Michigan Single Business Tax analyzes the provisions of the Michigan Single Business Tax Act (SBT), particularly as they apply to multistate taxpayers. Written by Benjamin O. Schwendener, Jr., Esq., this Portfolio reviews the statutes, case law, and administrative pronouncements that relate to Michigan's Single Business Tax Act and discusses the structure and application of the new Michigan Business Tax (MBT) and how it differs from the SBT.
This Portfolio provides an in-depth analysis of the SBT's nexus or jurisdictional standard, with emphasis on the applicability of Pub. L. No. 86-272. It also discusses issues such as the SBT's capital acquisition deduction and recapture, consolidated returns and affiliated groups, and the SBT's apportionment relief provisions.
Special attention is also paid to the problems that confront specialized businesses, such as insurance, financial organizations, and real estate. In the insurance area, Michigan Single Business Tax presents the current SBT computation method, as well as an explanation of the “retaliatory” tax imposed on foreign insurance companies operating in Michigan. This Portfolio provides guidance on what constitutes a “financial organization” for SBT purposes and walks the reader through the computation of its tax base. In addition, the Portfolio contains an entire section devoted to the taxation of REITs, REMICs, and RICs.
Throughout this Portfolio, the author provides numerous references to both judicial and administrative opinions and pronouncements concerning the SBT. Special emphasis is placed on the decisions of the U.S. and Michigan Supreme Courts, particularly the Trinova, Gillette, Guardian, Caterpillar, and Cargill cases.
Michigan Single Business Tax allows you to benefit from:
This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.
Detailed Analysis
2160.01. INTRODUCTION
2160.02. OVERVIEW OF THE MBT STRUCTURE AND TAX BASE; PRIOR LAW AND THE VALUE ADDED TAX CONCEPT
A. MBT Overview
1. Business Income Tax
a. MBT Business Income Tax Base Calculation
b. MBT Business Income Tax Base for a Unitary Business Group
2. Gross Receipts Tax
a. MBT Gross Receipts Tax Base Calculation
b. MBT Gross Receipts Tax Base Calculation for a Unitary Business Group
c. Business Loss Carryforward Deduction for 2008
3. Franchise Tax on Net Capital of Financial Institutions
4. Gross Premiums Tax on Insurance Companies
B. Credits Under the MBT
1. New Credits under the MBT
a. Credit for Businesses with Michigan Receipts between $350,000 and $700,000
b. Compensation Credit and Investment Credit
c. Research and Development Expense Credit
d. MEGA Research and Development Contribution Credit
e. Large Retailer Compensation Credit
f. Credit for Small Businesses
g. Michigan Entrepreneurial Credit
h. Credit for New Motor Vehicle Dealer Inventory
i. Credit for Contribution to Municipal and Cultural Institutions
j. Motor Sports Complex and Sports Facility Credit
(1) Motor Sports Complex Credit
(2) Sports Facility Credit
2. Retained Credits Under the MBT
C. Prior Law and the Value Added Tax Concept
1. The Origin of the "Single Business Tax"
2. The "Ideal" Consumption VAT Concept
3. Types of Value Added Taxes
4. The Differences Between the SBT and an "Ideal" Consumption VAT
2160.03. CASE LAW DISCUSSING THE MICHIGAN SBT'S VALUE ADDED CONCEPT
A. Cases Predating Trinova Corp. v. Michigan Dept. of Treasury
B. The Trinova Decision
C. Trinova's Effect on the Issue of the SBT's Deductibility Under State Income Tax Statutes
2160.04. FORMER LAW: OUTLINE OF MAJOR CALCULATIONS USED TO DETERMINE SBT BASE AND TAX
A. SBT § 9 Base Calculations
B. Subtractions From the Base Calculation
C. Adjustments to the Tax Base
D. Adjusted Tax Base Reductions
E. The Role of Gross Receipts
F. Credits
1. Economic Growth Authority Credits
a. MEGA Payroll Credit
b. MEGA Business Activity Credit
c. MEGA Job Retention Credit
d. High Technology Business Credit
2. Renaissance Zones
