | 2013-2014 | 97th Legislature | Engrossed

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Bill Title: Corporate income tax; financial institutions; certain foreign corporations, tax base, and unitary filing provisions; revise. Amends secs. 651, 653, 655 & 657 of 1967 PA 281 (MCL 206.651 et seq.).

Spectrum: Partisan Bill (Republican 2-0)

Status: (Engrossed - Dead) 2014-03-12 - Referred To Second Reading [SB0516 Detail]

Download: Michigan-2013-SB0516-Engrossed.html

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SB-0516, As Passed Senate, December 4, 2013

 

 

 

 

 

 

 

 

 

 

 

SUBSTITUTE FOR

 

SENATE BILL NO. 516

 

 

 

 

 

 

 

 

 

 

 

     A bill to amend 1967 PA 281, entitled

 

"Income tax act of 1967,"

 

by amending sections 651, 655, and 657 (MCL 206.651, 206.655, and

 

206.657), section 651 as amended by 2011 PA 171 and sections 655

 

and 657 as added by 2011 PA 38.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 651. As used in this chapter:

 

     (a) "Applicable controlled foreign corporation" means a

 

controlled foreign corporation that satisfies all of the following:

 

     (i) The financial institution owns greater than 50% of the

 

outstanding interest in the controlled foreign corporation.

 

     (ii) Consolidated financial reporting is required under

 

generally accepted accounting principles.

 

     (b) (a) "Billing address" means the location indicated in the

 

books and records of the financial institution on the first day of

 

the tax year or on a later date in the tax year when the customer

 

relationship began as the address where any notice, statement, or

 

bill relating to a customer's account is mailed.

 

     (c) (b) "Borrower is located in this state" or "credit card

 

holder is located in this state" means a borrower, other than a

 

credit card holder, that is engaged in a trade or business which

 

maintains its commercial domicile in this state, or a borrower that

 

is not engaged in a trade or business or a credit card holder whose

 

billing address is in this state.

 

     (d) (c) "Commercial domicile" means the headquarters of the

 

trade or business, that is the place from which the trade or

 

business is principally managed and directed, or if a financial

 

institution is organized under the laws of a foreign country, of

 

the Commonwealth of Puerto Rico, or any territory or possession of

 

the United States, such financial institution's commercial domicile

 

shall be deemed for the purposes of this chapter to be the state of

 

the United States or the District of Columbia from which such

 

financial institution's trade or business in the United States is

 

principally managed and directed. It shall be presumed, subject to

 

rebuttal, that the location from which the financial institution's

 

trade or business is principally managed and directed is the state

 

of the United States or the District of Columbia to which the

 

greatest number of employees are regularly connected or out of

 

which they are working, irrespective of where the services of such

 

employees are performed, as of the last day of the tax year.

 

     (e) "Controlled foreign corporation" means that term as

 

defined in section 957 of the internal revenue code.

 

     (f) (d) "Credit card" means a credit, travel, or entertainment

 

card.

 

     (g) (e) "Credit card issuer's reimbursement fee" means the fee

 

a financial institution receives from a merchant's bank because 1

 

of the persons to whom the financial institution has issued a

 

credit card has charged merchandise or services to the credit card.

 

     (h) "Equity capital" means, for a financial institution that

 

is not a member of a unitary business group, the total equity

 

capital of the financial institution, and for a unitary business

 

group, the total equity capital of the top-tiered parent entity of

 

the unitary business group, as of the last day of the tax year as

 

reported on any of the following forms, or successor forms

 

designated by the FFIEC, that are filed with the office of the

 

comptroller of the currency, the federal deposit insurance

 

corporation, or the federal reserve system by the financial

 

institution or the top-tiered parent entity of the unitary business

 

group:

 

     (i) The consolidated financial statement for holding companies,

 

FR Y-9C.

 

     (ii) The parent company only financial statements for small

 

holding companies, FR Y-9SP.

 

     (iii) The consolidated reports of condition and income, call

 

reports.

 

     (i) "FFIEC" means the federal financial institutions

 

examination council established pursuant to section 1004 of the

 

financial institutions regulatory and interest rate control act of

 

1978, Public Law 95-630, 12 USC 3303.

