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 SINGLE BUSINESS1

LEGAL CITATION:

M.C.L. 208.1 et seq.; 1975 PA 228.

YEAR ADOPTED: 1975

BASIS OF TAX:

Privilege of doing business in Michigan. Tax applies to corporations and unincorporated businesses with gross receipts exceeding $350,000.

Elimination of the Single Business Tax (SBT)

Public Act 115 of 1999 provided for reduction of the Single Business Tax (SBT) rate by one-tenth of a percentage point per year from its 1998 rate of 2.3% until the tax is eliminated. This process has been accelerated through the initiative process. On August 9, 2006, the Michigan Legislature approved voter-initiated legislation (Public Act 325 of 2006) to repeal the SBT effective for tax years beginning after December 31, 2007. Legislative approval of legislation is not subject to veto by the Governor, unlike conventional bills introduced by legislators and approved by both houses of the Legislature. The revenue effect of the repeal of the SBT will be approximately $1.9 billion on a full-year basis and fall entirely on the General Fund of the state, with some of the loss affecting FY2008 and the remainder FY2009. The initiated law contains language that encourages the legislature to: "adopt a tax that is less burdensome and less costly to employers, more equitable, and more conducive to job creation and investment."


MEASURE OF TAX (BASE):

A value-added type tax imposed basically on business income plus compensation paid, interest paid, and depreciation, with major deductions for new capital investments and labor intensity. Compensation excludes social security and Medicare contributions, unemployment insurance and workers' compensation payments, and a portion of health and welfare payments for Michigan residents. Effective after December 31, 1999, the deduction for capital investments is replaced by an investment tax credit. Business conducted in the state is subject to the tax even if the business does not have a physical presence in the state.

Adjustments to Base:
Base begins with federal taxable income of business entity, adjusted to:

  1. add back certain federal tax deductions (e.g. Single Business Tax paid; income taxes; compensation paid; depreciation; loss carryback/forward; interest; dividends; dividend income from Michigan bonds and certain Michigan obligations; partnership losses; royalties paid (except system software); certain capital gains);
  2. deduct certain items included in federal taxable income (dividends, interest, partnership income, royalties received, excluding certain royalties paid by television broadcasters and by theaters to film distributors, oil and gas royalties, cable franchise fees paid to units of government and computer software royalties (except system software); certain capital losses); income due to grants received from certain funds established to aid the development of a small business involved in technology industries; payments or credits made to or on behalf of a taxpayer to defray the taxpayer's floor plan interest;
  3. add the loss or deduct the gain attributable to another taxable business, to the extent included in federal taxable income;
  4. add rent paid or deduct rent received if attributable to a sale/lease-back arrangement for federal income tax purposes only.

Apportionment:
Entire tax base is allocated to Michigan if business activity is confined to the state. For businesses with multi-state activity, the apportionment formula is: sales 92.5%, property 3.75%, and payroll 3.75%, with exceptions for certain types of businesses.

Adjustments to Apportioned Tax Base:
Thereafter, base is adjusted by an addition for proceeds from the disposition of tangible assets for which a deduction for capital expenditures ("capital acquisition deduction") has previously been taken. Previously unused capital acquisition deductions may be carried forward up to 10 years after year in which originally claimed to offset future tax bases (business loss deductions).

Exemptions are allowed for:

  1. first $45,000 of tax base, plus up to $48,000 for partnerships and small corporations, with reductions as income rises; exemption phased out as modified business income rises;
  2. governmental agencies;
  3. most "persons" exempt from federal income taxes;
  4. nonprofit cooperative housing corporations;
  5. portion of disability insurance premiums of insurers;
  6. agricultural producers;
  7. sales of nursery stock (trees, shrubs, plants) grown by the seller to a nursery dealer;
  8. certain revenues and expenses of farmers' cooperatives;
  9. expenses attributable to multiple employer arrangements to fund dental benefits.

Exclusions are allowed:

  1. if adjusted base exceeds 50% of gross receipts plus certain adjustments;
  2. if compensation paid exceeds 63% of tax base;
  3. if royalties are paid to a franchisor for out of state use of trade names, trademarks, or similar intangible property.

