Bill Text: MI HB6545 | 2017-2018 | 99th Legislature | Introduced

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Bill Title: Corporate income tax; business income; decoupling from certain federal adjusted gross income provisions; provide for. Amends secs. 607 & 623 of 1967 PA 281 (MCL 206.607 & 206.623).

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced - Dead) 2018-11-29 - Bill Electronically Reproduced 11/28/2018 [HB6545 Detail]

Download: Michigan-2017-HB6545-Introduced.html

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HOUSE BILL No. 6545

 

 

November 28, 2018, Introduced by Rep. Tedder and referred to the Committee on Tax Policy.

 

     A bill to amend 1967 PA 281, entitled

 

"Income tax act of 1967,"

 

by amending sections 607 and 623 (MCL 206.607 and 206.623), section

 

607 as amended by 2018 PA 38 and section 623 as amended by 2014 PA

 

13.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 607. (1) "Federal taxable income" means taxable income as

 

defined in section 63 of the internal revenue code, except that

 

federal taxable income shall be calculated as if section sections

 

163(j), 168(k), and section 199 of the internal revenue code were

 

not in effect.

 

     (2) "Flow-through entity" means an entity that for the

 

applicable tax year is treated as a subchapter S corporation under

 

section 1362(a) of the internal revenue code, a general

 

partnership, a trust, a limited partnership, a limited liability

 

partnership, or a limited liability company, that for the tax year

 

is not taxed as a corporation for federal income tax purposes.

 

Flow-through entity does not include any entity disregarded under

 

section 699.

 

     (3) "Foreign operating entity" means a United States

 

corporation that satisfies each of the following:

 

     (a) Would otherwise be a part of a unitary business group that

 

has at least 1 corporation included in the unitary business group

 

that is taxable in this state.

 

     (b) Has substantial operations outside the United States, the

 

District of Columbia, any territory or possession of the United

 

States except for the Commonwealth of Puerto Rico, or a political

 

subdivision of any of the foregoing.

 

     (c) At least 80% of its income is active foreign business

 

income as defined in section 861(c)(1)(B) 871(l)(1)(B) of the

 

internal revenue code.

 

     (4) "Gross receipts" means the entire amount received by the

 

taxpayer from any activity whether in intrastate, interstate, or

 

foreign commerce carried on for direct or indirect gain, benefit,

 

or advantage to the taxpayer or to others except for the following:

 

     (a) Proceeds from sales by a principal that the taxpayer

 

collects in an agency capacity solely on behalf of the principal

 

and delivers to the principal.

 

     (b) Amounts received by the taxpayer as an agent solely on

 

behalf of the principal that are expended by the taxpayer for any

 

of the following:

     (i) The performance of a service by a third party for the

 

benefit of the principal that is required by law to be performed by

 

a licensed person.

 

     (ii) The performance of a service by a third party for the

 

benefit of the principal that the taxpayer has not undertaken a

 

contractual duty to perform.

 

     (iii) Principal and interest under a mortgage loan or land

 

contract, lease or rental payments, or taxes, utilities, or

 

insurance premiums relating to real or personal property owned or

 

leased by the principal.

 

     (iv) A capital asset of a type that is, or under the internal

 

revenue code will become, eligible for depreciation, amortization,

 

or accelerated cost recovery by the principal for federal income

 

tax purposes, or for real property owned or leased by the

 

principal.

 

     (v) Property not described under subparagraph (iv) purchased

 

by the taxpayer on behalf of the principal and that the taxpayer

 

does not take title to or use in the course of performing its

 

contractual business activities.

 

     (vi) Fees, taxes, assessments, levies, fines, penalties, or

 

other payments established by law that are paid to a governmental

 

entity and that are the legal obligation of the principal.

 

     (c) Amounts that are excluded from gross income of a foreign

 

corporation engaged in the international operation of aircraft

 

under section 883(a) of the internal revenue code.

 

     (d) Amounts received by an advertising agency used to acquire

 

advertising media time, space, production, or talent on behalf of

another person.

 

     (e) Notwithstanding any other provision of this section,

 

amounts received by a taxpayer that manages real property owned by

 

the taxpayer's client that are deposited into a separate account

 

kept in the name of the taxpayer's client and that are not

 

reimbursements to the taxpayer and are not indirect payments for

 

management services that the taxpayer provides to that client.

 

     (f) Proceeds from the taxpayer's transfer of an account

 

receivable if the sale that generated the account receivable was

 

included in gross receipts for federal income tax purposes. This

 

subdivision does not apply to a taxpayer that during the tax year

 

both buys and sells any receivables.

 

     (g) Proceeds from any of the following:

 

     (i) The original issue of stock or equity instruments.

 

     (ii) The original issue of debt instruments.

 

     (h) Refunds from returned merchandise.

 

     (i) Cash and in-kind discounts.

 

     (j) Trade discounts.

 

     (k) Federal, state, or local tax refunds.

 

     (l) Security deposits.

 

     (m) Payment of the principal portion of loans.

 

     (n) Value of property received in a like-kind exchange.

 

     (o) Proceeds from a sale, transaction, exchange, involuntary

 

conversion, or other disposition of tangible, intangible, or real

 

property that is a capital asset as defined in section 1221(a) of

 

the internal revenue code or land that qualifies as property used

 

in the trade or business as defined in section 1231(b) of the

internal revenue code, less any gain from the disposition to the

 

extent that gain is included in federal taxable income.

