The Michigan Department of Treasury has sent the Streamlined Sales Tax Governing Board a letter certifying that Michigan is in substantial compliance with the terms of the Streamlined Sales and Use Tax Agreement.  The state had until August 1, 2008 to amend the law to come into compliance.  The letter notes that Michigan was in substantial compliance with each section of the Streamlined Sales and Use Tax Agreement on October 1, 2005.  The letter further states that although Streamlined Sales and Use Tax Agreement amendments made after October 1, 2005 have not yet been codified in Michigan statute, legislation addressing those amendments with an effective date of January 1, 2008, has passed Michigan's House of Representatives, and it is expected that the state Senate will pass the legislative package in the near future.

The Michigan legislature has passed and the governor has signed a series of bills to provide significant Michigan Business Tax (MBT) credits for the construction and operation of a new or expanded facility for the manufacture of polycrystalline silicon. The MBT credits are also available to a taxpayer whose business activity conducted in Michigan includes the manufacturing of polycrystaline silicon for solar cells and semiconductor microchips. The credits are available for a period of twelve years beginning with tax years beginning after December 31, 2001 through 2023. The credit is refundable. [PA 262, PA 263, PA 264, PA 265, PA 266 and PA 267]

Public Act 257 of 2008 (PA 257), effective August 4, 2008, amends the Michigan Economic Growth Authority (MEGA) Act to revise the definitions of “qualified high-wage activity” and “qualified new job” and revises the investment requirement for certain eligible businesses to enter into an agreement with MEGA for a Michigan Business Tax credit. The new law defines “qualified high-wage activity” as a business that has an average wage of 300% or more of the federal minimum wage and also specifies that beginning August 4, 2008, MEGA may include the value of the health care benefit in determining the wage paid for each retained job or qualified new job for an eligible business.  The new law also provides that a “qualified new job” means a full-time job at a facility created by an eligible business that is in excess of the number of full-time jobs maintained by that eligible business in Michigan up to 90 days (previously, up to 120 days) before the eligible business became an authorized business.  The new law also requires that a business must agree to invest $50,000 or more per retained job maintained at the facility through construction, acquisition, transfer, purchase, contract, or any other method as determined by MEGA.  Previously, the new capital investment was $50,000 or more per retained job maintained at the at the facility.

Michigan law, the Single Business Tax Act (SBTA) specifies strict requirements before a taxpayer can claim a personal property tax credit.  First, the personal property taxes must be paid (cash basis), Second, only personal property taxes assessed and paid on property classified as "industrial" will qualify for the credit, Third, the taxpayer must file a timely (no extensions) Personal Property Statement, and Fourth, proof of qualification for credit must be submitted with the return.

The Michigan Department of Treasury (Treasury) has issued a release (Michigan Legal Policy Directive 2008-2, 07/29/2008) providing additional guidance for the administration of the credit against the former Single Business Tax.  The credit is equal to 15% of taxes paid on industrial personal property in tax years beginning in 2006 and 2007.  For the 2007 calendar year, the credit is available for a percentage of taxes paid in 2007.  Such taxes could include the 2007 summer and winter taxes paid in 2007 and taxes levied in 2006 but paid in the 2007 tax year. 

The release specifies the proof needed to substantiate the credit.  In addition, for taxes levied under the Industrial Facility Tax, the property must be situated on land classified as industrial property under Michigan law. [MCL 211.34c] Treasury will determine who qualifies for the credit in a leasing situation by using the same proofs required in a non-lease situation.  Treasury will look to the Summer and/or Winter Tax Statement, which will show to whom the property was assessed.  The person named by the local taxing jurisdiction in the bill as liable for the tax may claim the credit, provided all the other qualifiers are met.

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Based on your current e-fxNews profile, below is an item you may find of interest.

