Bill Text: MI HB5010 | 2013-2014 | 97th Legislature | Enrolled
Bill Title: Corporate income tax; exemptions; exemption for certain domestic international sales corporations and sales factor for certain flow-through entities; provide for and clarify. Amends secs. 625 & 663 of 1967 PA 281 (MCL 206.625 & 206.663).
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2014-02-26 - Assigned Pa 15'14 With Immediate Effect [HB5010 Detail]
Download: Michigan-2013-HB5010-Enrolled.html
STATE OF MICHIGAN
97TH LEGISLATURE
REGULAR SESSION OF 2014
Introduced by Rep. Cotter
ENROLLED HOUSE BILL No. 5010
AN ACT to amend 1967 PA 281, entitled “An act to meet deficiencies in state funds by providing for the imposition, levy, computation, collection, assessment, reporting, payment, and enforcement by lien and otherwise of taxes on or measured by net income and on certain commercial, business, and financial activities; to prescribe the manner and time of making reports and paying the taxes, and the functions of public officers and others as to the taxes; to permit the inspection of the records of taxpayers; to provide for interest and penalties on unpaid taxes; to provide exemptions, credits and refunds of the taxes; to prescribe penalties for the violation of this act; to provide an appropriation; and to repeal acts and parts of acts,” by amending sections 625 and 663 (MCL 206.625 and 206.663), section 625 as amended by 2011 PA 175 and section 663 as amended by 2011 PA 308.
The People of the State of Michigan enact:
Sec. 625. (1) Except as otherwise provided in this section, the following are exempt from the tax imposed by this part:
(a) The United States, this state, other states, and the agencies, political subdivisions, and enterprises of the United States, this state, and other states.
(b) A person who is exempt from federal income tax under the internal revenue code except the following:
(i) An organization included under section 501(c)(12) or 501(c)(16) of the internal revenue code.
(ii) An organization exempt under section 501(c)(4) of the internal revenue code that would be exempt under section 501(c)(12) of the internal revenue code except that it failed to meet the requirements in section 501(c)(12) that 85% or more of its income consist of amounts collected from members.
(iii) The tax base attributable to unrelated business activities giving rise to the unrelated business taxable income of an exempt person.
(c) A foreign person that is domiciled in a member country of the North American free trade agreement is not subject to taxation under this part if the foreign person is domiciled in a subnational jurisdiction that does not impose an income tax on a similarly situated person domiciled in this state whose presence in the foreign country is the same as the foreign person’s presence in the United States. If a qualifying foreign person is domiciled in a subnational jurisdiction that does not impose an income tax on businesses, but instead imposes some other type of subnational business tax, that foreign person is not subject to taxation under this part if that subnational business tax is not imposed on a similarly situated person domiciled in this state whose presence in the foreign country is the same as the foreign person’s presence in the United States.
(d) A person that qualifies as a domestic international sales corporation as defined in section 992 of the internal revenue code for the portion of the year that it has in effect a valid election to be treated as a domestic international sales corporation.
(2) Notwithstanding any other provision of this part to the contrary, a foreign person subject to tax under this part shall calculate its corporate income tax base under this section. Except as otherwise provided in this section, the corporate income tax base of a foreign person is subject to all adjustments and other provisions of this part. However, the corporate income tax base shall not include net income from sales of tangible personal property where title passes outside the United States.
(3) Except as otherwise provided in this section, the corporate income tax base of a foreign person includes the sum of business income and the adjustments under section 623 that are related to United States business activity.
(4) The sales factor for a foreign person is a fraction, the numerator of which is the taxpayer’s total sales in this state during the tax year and the denominator of which is the taxpayer’s total sales in the United States during the tax year. For purposes of this subsection, for sales of tangible personal property, only those sales where title passes inside the United States shall be used in the sales factor, and for sales of property other than tangible personal property, those sales shall be apportioned in accordance with chapter 14.
(5) As used in this section:
(a) “Business income” means, for a foreign person, gross income attributable to the taxpayer’s United States business activity and gross income derived from sources within the United States minus the deductions allowed under the internal revenue code that are related to that gross income. Gross income includes the proceeds from sales shipped or delivered to any purchaser within the United States and for which title transfers within the United States; proceeds from services performed within the United States; and a pro rata proportion of the proceeds from services performed both within and outside the United States to the extent the recipient receives benefit of the services within the United States.
(b) “Domiciled” means the location of the headquarters of the trade or business from which the trade or business of the foreign person is principally managed and directed.
(c) “Foreign person” means a person formed under the laws of a foreign country or a political subdivision of a foreign country, whether or not the person is subject to taxation under the internal revenue code.
Sec. 663. (1) Except as otherwise provided in subsection (2) and section 669, the sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the tax year and the denominator of which is the total sales of the taxpayer everywhere during the tax year. The numerator of a taxpayer shall include its proportionate share of the total sales in this state of a flow-through entity that is unitary with the taxpayer. The denominator of a taxpayer shall include its proportionate share of the total sales everywhere of a flow-through entity that is unitary with the taxpayer. A flow-through entity is unitary with a taxpayer when that taxpayer owns or controls, directly or indirectly, more than 50% of the ownership interests with voting rights or ownership interests that confer comparable rights to voting rights of the flow-through entity, and that has business activities or operations which result in a flow of value between the taxpayer and the flow-through entity, or between the flow-through entity and another flow-through entity unitary with the taxpayer, or has business activities or operations that are integrated with, are dependent upon, or contribute to each other.
(2) Except as otherwise provided under this subsection, for a taxpayer that is a unitary business group, sales include sales in this state of every person included in the unitary business group without regard to whether the person has nexus in this state. Sales between persons included in a unitary business group must be eliminated in calculating the sales factor. Sales between a taxpayer and a flow-through entity unitary with that taxpayer shall, to the extent of the taxpayer’s interest in the flow-through entity, be eliminated in calculating the sales factor. Sales between a flow-through entity unitary with a taxpayer and another flow-through entity unitary with that same taxpayer shall, to the extent of the taxpayer’s interest in the selling flow-through entity, be eliminated in calculating the sales factor.
(3) It is the intent of the legislature that the tax base of a taxpayer is apportioned to this state by multiplying the tax base by the sales factor multiplied by 100% and that apportionment shall not be based on property, payroll, or any other factor notwithstanding section 1 of 1969 PA 343, MCL 205.581.
Enacting section 1. This amendatory act is retroactive and effective for tax years that begin after December 31, 2011.
This act is ordered to take immediate effect.
Clerk of the House of Representatives
Secretary of the Senate
Approved
Governor
