Michigan Tax Law

The Michigan Business Tax was meant to reduce several taxes that were seen as detrimental to promoting business activity in Michigan. Adjustments were made to the property tax rates charged industrial equipment, and several reductions are handled by allowing credits against the Michigan Business Tax. There are over 40 credits against the tax, some of wide application and significant, and some designed for specific industries or specific taxpayers.

Compensation Credit. The Michigan Business Tax provides a credit of 0.37% of compensation paid “in this state”. This credit is designed to benefit service businesses having a high proportion of their expenses in the form of compensation.

Investment Credit. The Michigan Business Tax provides for an Investment Credit equal to 2.9% of the taxpayer’s net acquisitions of new capital assets in Michigan. New acquisitions include assets brought into Michigan from other jurisdictions. If net acquisitions are negative for the year, the computed negative credit is added to the Michigan Business Tax.

Compensation and Investment Credit Limitation. The sum of the compensation and investment credits is limited to 52% of the taxpayer’s total Michigan Business Tax liability.
Research and Development Credit. There is a credit in the Michigan Business Tax of 1.9% of a taxpayer’s qualified research and development expenditures in Michigan for the tax year. “Qualified” expenses are determined under Internal Revenue Code Section 41(b), the federal tax credit for increasing research activities. Note that the tax surcharge cannot be offset by the compensation, investment, or research and development credits.

Second Credit Limitation. The sum of the compensation, investment and research and development credits cannot exceed 65% of the taxpayer’s total Michigan Business Tax liability.

Personal Property Tax Credit. A significant Michigan Business Tax credit is the Personal Property Tax Credit, a refundable credit equal to 35% of personal property tax paid on industrial and commercial property. This credit is in addition to exemptions from the major portions of the school tax granted industrial and commercial property in Michigan’s business tax reform.

Small Business “Cliff” Credit. To eliminate the sudden “cliff” created by the $350,000 of gross receipts filing threshold, taxpayers with gross receipts between $350,000 and $700,000 are allowed a small business credit which “phase in” the tax ratably from $350,000 to $700,000.

Motor Vehicle Dealer Inventory Credit. New car dealers are allowed a credit of 2% of their expenditure for new motor vehicle inventory. The nonrefundable credit is limited to $10,000 in any year, and any excess may not be carried over.

Small Business Credit. A Michigan Business Tax small business credit is available to taxpayers having maximum gross receipts of $20 million, business income of less than $1.3 million, and maximum officer, shareholder or owner compensation of $180,000. The credit can reduce a taxpayer’s Michigan Business Tax liability to 1.8% of business income, computed with additional adjustments for purposes of the credit.

Start-up Business Credit. Qualified start-up businesses that have no business income for two consecutive years are given a credit to wipe out their Michigan Business Tax liability for the second of those years. If the taxpayer continues to have no business income, it is again given the credit for up to five years in total.

Arts and Culture Credit. A partial credit of up to $100,000 is allowed when donations are made to either of the following:
Category A: A municipality or a nonprofit corporation affiliated with a municipality and an art, historical, or zoological institute for the purpose of benefiting the art, historical, or zoological institute, OR
Category B: An institute devoted to the procurement, care, study, and display of objects of lasting interest or value.
To calculate the Arts and Culture Credit, a taxpayer may count contributions to the charities described in Category A to the extent that those contributions exceed $50,000, as well as contributions to charities described in Category B to the extent that those contributions exceed $50,000. A taxpayer is not precluded from taking the credit for donations made to both categories as long as the taxpayer meets the minimum donation separately for each category.

Contribution Credits. Taxpayers not claiming similar credits against the Michigan Income Tax may claim a credit against the Michigan Business Tax for 50% of the taxpayer’s contributions described below, up to a maximum annual credit is $5,000 or 5% of the taxpayer’s tax liability.
• Contributions to Colleges and Universities. A partial credit is allowed for Corporations and partnerships (and Limited Liability Companies federally taxed as such) when donations are made during the taxable year to public broadcast stations located in Michigan, Michigan public libraries, institutions of higher learning located in Michigan or a nonprofit corporation, fund, foundation, trust, or association organized and operated exclusively for the benefit of an institution of higher learning, the Michigan Colleges Foundation, and the Michigan Housing and Community Development Fund.

• Contributions to a Community or Educational Foundation: A partial credit is allowed when donating to the endowment fund of a certified community foundation or education foundation. The certification requirement means that only foundations approved by the Michigan Department of Treasury qualify. A listing is available in Form 4600—Michigan Department of Treasury, Michigan Business Tax Instruction Booklet for Standard Taxpayers.

• Contributions to Food Banks and Homeless Shelters: A partial credit is allowed when making a cash donation to a qualifying shelter for homeless persons, food kitchen, food bank, or other entity whose primary purpose is to provide overnight accommodations, food, or meals to indigent persons.

References:

Michigan Compiled Laws:

Section 208.1101—Michigan Business Tax Act

Michigan Department of Treasury Revenue Administrative Bulletins:

Bulletin 2007-6—Michigan Business Tax—“Actively Solicits” Defined
Bulletin 2008-4—Michigan Business Tax—Nexus Standards

Michigan Business Tax Forms:

Form 4600—Michigan Department of Treasury, Michigan Business Tax Instruction Booklet for Standard Taxpayers

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