Bill Text: MI SB1298 | 2011-2012 | 96th Legislature | Introduced
Bill Title: Income tax; collections; withholding requirement for certain members of a flow-through entity; clarify. Amends sec. 703 of 1967 PA 281 (MCL 206.703).
Spectrum: Partisan Bill (Republican 2-0)
Status: (Engrossed - Dead) 2012-12-13 - Referred To Second Reading [SB1298 Detail]
Download: Michigan-2011-SB1298-Introduced.html
SENATE BILL No. 1298
September 20, 2012, Introduced by Senators BRANDENBURG and JANSEN and referred to the Committee on Finance.
A bill to amend 1967 PA 281, entitled
"Income tax act of 1967,"
by amending section 703 (MCL 206.703), as amended by 2012 PA 217.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 703. (1) A person who disburses pension or annuity
payments, except as otherwise provided under this section, shall
withhold a tax in an amount computed by applying the rate
prescribed in section 51 on the taxable part of payments from an
employer pension, annuity, profit-sharing, stock bonus, or other
deferred compensation plan as well as from an individual retirement
arrangement, an annuity, an endowment, or a life insurance contract
issued by a life insurance company. Withholding shall be calculated
on the taxable disbursement after deducting from the taxable
portion the same proportion of the total amount of personal and
dependency exemptions of the individual allowed under this act.
Withholding is not required on any part of a distribution that is
not expected to be includable in the recipient's gross income or
that is deductible from adjusted gross income under section
30(1)(e) or (f).
(2) Every employer in this state required under the provisions
of the internal revenue code to withhold a tax on the compensation
of an individual, except as otherwise provided, shall deduct and
withhold a tax in an amount computed by applying, except as
provided by subsection (14), the rate prescribed in section 51 to
the remainder of the compensation after deducting from compensation
the same proportion of the total amount of personal and dependency
exemptions of the individual allowed under this act that the period
of time covered by the compensation is of 1 year. The department
may prescribe withholding tables that may be used by employers to
compute the amount of tax required to be withheld.
(3) Except as otherwise provided under this section, every
flow-through entity in this state shall withhold a tax in an amount
computed by applying the rate prescribed in section 51 to the
distributive share of taxable income reasonably expected to accrue
after allocation and apportionment under chapter 3 of each
nonresident member who is an individual after deducting from that
distributive income the same proportion of the total amount of
personal and dependency exemptions of the individual allowed under
this act. All of the taxes withheld under this section shall accrue
to the state on April 15, July 15, and October 15 of the flow-
through entity's tax year and January 15 of the following year,
except a flow-through entity that is not on a calendar year basis
shall substitute the appropriate due dates in the flow-through
entity's fiscal year that correspond to those in a calendar year.
Withholding for each period shall be equal to 1/4 of the total
withholding calculated on the distributive share that is reasonably
expected to accrue during the tax year of the flow-through entity.
(4) Except as otherwise provided under this section, every
flow-through entity with business activity in this state that has
more than $200,000.00 of business income reasonably expected to
accrue in the tax year after allocation or apportionment shall
withhold a tax in an amount computed by applying the rate
prescribed in section 623 to the distributive share of the business
income of each member that is a corporation or that is a flow-
through entity. For purposes of calculating the $200,000.00
withholding threshold, the business income of a flow-through entity
shall be apportioned to this state by multiplying the business
income by the sales factor of the flow-through entity. The sales
factor of the flow-through entity is a fraction, the numerator of
which is the total sales of the flow-through entity in this state
during the tax year and the denominator of which is the total sales
of the flow-through entity everywhere during the tax year. As used
in this subsection, "business income" means that term as defined in
section 603(2). For a partnership or S corporation, business income
includes payments and items of income and expense that are
attributable to business activity of the partnership or S
corporation and separately reported to the members. As used in this
subsection, "sales" means that term as defined in section 609 and
sales in this state is determined as provided in sections 665 and
669. All of the taxes withheld under this section shall accrue to
the state on April 15, July 15, and October 15 of the flow-through
entity's tax year and January 15 of the following year, except a
flow-through entity that is not on a calendar year basis shall
substitute the appropriate due dates in the flow-through entity's
fiscal year that correspond to those in a calendar year.
Withholding for each period shall be equal to 1/4 of the total
withholding calculated on the distributive share of business income
that is reasonably expected to accrue during the tax year of the
flow-through entity.
(5) If a flow-through entity is subject to the withholding
requirements of subsection (4), then a member of that flow-through
entity that is itself a flow-through entity shall withhold a tax on
the distributive share of business income as described in
subsection (4) of each of its members. The department shall apply
tax withheld by a flow-through entity on the distributive share of
business income of a member flow-through entity to the withholding
required of that member flow-through entity. All of the taxes
withheld under this section shall accrue to the state on April 15,
July 15, and October 15 of the flow-through entity's tax year and
January 15 of the following year, except a flow-through entity that
is not on a calendar year basis shall substitute the appropriate
due dates in the flow-through entity's fiscal year that correspond
to those in a calendar year. Withholding for each period shall be
equal to 1/4 of the total withholding calculated on the
distributive share of business income that is reasonably expected
to accrue during the tax year of the flow-through entity.
(6) Every casino licensee shall withhold a tax in an amount
computed by applying the rate prescribed in section 51 to the
winnings of a nonresident reportable by the casino licensee under
the internal revenue code.
(7) Every race meeting licensee or track licensee shall
withhold a tax in an amount computed by applying the rate
prescribed in section 51 to a payoff price on a winning ticket of a
nonresident reportable by the race meeting licensee or track
licensee under the internal revenue code that is the result of
pari-mutuel wagering at a licensed race meeting.