a. MBT and Former SBT Renaissance Zone Credit
b. Income Tax Deduction
c. Local Income Taxes
d. Local Property Taxes
3. Small Business and Minority Owned Business Credits
a. Small Business Credit
b. Credit for Investment in Minority–Owned Businesses or MESBICs
4. Enterprise Zone
5. Refundable Credits Relating to Employee Costs
a. Credit for Workers' Disability Compensation Payments
b. Credit for FUTA Increase
6. Credits for Charitable Contributions
a. Charitable Contributions Credit
b. Credit for Contributions to Community Foundations, and Education Foundations
c. Credit for Contributions to Homeless Shelters and Food Banks
7. Miscellaneous Credits and Incentives
a. Brownfield Redevelopment Credit
b. High Technology Credit
c. Apprenticeship Credit
d. Historic Property Rehabilitation Credit
e. Credit for Property Tax on Certain Personal Property
f. Public Utility Property Tax Credit
g. Credit for Insurance Companies
h. Investment Tax Credit
i. Local Property Tax Exemption
j. Next Energy Business Activity Credit
k. Next Energy Payroll Credit
l. Low-Grade Hematite Pellet Credit
m. Credit for Qualified Startup Businesses
n. Costs of Created Jobs
o. Pharmaceutical Company Research Credit
G. Sample SBT Calculation
H. Alternate Tax For Small Businesses
I. SBT § 9 Tax Base of Foreign Persons
1. U.S. Business Income
a. Taxpayers Not Subject to U.S. Federal Income Taxes
b. U.S. Services
2. Additions and Subtractions
3. Compensation
4. Filing Threshold and Gross Receipts
5. Small Business Credit
6. Statutory Exemption
2160.05. TAXABLE PERSONS-OVERVIEW AND NEXUS
A. Taxable Persons Under the MBT
B. Taxable Persons Under the SBT
C. Nexus
2160.06. BUSINESS ACTIVITIES: A "THRESHOLD REQUIREMENT" FOR TAXABILITY
Introductory Material
A. The Statutory Definition of Business Activity
B. Excluded Business Activities
C. Definition of "Business Activity" as Affected by the Definition of "Business Income" in the Case of Corporations and Partnerships
D. Passive Investment and Rental Activities
1. Rental Activities
2. Financing Leases
E. Other Administrative Interpretations of "Business Activity"
1. Gain From Sale of Assets: Installment Reporting
2. Definition of "Employee:" Activities of Employees and Independent Contractors
3. Financial Institutions
4. Related Parties as Independent Contractors
5. Investment Activities of Trusts
6. Oil Wells: Working Interest Holders
7. Miscellaneous Business Activity Rulings
F. Solicitation of Business as a Taxable Business Activity
1. Pub. L. No. 86-272 and the Wrigley and Quill Decisions
2. Guardian, Gillette, and Cargill: Their Impact on the Issue of Whether the Solicitation of Orders of Tangible Property is a Taxable "Business Activity"
3. The Department of Treasury's Response to the Gillette and Guardian Cases and the Taxpayer's Defense to Threatened Assessments
4. The Department of Treasury's Current Position on Pub. L. No. 86-272
a. Michigan Revenue Administrative Bulletin 1989-46
b. Michigan Revenue Administrative Bulletin 1998-1
c. Repeal of Throwback Rule
d. Voluntary Disclosure
G. Court Cases (Other than Solicitation of Orders Cases) Applicable to the Definition of "Business Activity"
2160.07. "GROUP OR COMBINATION ACTING AS A UNIT" AS A TAXABLE PERSON
2160.08. AFFILIATED CORPORATE GROUPS: COMBINED OR CONSOLIDATED RETURNS
A. Affiliated Groups
B. Consolidated Returns
1. SBT § 77 and § 78 Background
2. Statutory Requirements - In General
3. Administrative Interpretation of the Specific Statutory Requirements
4. The Commissioner of Revenue's Statutory Discretion
5. The Commissioner's Administrative Exercise of Discretion
a. In General
b. The "Prior Approval" and "Substantial Intercorporate Transactions" Requirements
(1) The Statutory Substantial Intercorporate Transactions Rule as Interpreted by the Commissioner
(2) The "Prior Approval" and "Substantial Intercorporate Transactions" Requirements as Interpreted by the Courts - Cargill, Inc. v. Michigan Dept. of Treas.