 

     (j) (f) "Financial institution" means any of the following:

 

     (i) A bank holding company, a national bank, a state chartered

 

bank, a state chartered savings bank, a federally chartered savings

 

association, or a federally chartered farm credit system

 

institution.

 

     (ii) Any entity, other than an entity subject to the tax

 

imposed under chapter 12, who is directly or indirectly owned by an

 

entity described in subparagraph (i) and is a member of the unitary

 

business group.

 

     (iii) A unitary business group of entities described in

 

subparagraph (i) or (ii), or both.

 

     (k) (g) "Gross business" means the sum of the following less

 

transactions between those entities included in a unitary business

 

group:

 

     (i) Fees, commissions, or other compensation for financial

 

services.

 

     (ii) Net gains, not less than zero, from the sale of loans and

 

other intangibles.

 

     (iii) Net gains, not less than zero, from trading in stocks,

 

bonds, or other securities.

 

     (iv) Interest charged to customers for carrying debit balances

 

of margin accounts.

 

     (v) Interest and dividends received.

 

     (vi) Any other gross proceeds resulting from the operation as a

 

financial institution.

 

     (l) (h) "Loan" means any extension of credit resulting from

 

direct negotiations between the financial institution and its

 

customer, or the purchase, in whole or in part, of such extension

 

of credit from another. Loans include participations, syndications,

 

and leases treated as loans for federal income tax purposes. Loans

 

shall not include properties treated as loans under section 595 of

 

the internal revenue code, futures or forward contracts, options,

 

notional principal contracts such as swaps, credit card

 

receivables, including purchased credit card relationships, non-

 

interest-bearing balances due from depository institutions, cash

 

items in the process of collection, federal funds sold, securities

 

purchased under agreements to resell, assets held in a trading

 

account, securities, interests in a real estate mortgage investment

 

conduit, or other mortgage-backed or asset-backed security, and

 

other similar items.

 

     (m) (i) "Loan secured by real property" means that 50% or more

 

of the aggregate value of the collateral used to secure a loan or

 

other obligation, when valued at fair market value as of the time

 

the original loan or obligation was incurred, was real property.

 

     (n) (j) "Merchant discount" means the fee or negotiated

 

discount charged to a merchant by the financial institution for the

 

privilege of participating in a program whereby a credit card is

 

accepted in payment for merchandise or services sold to the credit

 

card holder.

 

     (o) (k) "Michigan obligations" means a bond, note, or other

 

obligation issued by a governmental unit described in section 3 of

 

the shared credit rating act, 1985 PA 227, MCL 141.1053.

 

     (p) "Net capital" means equity capital subject to the

 

adjustments contained within this chapter.

 

     (q) (l) "Participation" means an extension of credit in which

 

an undivided ownership interest is held on a pro rata basis in a

 

single loan or pool of loans and related collateral. In a loan

 

participation, the credit originator initially makes the loan and

 

then subsequently resells all or a portion of it to other lenders.

 

The participation may or may not be known to the borrower.

 

     (r) (m) "Principal base of operations", with respect to

 

transportation property, means the place of more or less permanent

 

nature from which said property is regularly directed or

 

controlled. With respect to an employee, the principal base of

 

operations means the place of more or less permanent nature from

 

which the employee regularly does any of the following:

 

     (i) Starts his or her work and to which he or she customarily

 

returns in order to receive instructions from his or her employer.

 

     (ii) Communicates with his or her customers or other persons.

 

     (iii) Performs any other functions necessary to the exercise of

 

his or her trade or profession at some other point or points.

 

     (s) (n) "Real property owned" and "tangible personal property

 

owned" mean real and tangible personal property respectively on

 

which the financial institution may claim depreciation for federal

 

income tax purposes or to which the financial institution holds

 

legal title and on which no other person may claim depreciation for

 

federal income tax purposes or could claim depreciation if subject

 

to federal income tax. Real and tangible personal properties do not

 

include coin, currency, or property acquired in lieu of or pursuant

 

to a foreclosure.

