Bill Text: MI SB0655 | 2011-2012 | 96th Legislature | Introduced
Bill Title: Income tax; credit; loophole for unitary business groups under the small business credit; eliminate. Amends sec. 671 of 1967 PA 281 (MCL 206.671).
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2011-10-20 - Assigned Pa 0185'11 With Immediate Effect [SB0655 Detail]
Download: Michigan-2011-SB0655-Introduced.html
SENATE BILL No. 655
September 15, 2011, Introduced by Senator BRANDENBURG and referred to the Committee on Finance.
A bill to amend 1967 PA 281, entitled
"Income tax act of 1967,"
by amending section 671 (MCL 206.671), as added by 2011 PA 38.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 671. (1) The credit provided in this section shall be
taken before any other credit under this part and is available to
any taxpayer, other than those taxpayers subject to the tax imposed
under chapter 12 or 13, with gross receipts that do not exceed
$20,000,000.00 and with adjusted business income minus the loss
adjustment that does not exceed $1,300,000.00 as adjusted annually
for inflation using the Detroit consumer price index, and subject
to the following:
(a) A corporation or unitary business group is disqualified if
either of the following occurs for the respective tax year:
(i) Compensation and directors' fees of a shareholder or
officer exceed $180,000.00.
(ii) The sum of the following amounts exceeds $180,000.00:
(A) Compensation and directors' fees of a shareholder.
(B) The product of the percentage of outstanding ownership or
of outstanding stock owned by that shareholder multiplied by the
difference between the following:
(I) The sum of business income and, to the extent deducted in
determining federal taxable income, a carryback or a carryover of a
net
operating loss or capital loss. , minus the
(II) The loss adjustment.
(b) Subject to the reduction percentage determined under
subsection (3), the credit determined under this subsection shall
be reduced by the following percentages in the following
circumstances:
(i) If compensation and directors' fees of a shareholder or
officer are, or if the sum of the amounts in subdivision (a)(ii)(A)
and (B) is, more than $160,000.00 but less than $165,000.00, the
credit is reduced by 20%.
(ii) If compensation and directors' fees of a shareholder or
officer are, or if the sum of the amounts in subdivision (a)(ii)(A)
and (B) is, $165,000.00 or more but less than $170,000.00, the
credit is reduced by 40%.
(iii) If compensation and directors' fees of a shareholder or
officer are, or if the sum of the amounts in subdivision (a)(ii)(A)
and (B) is, $170,000.00 or more but less than $175,000.00, the
credit is reduced by 60%.
(iv) If compensation and directors' fees of a shareholder or
officer are, or if the sum of the amounts in subdivision (a)(ii)(A)
and (B) is, $175,000.00 or more but not in excess of $180,000.00,
the credit is reduced by 80%.
(2) For the purposes of determining disqualification under
subsection
(1), an both of the
following apply:
(a) An active shareholder's share of business income shall not
be attributed to another active shareholder.
(b) If the taxpayer is a unitary business group, the amount of
all items paid or allocable by all persons included in the unitary
business group to any 1 individual who is a shareholder or officer
of a single person included in the unitary business group shall be
combined.
(3) The reduction percentage is the greater of the following:
(a) The reduction percentage based on the compensation and
directors' fees of the shareholder or officer with the greatest
amount of compensation and directors' fees.
(b) The reduction percentage based on the sum of the amounts
in subsection (1)(a)(ii)(A) and (B) for the shareholder or officer
with the greatest sum of the amounts in subsection (1)(a)(ii)(A) and
(B).
(4) A taxpayer that qualifies under subsection (1) is allowed
a credit against the tax imposed under this part. The credit under
this subsection is the amount by which the tax imposed under this
part exceeds 1.8% of adjusted business income.
(5) If gross receipts exceed $19,000,000.00, the credit shall
be reduced by a fraction, the numerator of which is the amount of
gross receipts over $19,000,000.00 and the denominator of which is
$1,000,000.00. The credit shall not exceed 100% of the tax
liability imposed under this part.
(6) For a taxpayer that reports for a tax year less than 12
months, the amounts specified in this section for gross receipts,
adjusted business income, and share of business income shall be
multiplied by a fraction, the numerator of which is the number of
months in the tax year and the denominator of which is 12.
