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Michigan tax reform…again?!

May 18th, 2011 by Judd Ballard

In 2008, Michigan introduced the Michigan Business Tax (MBT) to replace the Single Business Tax (SBT). The MBT has two components: a gross receipts component and a business income tax component. In addition to the two ways a company is taxed, Michigan added on a surcharge of 21.99% of the calculated liability.

In order to be subject to the gross receipts component of the MBT, a company would need to have active solicitation in Michigan in conjunction with sales in Michigan greater than $350,000. According to Michigan nexus requirements, active solicitation could be as little as the maintenance of an internet site where people in Michigan can order products. These requirements have made many entities subject to Michigan tax. This tax is also an entity tax so pass-through entities were hit twice, both at the entity level and the individual level. It seems that Michigan created a great revenue raiser with the MBT.

Both businesses and individuals have been unhappy with the Michigan tax because of the tax burden, and it looks like reform may be on the way. Currently, the governor has bills on his desk waiting for signature to eliminate the MBT and create a corporate income tax in its place. The corporate income tax would have a tax rate of 6% and would not be imposed on pass-through entities. Some things would remain the same, such as a sales only apportionment factor and unitary filing requirements. Either way the new tax sounds much more equitable. Of course this change would be a revenue loser for Michigan, but the hope is that more businesses would locate and expand there with a better tax structure.

One other thing – Michigan is currently offering an amnesty program for companies to voluntarily come forward regarding unpaid or unreported taxes. If you were planning to participate, you may want to think twice in light of the potential reform. Well, technically the last reform potentially lasted only three years; how long do you think this one will last?

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