 

     (t) (o) "Regular place of business" means an office at which

 

the financial institution carries on its business in a regular and

 

systematic manner and which is continuously maintained, occupied,

 

and used by employees of the financial institution. The financial

 

institution shall have the burden of proving that an investment

 

asset or activity or trading asset or activity was properly

 

assigned to a regular place of business outside of this state by

 

demonstrating that the day-to-day decisions regarding the asset or

 

activity occurred at a regular place of business outside this

 

state. Where the day-to-day decisions regarding an investment asset

 

or activity or trading asset or activity occur at more than 1

 

regular place of business and 1 such regular place of business is

 

in this state and 1 such regular place of business is outside this

 

state, such asset or activity shall be considered to be located at

 

the regular place of business of the financial institution where

 

the investment or trading policies or guidelines with respect to

 

the asset or activity are established. Unless the financial

 

institution demonstrates to the contrary, such policies and

 

guidelines shall be presumed to be established at the commercial

 

domicile of the financial institution.

 

     (u) (p) "Rolling stock" means railroad freight or passenger

 

cars, locomotives, or other rail cars.

 

     (v) (q) "Syndication" means an extension of credit in which 2

 

or more persons finance the credit and each person is at risk only

 

up to a specified percentage of the total extension of the credit

 

or up to a specified dollar amount.

 

     (w) "Tax year" means the calendar year or fiscal year for

 

which the tax levied under chapter 13 is required to be paid.

 

     (x) "Top-tiered parent entity" means the highest level entity

 

within the unitary business group that is required to file with a

 

regulatory agency under the standards prescribed by the FFIEC.

 

     (y) "Total equity capital" means the equity capital of the

 

top-tiered parent entity of the unitary business group. For a

 

financial institution that is not a member of a unitary business

 

group, total equity capital means the equity capital of the

 

financial institution.

 

     (z) (r) "Transportation property" means vehicles and vessels

 

capable of moving under their own power, such as aircraft, trains,

 

water vessels, and motor vehicles, as well as any equipment or

 

containers attached to such property, such as rolling stock,

 

barges, or trailers.

 

     (aa) "Unitary business group" means a group of United States

 

persons that are corporations, insurance companies, or financial

 

institutions, other than a foreign operating entity, 1 of which

 

owns or controls, directly or indirectly, more than 50% of the

 

ownership interest with voting rights or ownership interests that

 

confer comparable rights to voting rights of the other members, and

 

that has business activities or operations which result in a flow

 

of value between or among members included in the unitary business

 

group or has business activities or operations that are integrated

 

with, are dependent upon, or contribute to each other. Unitary

 

business group does not include a foreign operating entity.

 

     (bb) (s) "United States obligations" means all obligations of

 

the United States exempt from taxation under 31 USC 3124(a) or

 

exempt under the United States constitution or any federal statute,

 

including the obligations of any instrumentality or agency of the

 

United States that are exempt from state or local taxation under

 

the United States constitution or any statute of the United States.

 

     Sec. 655. (1) For Except as otherwise provided in this

 

chapter, for a financial institution, tax base means the financial

 

institution's net capital . Net capital means equity capital as

 

computed in accordance with generally accepted accounting

 

principles less the average daily book value of United States

 

obligations and Michigan obligations. If the financial institution

 

does not maintain its books and records in accordance with

 

generally accepted accounting principles, net capital shall be

 

computed in accordance with the books and records used by the

 

financial institution, so long as the method fairly reflects the

 

financial institution's net capital for purposes of the tax levied

 

by this chapter. Net capital does not include up to 125% of the

 

minimum regulatory capitalization requirements of a person subject

 

to the tax imposed under chapter 12.subject to the following

 

adjustments before allocation or apportionment:

 

     (a) Deduct the average daily book value of United States

 

obligations owned by members of the unitary business group.

 

     (b) Deduct the average daily book value of Michigan

 

obligations owned by members of the unitary business group.

 

     (c) Deduct, subject to the limitation provided in this

 

subdivision, the equity capital of a member of the unitary business

 

group that is subject to the tax imposed under chapter 12, not to

 

exceed 125% of the minimum regulatory capitalization requirements

 

of the member.

 

     (d) Deduct, subject to the limitation provided in this

 

subdivision, the equity capital of an applicable controlled foreign

 

corporation, not to exceed 125% of the controlled foreign

 

corporation's minimum regulatory capitalization rate.