(7) The department shall permit a taxpayer that elects to
claim the credit allowed under this section based on the amount by
which the tax imposed under this part exceeds the percentage of
adjusted business income for the tax year as determined under
subsection (4), and that is not required to reduce the credit
pursuant to subsection (1) or (5), to file and pay the tax imposed
by this part without computing the tax imposed under section 623.
(8) Compensation paid by a professional employer organization
to the officers of the client and to employees of the professional
employer organization who are assigned or leased to and perform
services for the client shall be included in determining
eligibility of the client under this section.
(9) A disqualifier or reduction under subsection (1) applies
to a taxpayer that is a unitary business group if a disqualifier or
reduction applies to any member of a unitary business group.
(10) As used in this section:
(a) "Active shareholder" means a shareholder who receives at
least $10,000.00 in compensation, directors' fees, or dividends
from the business, and who owns at least 5% of the outstanding
stock or other ownership interest.
(b) "Adjusted business income" means business income as
defined in section 603 with all of the following adjustments:
(i) Add compensation and directors' fees of active shareholders
of a corporation.
(ii) Add, to the extent deducted in determining federal taxable
income, a carryback or carryover of a net operating loss.
(iii) Add, to the extent deducted in determining federal taxable
income, a carryback or carryover capital loss.
(iv) Add compensation and directors' fees of officers of a
corporation.
(c) "Client" means an entity whose employment operations are
managed by a professional employer organization.
(d) "Compensation" means all wages, salaries, fees, bonuses,
commissions, and other payments made in the tax year on behalf of
or for the benefit of employees, officers, or directors of the
taxpayers. Compensation includes, but is not limited to, payments
that are subject to or specifically exempt or excepted from
withholding under sections 3401 to 3406 of the internal revenue
code. Compensation also includes, on a cash or accrual basis
consistent with the taxpayer's method of accounting for federal
income tax purposes, payments to a pension, retirement, or profit
sharing plan other than those payments attributable to unfunded
accrued actuarial liabilities, and payments for insurance for which
employees are the beneficiaries, including payments under health
and welfare and noninsured benefit plans and payment of fees for
the administration of health and welfare and noninsured benefit
plans.
Compensation for a taxpayer licensed under article 25 or 26
of
the occupational code, 1980 PA 299, MCL 339.2501 to 339.2518 and
339.2601
to 339.2637, includes payments to an independent
contractor
licensed under article 25 or 26 of the occupational
code,
1980 PA 299, MCL 339.2501 to 339.2518 and 339.2601 to
339.2637.
Compensation does not include any
of the following:
(i) Discounts on the price of the taxpayer's merchandise or
services sold to the taxpayer's employees, officers, or directors
that are not available to other customers.
(ii) Except as otherwise provided in this subdivision, payments
to an independent contractor.
(iii) Payments to state and federal unemployment compensation
funds.
(iv) The employer's portion of payments under the federal
insurance contributions act, chapter 21 of subtitle C of the
internal revenue code, 26 USC 3101 to 3128, the railroad retirement
tax act, chapter 22 of subtitle C of the internal revenue code, 26
USC 3201 to 3233, and similar social insurance programs.
(v) Payments, including self-insurance payments, for worker's
compensation insurance or federal employers' liability act
insurance pursuant to 45 USC 51 to 60.
(e) "Detroit consumer price index" means the most
comprehensive index of consumer prices available for the Detroit
area from the United States department of labor, bureau of labor
statistics.
(f) "Loss adjustment" means the amount by which adjusted
business income was less than zero in any of the 5 tax years
immediately preceding the tax year for which eligibility for the
credit under this section is being determined. In determining the
loss adjustment for a tax year, a corporation is not required to
use more of the taxpayer's total negative adjusted business income
than the amount needed to qualify the corporation for the credit
under this section. A corporation shall not be considered to have
used any portion of the taxpayer's negative adjusted business
income amount unless the portion used is necessary to qualify for
the credit under this section. A corporation shall not reuse a
negative adjusted business income amount used as a loss adjustment
in a previous tax year or use a negative adjusted business income
amount from a year in which the corporation did not receive the
credit under this section.
(g) "Officer" means an officer of a corporation including all
of the following:
(i) The chairperson of the board.
(ii) The president, vice president, secretary, or treasurer of
the corporation or board.
(iii) Persons performing similar duties to persons described in
subparagraphs (i) and (ii).
Enacting section 1. This amendatory act takes effect January
1, 2012.
