Weekly Round-Up: Michigan's New Corporate Income Tax Leaves Many Questions Unresolved

Michigan’s new corporate income tax (CIT) took effect Jan. 1, 2012 and replaces the Michigan business tax (a combination gross receipts, net income tax), which replaced the single business tax (value added tax) in 2008. About 30 years before that, the single business tax replaced a corporate income tax.

So why the change back to a corporate income tax more than 30 years later? The principle benefit of Michigan's new corporate income tax, according to Patrick R. Van Tiflin, a partner with Honigman Miller Schwartz and Cohn LLP in Lansing, is that it is much more simple for the multistate tax-paying community to understand and comply with than either of the previous two taxes Michigan has tried.

However, nothing is as simple as it seems. Even as the new law became effective, questions began to arise about its implementation. For example, questions surround its application to pass-through entities and nexus determinations.

Another problem area is credits. Most credits available under the MBT are no longer available under the CIT, with the exception of certain credits that may be claimed for filers that elect to compute tax under the MBT system, Van Tiflin explains.

All credits offered under the MBT were eliminated, except for a group of credits called “certificated” credits, he states. To continue to receive the benefit of a certificated credit, the taxpayer must elect to continue to file and pay under the MBT until the credit is exhausted, he said. A taxpayer making such an election must perform calculations under both the CIT and MBT, and pay the higher of the two amounts, according to Van Tiflin.

One of the reasons Michigan eliminated credits under the CIT was to foster transparency, Van Tiflin explains. Under the new regime, if the legislature wishes to induce or incentivize an activity, it can vote on an outright subsidy and be answerable for that vote at the next election, Van Tiflin says.

Bloomberg BNA’s complete interview with Van Tiflin on the unresolved issues surrounding Michigan’s new tax, published in this week's issue of the Weekly State Tax Report, can be read in its entirety here.

In other developments…

Seventh Circuit not amused by Chicago's amusement tax , according to Sutherland’s SALT blog.

The Texas State and Local Tax Blog looks at a recent decision holding that the Comptroller has to abide by the plain language of the agency's own rules.

Michael Mazerov, of the Center on Budget and Policy Priorities, issues a new report on using economic census data to estimate the revenue impact of taxing services.

Compiled by Priya D. Nair
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