 

     (p) The proceeds from a policy of insurance, a settlement of a

 

claim, or a judgment in a civil action less any proceeds under this

 

subdivision that are included in federal taxable income.

 

     (5) "Insurance company" means an authorized insurer as defined

 

in section 108 of the insurance code of 1956, 1956 PA 218, MCL

 

500.108. Insurance company does not include a health maintenance

 

organization authorized under chapter 35 of the insurance code of

 

1956, 1956 PA 218, MCL 500.3501 to 500.3573.

 

     (6) "Internal revenue code" means the United States internal

 

revenue code of 1986 in effect on January 1, 2018 or, at the option

 

of the taxpayer, in effect for the tax year.

 

     (7) "Member", when used in reference to a flow-through entity,

 

means a shareholder of a subchapter S corporation, a partner in a

 

general partnership, a limited partnership, or a limited liability

 

partnership, a member of a limited liability company, or a

 

beneficiary of a trust that is a flow-through entity.

 

     Sec. 623. (1) Except as otherwise provided in this part, there

 

is levied and imposed a corporate income tax on every taxpayer with

 

business activity within this state or ownership interest or

 

beneficial interest in a flow-through entity that has business

 

activity in this state unless prohibited by 15 USC 381 to 384. The

 

corporate income tax is imposed on the corporate income tax base,

 

after allocation or apportionment to this state, at the rate of

 

6.0%.

 

     (2) The corporate income tax base means a taxpayer's business

income subject to the following adjustments, before allocation or

 

apportionment, and the adjustment in subsection (4) after

 

allocation or apportionment:

 

     (a) Add interest income and dividends derived from obligations

 

or securities of states other than this state, in the same amount

 

that was excluded from federal taxable income, less the related

 

portion of expenses not deducted in computing federal taxable

 

income because of sections 265 and 291 of the internal revenue

 

code.

 

     (b) Add all taxes on or measured by net income including the

 

tax imposed under this part to the extent that the taxes were

 

deducted in arriving at federal taxable income.

 

     (c) Add any carryback or carryover of a net operating loss to

 

the extent deducted in arriving at federal taxable income.

 

     (d) To the extent included in federal taxable income, deduct

 

dividends and royalties received from persons other than United

 

States persons and foreign operating entities, including, but not

 

limited to, amounts determined under section 78 of the internal

 

revenue code or sections 951 to 964 965 of the internal revenue

 

code.

 

     (e) Except as otherwise provided under this subdivision, to

 

the extent deducted in arriving at federal taxable income, add any

 

royalty, interest, or other expense paid to a person related to the

 

taxpayer by ownership or control for the use of an intangible asset

 

if the person is not included in the taxpayer's unitary business

 

group. The addition of any royalty, interest, or other expense

 

described under this subdivision is not required to be added if the

taxpayer can demonstrate that the transaction has a nontax business

 

purpose, is conducted with arm's-length pricing and rates and terms

 

as applied in accordance with sections 482 and 1274(d) of the

 

internal revenue code, and 1 of the following is true:

 

     (i) The transaction is a pass through of another transaction

 

between a third party and the related person with comparable rates

 

and terms.

 

     (ii) An addition would result in double taxation. For purposes

 

of this subparagraph, double taxation exists if the transaction is

 

subject to tax in another jurisdiction.

 

     (iii) An addition would be unreasonable as determined by the

 

state treasurer.

 

     (iv) The related person recipient of the transaction is

 

organized under the laws of a foreign nation which has in force a

 

comprehensive income tax treaty with the United States.

 

     (f) To the extent included in federal taxable income, deduct

 

interest income derived from United States obligations.

 

     (g) For tax years beginning after December 31, 2011, eliminate

 

all of the following:

 

     (i) Income from producing oil and gas to the extent included

 

in federal taxable income.

 

     (ii) Expenses of producing oil and gas to the extent deducted

 

in arriving at federal taxable income.

 

     (h) For tax years beginning after December 31, 2012, for a

 

qualified taxpayer, eliminate all of the following:

 

     (i) Income derived from a mineral to the extent included in

 

federal taxable income.

     (ii) Expenses related to the income deductible under

 

subparagraph (i) to the extent deducted in arriving at federal

 

taxable income.

 

     (3) For purposes of subsection (2), the business income of a

 

unitary business group is the sum of the business income of each

 

person included in the unitary business group less any items of

 

income and related deductions arising from transactions including

 

dividends between persons included in the unitary business group.

 

     (4) Deduct any available business loss incurred after December

 

31, 2011. As used in this subsection, "business loss" means a

 

negative business income taxable amount after allocation or

 

apportionment. For purposes of this subsection, a taxpayer that

 

acquires the assets of another corporation in a transaction

 

described under section 381(a)(1) or (2) of the internal revenue

 

code may deduct any business loss attributable to that distributor

 

or transferor corporation. The business loss shall be carried

 

forward to the year immediately succeeding the loss year as an

 

offset to the allocated or apportioned corporate income tax base,

 

then successively to the next 9 taxable years following the loss

 

year or until the loss is used up, whichever occurs first.

 

     (5) As used in this section, "oil and gas" means oil and gas

 

that is subject to severance tax under 1929 PA 48, MCL 205.301 to

 

205.317.

 

     Enacting section 1. This amendatory act is retroactive and

 

effective January 1, 2018 and applies to all business activity

 

occurring after December 31, 2017.