Credits are allowed for:

  1. up to 100% of tax liability for small businesses with low profits;
  2. up to 20% of tax liability for "Subchapter S" corporations and unincorporated businesses;
  3. 5% of state property taxes on state assessed utilities;
  4. 50% of certain contributions up to a limit;
  5. federal unemployment penalty taxes paid by new Michigan employers;
  6. amounts paid for worker's compensation supplemental cost of living payments;
  7. business activity in certain areas related to high technology, or in an enterprise zone or renaissance zone;
  8. 50% of investments in certain minority venture capital companies;
  9. investment and job creation as determined by Michigan economic growth authority. This credit expires December 31, 2009;
  10. apprenticeship training between $1,000 and $4,000 per apprentice;
  11. 10% of investments in brownfield redevelopment zones, up to $30 million;
  12. 25% of qualified expenditures made for rehabilitation of a historic resource;
  13. the difference between the amount repaid by the Michigan Early Stage Venture Capital Investment Fund and the negotiated repayment amount if the fund could not repay the negotiated return on a person's investment. This credit is available after 2008 and before 2020;
  14. 0.85% to 2.30% (depending upon size) of the capital expenditures physically located in the state adjusted down by the proportion of the SBT rate in effect in the year of the capital expenditure divided by the pre-1999 rate of 2.3%;
  15. $1 per long ton of low-grade hematite consumed in industrial or manufacturing process;
  16. 6.5% of increased qualified research related to an eligible taxpayer's pharmaceutical based business activity above;
  17. SBT liability of the start up business in tax years that the qualified business has no business income;
  18. Percentage of compensation paid to employees in "created jobs" in technology and manufacturing industries;
  19. 50% credit for donations of certain automobile donations to qualified organizations, up to $100 per vehicle donated;
  20. Difference between the negotiated rate of return on an original investment in the Michigan Early Stage Venture Capital Investment Fund and the actual repayment. This difference is issued in the form of a tax voucher that may be used to pay any tax liability. Any amount of a voucher not used in one tax year may be used in subsequent years to satisfy any tax liability. The vouchers are available after 2008 and before 2020.
  21. Research, development, or manufacturing of an alternative energy system, alternative energy vehicle, alternative energy technology, or renewable fuel based. One credit based qualified business activity; another credit based on qualified payroll amount.
  22. 15% of industrial personal property taxes paid. This credit expires December 31, 2009.
  23. 100% of personal property taxes associated with high-tech or manufacturing jobs transferred to Michigan from outside the state. This credit expires December 31, 2009.
  24. 3.9% of the compensation paid to employees at a facility in Troy that is engaged in research and development of a two-mode hybrid car engine. The maximum credit in a single year is $3 million and is refundable. The credit is available for tax years 2006 through 2015.

RATE: 1.9% for 2005; alternative tax of 2% of adjusted business income for eligible small businesses; insurance companies are subject to a tax of 1.0735% of adjusted receipts.

ADMINISTRATION: Michigan Department of Treasury.

REPORT AND PAYMENT: Due April 30. Estimated quarterly returns and payments due last day of April, July, October, and January if estimated liability for year is over $600 or if expected adjustments for capital acquisitions or dispositions exceed $100,000; due dates adjusted for taxpayers with fiscal year other than calendar year. A taxpayer with annualized apportioned gross receipts of less than $350,000 need not file a return.

DISPOSITION: 100% to General Fund.

2006-07 COLLECTIONS: $1,868,953,000. Excludes tax paid by insurance companies.

2006-07 COLLECTIONS/UNIT: $984 million per 1% net after refunds and credits.

Single Business Tax Law Changes

Historic Single Business Tax Revenue


1 The Single Business Tax replaced eight previous taxes including an income tax on corporations and financial institutions, an annual corporation franchise fee, the business portion of the intangibles tax, the property tax on inventories, and various privilege taxes on savings and loans and domestic insurance companies.

 

 

 

 

 

 

Last Updated July 22, 2008