 

     (2) Net capital shall be determined by adding the financial

 

institution's net capital as of the close of the current tax year.

 

and preceding 4 tax years and dividing the resulting sum by 5. If a

 

financial institution has not been in existence for a period of 5

 

tax years, net capital shall be determined by adding together the

 

financial institution's net capital for the number of tax years the

 

financial institution has been in existence and dividing the

 

resulting sum by the number of years the financial institution has

 

been in existence. For purposes of this section, a partial year

 

shall be treated as a full year.

 

     (3) For a unitary business group of financial institutions,

 

net both of the following apply:

 

     (a) Net capital calculated under this section does not include

 

the investment of 1 member of the unitary business group in another

 

member of that unitary business group.

 

     (b) Net capital calculated under this section is the net

 

capital of the taxpayer or the top-tiered parent entity of the

 

unitary business group of which the financial institution is a

 

member.

 

     (4) For purposes of this section, each of the following

 

applies:

 

     (a) A change in identity, form, or place of organization of 1

 

financial institution shall be treated as if a single financial

 

institution had been in existence for the entire tax year in which

 

the change occurred and each tax year after the change.

 

     (b) The combination of 2 or more financial institutions into 1

 

shall be treated as if the constituent financial institutions had

 

been a single financial institution in existence for the entire tax

 

year in which the combination occurred and each tax year after the

 

combination, and the book values and deductions adjustments for

 

United States obligations and Michigan obligations of the

 

constituent institutions shall be combined. A combination shall

 

include any acquisition required to be accounted for by the

 

surviving financial institution in accordance with generally

 

accepted accounting principles or a statutory merger or

 

consolidation.

 

     (c) If a United States person included in a financial

 

institution unitary business group or a financial institution

 

combined return is subject to tax under chapter 11 or 12, any

 

business income or equity capital attributable to that person shall

 

be eliminated from the equity capital of the unitary business group

 

and any sales or gross business attributable to that person shall

 

be eliminated from the apportionment formula under this part.

 

     Sec. 657. (1) Except as otherwise provided under this chapter,

 

the tax base of a financial institution whose business activities

 

are confined solely to this state shall be allocated to this state.

 

The tax base of a financial institution whose business activities

 

are subject to tax both within and outside of this state shall be

 

apportioned to this state by multiplying the tax base by the gross

 

business factor.

 

     (2) A financial institution whose business activities are

 

subject to tax both within and outside of this state is subject to

 

tax in another state in either of the following circumstances:

 

     (a) The financial institution is subject to a business

 

privilege tax, a net income tax, a franchise tax measured by net

 

income, a franchise tax for the privilege of doing business, or a

 

corporate stock tax or a tax of the type imposed under this part in

 

that state.

 

     (b) That state has jurisdiction to subject the financial

 

institution to 1 or more of the taxes listed in subdivision (a)

 

regardless of whether that state does or does not subject the

 

financial institution to that tax.

 

     (3) Except as otherwise provided in this subsection or

 

subsection (4), the gross business factor is a fraction, the

 

numerator of which is the total gross business of the financial

 

institution in this state during the tax year and the denominator

 

of which is the total gross business of the financial institution

 

everywhere during the tax year. The denominator shall not include

 

any gross business attributable to the foreign business of an

 

applicable controlled foreign corporation.

 

     (4) Except as otherwise provided under this subsection, for a

 

financial institution that is included in a unitary business group,

 

gross business includes gross business in this state of every

 

financial institution included in the unitary business group

 

without regard to whether the financial institution has nexus in

 

this state. Gross business between financial institutions included

 

in a unitary business group must be eliminated in calculating the

 

gross business factor.

 

     (5) For a unitary business group of financial institutions,

 

the gross business factor shall include the gross business of all

 

members of the unitary group during the tax year. For those members

 

that were acquired or disposed of by the unitary business group

 

during the tax year, the gross business factor shall include the

 

gross business of the part-year member that was received during

 

that portion of the tax year that the unitary business group had

 

ownership of the part-year member. If section 655(3)(b) applies,

 

the gross business factor of the unitary business group shall

 

include the gross business of the nonsurviving member included in

 

the surviving financial institution's gross business during the tax

 

year.