c. The Consolidated Return Tax Base and Computation of Taxes
(1) Combined Business Income
(2) Corporations Using the Gross Receipts Method: Inclusion of Intercorporate Sales in Gross Receipts
(3) Adjustments to Arrive at Tax Base
(4) Apportionment Formula
(5) Capital Acquisition Deduction (CAD) and Recapture
(6) Business Loss Deduction, Statutory Exemption, and § 31 Reductions
(7) The Small Business Credit
(8) College, Library, Public Broadcasting, and Community Foundation Credits
d. Tax Liability of Individual Members
2160.09. PARTNERSHIPS AND SUBCHAPTER S CORPORATIONS
2160.10. ESTATES AND TRUSTS
2160.11. ENTITIES UNDER COMMON CONTROL
2160.12. EXEMPTIONS UNDER THE MBT
A. Exemption for Government Entities and Certain Non-Profit Organizations
B. Agricultural Exemptions
1. Exemption for Producers of Agricultural Goods
2. Farmer's Cooperative Corporation Exemptions
3. Credit Under the Farmland and Open Space Preservation Act
C. Exemption for Nonprofit Cooperative Housing Corporations
2160.13. BANKS AND FINANCIAL INSTITUTIONS
A. MBT Tax on Net Capital of Financial Institutions
1. Overview
2. Allocation and Apportionment
3. Credits Available to Financial Institutions
B. Pre-SBT Background: Discrimination Against Federal Obligations, the Memphis Bank Case, and 31 U.S.C. § 742
C. SBT Definition of Financial Organization
D. SBT Tax Base of Financial Organizations
E. Thrift, Mutual, and Cooperative Financial Organizations Under the SBT
2160.14. INSURANCE COMPANIES
A. Gross Premiums Tax on Insurance Companies Under the MBT
1. In General
2. Credits Allowed to Insurance Companies Under the MBT
B. Background of the Tax Treatment of Insurance Companies
C. Taxation of Insurance Companies Under the SBT
1. Tax Base
2. Credits
a. Limitations on Credits
D. Retaliatory Taxes
2160.15. REITs, REMICs, AND RICs
A. Real Estate Investment Trusts (REITs)
B. Real Estate and Mortgage Investment Conduits (REMICs)
C. Regulated Investment Companies (RICs)
2160.16. NON–PROFIT HOUSING COOPERATIVE CORPORATIONS
2160.17. EXEMPT ORGANIZATIONS
2160.18. DISCs AND FSCs
2160.19. CAPITAL ACQUISITION DEDUCTION
A. In General
B. Different CAD Rules for Different Years: The Effect of Conflicting Decisions in Caterpillar, Inc. v. Michigan Dept. of Treas.