(8) Every casino licensee or race meeting licensee or track
licensee shall report winnings of a resident reportable by the
casino licensee or race meeting licensee or track licensee under
the internal revenue code to the department in the same manner and
format as required under the internal revenue code.
(9) Every eligible production company shall, to the extent not
withheld by a professional services corporation or professional
employer organization, deduct and withhold a tax in an amount
computed by applying the rate prescribed in section 51 to the
remainder of the payments made to the professional services
corporation or professional employer organization for the services
of a performing artist or crew member after deducting from those
payments the same proportion of the total amount of personal and
dependency exemptions of the individuals allowed under this
part.act.
(10) Every publicly traded partnership that has equity
securities registered with the securities and exchange commission
under section 12 of title I of the securities and exchange act of
1934, 15 USC 78l, shall not be subject to withholding.
(11) Except as otherwise provided under this subsection, all
of the taxes withheld under this section shall accrue to the state
on the last day of the month in which the taxes are withheld but
shall be returned and paid to the department by the employer,
eligible production company, casino licensee, or race meeting
licensee or track licensee within 15 days after the end of any
month or as provided in section 705. For an employer or flow-
through entity that has entered into an agreement with a community
college pursuant to chapter 13 of the community college act of
1966, 1966 PA 331, MCL 389.161 to 389.166, a portion of the taxes
withheld under this section that are attributable to each employee
in a new job created pursuant to the agreement shall accrue to the
community college on the last day of the month in which the taxes
are withheld but shall be returned and paid to the community
college by the employer or flow-through entity within 15 days after
the end of any month or as provided in section 705 for as long as
the agreement remains in effect. For purposes of this act and 1941
PA 122, MCL 205.1 to 205.31, payments made by an employer or flow-
through entity to a community college under this subsection shall
be considered income taxes paid to this state.
(12) A person required by this section to deduct and withhold
taxes on compensation, a share of income available for distribution
on which withholding is required under subsection (3), (4), or (5),
winnings on which withholding is required under subsection (6), or
a payoff price on which withholding is required under subsection
(7) holds the amount of tax withheld as a trustee for this state
and is liable for the payment of the tax to this state or, if
applicable, to the community college and is not liable to any
individual for the amount of the payment.
(13) An employer in this state is not required to deduct and
withhold a tax on the compensation paid to a nonresident individual
employee, who, under section 256, may claim a tax credit equal to
or in excess of the tax estimated to be due for the tax year or is
exempted from liability for the tax imposed by this act. In each
tax year, the nonresident individual shall furnish to the employer,
on a form approved by the department, a verified statement of
nonresidence.
(14) A person required to withhold a tax under this act, by
the fifteenth day of the following month, shall provide the
department with a copy of any exemption certificate on which the
employee, member, or person subject to withholding under subsection
(6) or (7) claims more than 9 personal or dependency exemptions,
claims a status that exempts the employee, member, or person
subject to withholding under subsection (6) or (7) from withholding
under this section.
(15) A person who disburses annuity payments pursuant to the
terms of a qualified charitable gift annuity is not required to
deduct and withhold a tax on those payments as prescribed under
subsection (1). As used in this subsection, "qualified charitable
gift annuity" means an annuity described under section 501(m)(5) of
the internal revenue code and issued by an organization exempt
under section 501(c)(3) of the internal revenue code.
(16) Notwithstanding the requirements of subsections (4) and
(5), if a flow-through entity receives an exemption certificate
from
a corporation, member
other than a nonresident individual, the
flow-through entity shall not withhold a tax on the distributive
share
of the business income of that corporation member if
all of
the following conditions are met:
(a)
The exemption certificate is completed by the corporation
member in the form and manner prescribed by the department and
certifies
that the corporation member
will do all of the following:
(i) File the returns required under part 2.this act.
(ii) Pay or
withhold the tax required under part
2 this act on
the distributive share of the business income received from any
flow-through
entity in which the corporation is a member or in
which
the corporation member has an ownership or beneficial
interest, directly or indirectly through 1 or more other flow-
through entities.
(iii) Submit to the taxing jurisdiction of this state for
purposes
of collection of the tax under part 2 this act together
with related interest and penalties under 1941 PA 122, MCL 205.1 to
205.31,
imposed on the corporation member
with respect to the
distributive share of the business income of that
corporation.member.
(b)
The corporation member shall file the exemption
certificate with the department and provide a copy to the flow-
through entity.
(c)
A The department may
require a flow-through entity that
receives
an exemption certificate shall to
attach a copy of the
exemption certificate to the annual reconciliation return as
required by section 711. A flow-through entity that is entirely
exempt from the withholding requirements of subsection (4) or (5)
by
this subsection shall may
be required to furnish a copy of the
exemption
certificate in a another manner prescribed by the
department.
(d) A copy of the exemption certificate shall be retained by
the
corporation member and flow-through entity and made available
to the department upon request. Any copy of the exemption
certificate shall be maintained in a format and for the period
required by 1941 PA 122, MCL 205.1 to 205.31.
(17) The department may revoke the election provided for in
subsection
(16) if it determines that the corporation member or
a
flow-through entity is not abiding by the terms of the exemption
certificate or the requirements of subsection (16). If the
department does revoke the election option under subsection (16),
the
department shall notify the affected flow-through entities
entity
that withholding is required on the corporation
member under
subsection (4) or (5), beginning 60 days after notice of revocation
is received.
(18) Notwithstanding the requirements of subsections (4) and
(5), a flow-through entity is not required to withhold in
accordance with this section for a member that voluntarily elects
to file a return and pay the tax imposed by the Michigan business
tax act under section 680 or section 500 of the Michigan business
tax act, 2007 PA 36, MCL 208.1500.
Enacting section 1. This amendatory act takes effect January
1, 2013 and applies to all business activity occurring after
December 31, 2012.