1. The Michigan Court of Claims' Decision
2. The Michigan Court of Appeals' Decision
3. Legislative Amendment of the CAD
a. The 1991 Amendments
b. The Allocation and Apportionment Rules for the CAD Under the 1991 Amendments
4. The 1995 and 1999 Amendments to the CAD
C. The Michigan Supreme Court's Decision Upholding the Constitutionality of the CAD
D. The Constitutionality of the CAD as "Local Commerce" Incentive
E. The Definition of "Cost" for Purposes of the CAD
2160.20. EXCEPTIONS TO THE USE OF TAX BASIS AS COST
A. Use of Fair Market Value as a Substitute for Use of Federal Adjusted Basis as CAD Costs
B. Involuntary Conversions and Like-Kind Exchanges
2160.21. THE IMPORTANCE OF TIMING IN THE USE OF THE CAD
2160.22. ACQUISITION OF PROPERTY AS A RESULT OF TAX-FREE EVENTS
A. Requirement That Event Must Be Tax-Free for Federal Income Tax Purposes
2160.23. METHOD OF ACCOUNTING
2160.24. ALLOCATION AND APPORTIONMENT OF CAD
2160.25. SEQUENCE OF CAD DEDUCTION AND RECAPTURE
2160.26. RECAPTURE OF THE CAPITAL ACQUISITION DEDUCTION
B. Apportionment and Allocation of Recapture Amounts
1. Tax Years Ending Before March 31, 1991, for Which a Deduction Under SBT § 23(c) Was Not in Effect
2. Tax Years Beginning After September 30, 1989, but Before January 1, 1997, and Beginning After December 31, 1996, and Before January 1, 2000, for Which a Deduction Under SBT § 23(c) Was in Effect
3. CAD Recapture Where the Cost of Depreciable or Amortizable Property Was Paid or Accrued in the First Taxable Year Ending After September 29, 1991
4. CAD Recapture for Tax Years Beginning after December 31, 1996, and Before January 1, 2000
C. Dispositions Which Trigger CAD Recapture: Taxable Dispositions
D. Dispositions Which Do Not Trigger CAD Recapture: Gifts and Tax-Free Events
E. Definition of "Gross Proceeds or Other Benefit" for Recapture Purposes
F. Reporting CAD Recapture
2160.27. ADMINISTRATIVE RULINGS DISCUSSING THE CAD AND CAD RECAPTURE
2160.28. BUSINESS LOSS
2160.29. TAX BASE: SELECTED TOPICS
A. ERISA Preemption
B. Inclusion of Reimbursements in Tax Base
C. Discounts
2160.30. ALLOCATION AND APPORTIONMENT
A. Allocation and Apportionment Under the MBT
1. Michigan Sales of Property
a. Transportation Property
b. Royalties or Other Income for the Use of Intangible Property
2. Michigan Sales of Services
a. Securities Brokerage Services
b. Sales of Certain Services to Regulated Investment Companies
c. Loans Secured by Residential Real Property
d. Credit Card Receivables
e. Sale of Securities and Other Assets
f. Transportation Services
g. Telecommunications Services
(1) Prepaid and Postpaid Telecommunications Services
(2) Private Communication Services
(3) Ancillary Services
(4) Access Fees and Sales for Resale
3. Other Receipts
4. Alternate Method
B. Apportionment Under the SBT
2. Alternate Apportionment Method
Working Papers
Item Description Sheet
Worksheet 1 The Gillette Co. v. Department of Treasury 198 Mich. App. 303, 497 N.W.2d 595
Opinion
Worksheet 2 Guardian Industries Corp. v. State of Michigan, Department of Treasury, Revenue Division; Cargill, Inc., Cargill Leasing Corp., North Star Steel Co., and Magnimet Corp. v. Revenue Division, Department of Treasury, State of Michigan Mich. Ct. App., Nos. 119601 and 120048, March 1, 1993, 198 Mich. App. 363, 499 N.W.2d 349
Worksheet 3 Mich. Rev. Admin. Bull. 1998–1 (Feb. 24, 1998)
Worksheet 4 SBT Tax Rate Tables
Worksheet 5 Revenue Administrative Bulletin 2001-2
Worksheet 6 Revenue Administrative Bulletin 2001-4
Worksheet 7 Revenue Administrative Bulletin 2000-5
Worksheet 8 Revenue Administrative Bulletin 1992-3
Worksheet 9 Perspective: New, Five-Part Michigan Business Tax Replaces SBT, Leaving Many Questions Unanswered for Certain Taxpayers
Worksheet 10 Michigan Says ‘Goodbye Services Tax, Hello Surcharge' As Legislature Opts for an Unpredictable Revenue Stream
Worksheet 11 Michigan Department of Treasury Nexus Questionnaire
Worksheet 12 BNA 2008 Survey of State Tax Departments: Michigan Questionnaire
Worksheet 13 Revenue Administrative Bulletin 2002-14
Bibliography