PARTNERSHIP (1065), CORPORATION (1120), SCORPORATION (1120S)
Michigan Business Tax (MBT) forms, Draft Only – Do Not Use
Reported on: 07/30/2008

Description: CCH included draft Michigan Business Tax (MBT) forms on our ProSystem fx Tax Releases 2007.06000 and 2007.06010 for Corporate, Partnership, and S-corporate systems without authorization by the Michigan Department of Treasury. These draft forms are not final and have not been fully tested by the Michigan Department of Treasury. The draft MBT forms were provided to us by the Michigan Department of Treasury for internal use only in developing software and were not intended for public release. The draft MBT forms contain a “Preliminary Form – DO NOT FILE” watermark. Do not use these forms and do not file these forms under any circumstance. Please dispose of any copies of the forms that you have printed. Using these forms will result in the returns being rejected by the Michigan Department of Treasury. We will provide final versions of MBT forms when issued by the Michigan Department of Treasury.

The Department of Treasury (Treasury) has stated that Michigan Business Tax (MBT) forms and instructions will be made available to tax practitioners and taxpayers on November 1, 2008.  Although early draft versions of the forms are available; they have been distributed to software vendors for internal software development only.  The early draft versions of the forms are also made available to systems personnel in the Department of Treasury for internal use only in the development of software systems for administration of the MBT. 

At the Business Tax Advisory Group (BTAG) meeting in June, the Treasury announced that draft versions of the MBT forms will NOT be made available to tax practitioners, professional associations (MACPA, State Bar) or industry groups for review and comment before issuance of final forms. 

In the weeks leading up to November 1st, Treasury will be training their call center employees on the new tax forms.  Treasury plans to use a Webinar format to instruct tax practitioners and taxpayers on how to prepare the MBT forms.

Treasury is on pace for a timely roll-out of the MBT forms and instructions.  The only problem would be legislative amendments to the law. 

An early draft version of the Michigan Business Tax forms had been posted on a software vendor's Web site.  The software developer in question posted the draft MBT forms in violation of an agreement with the Department of Treasury that the forms were for internal software development only and were not to be released publicly.

The software company is taking steps to remedy the unauthorized distribution of draft forms.  The Department of Treasury has posted the following on its web site:

Unbeknownst to the Michigan Department of Treasury, a software company recently released copies of an early draft version of Michigan Business Tax (MBT) forms. The drafts were provided to the software company for internal use only as it works to develop its software product.  The company is now notifying customers that the forms were not intended for public release and do not reflect either recently enacted legislation or legislation that is pending.  Department of Treasury representatives will not be answering any questions regarding these forms, as they are drafts and should not have been released publicly.

The U.S. Supreme Court has been asked to review a Michigan case that held that a taxpayer was liable for the Michigan Real Estate Transfer Tax based on the value of the lots as improved by the homes.  The tax is imposed on recorded instruments and the only recorded instrument in the transaction was the deed.  The “value” exchanged for that deed included both the cost of the lot and the home, and so the Tax Tribunal correctly held that that value was the proper measure for taxation.  However, the Tribunal's order imposing penalties on the taxpayer was reversed.  The Department of Treasury did not prove that the taxpayer acted negligently or with any intent to defraud when it paid taxes on the value of the unimproved land and the imposition of penalties is not warranted in the absence of such evidence.  (Lake Forest Partners 2, Inc. v. Michigan Department of Treasury, Mich. S. Ct. (2008) 743 NW2d 881 , cert filed, U.S. S. Ct. Dkt. No. 08-109, 07/22/2008.)

Public Act 207 of 2008, effective July 11, 2008 and operative for the 2008 and later tax years, amends the credit for contributions to a homeless shelter, food kitchen, food bank, etc., to provide that when calculating the amount of the credit allowed a taxpayer may include as a cash contribution an amount equal to the value of food items contributed (if the food items are contributed in conjunction with a program in which a vendor makes a matching contribution of similar items) in the tax year to a homeless shelter, food kitchen, food bank, etc. and is equal to 50% of the sum of the cash amount and the value of food items so contributed. 

Previously, the credit was limited to 50% of the cash amount of contributions.  The bill also provides that the maximum credit allowed taxpayers ($100 for single taxpayers, $200 for those filing a joint return) includes the value of food items contributed. 

The amendment also provides that for a resident estate or trust, the credit is limited to 10% of the taxpayer's liability or $5,000, whichever less, for total cash contributions made and including the value of food items contributed.

Public Act 177 of 2008 amends the Michigan Business Tax (MBT) definition of “purchases from other firms” as it applies to general building contractors, heavy construction contractors and construction special trade contractors that do not qualify for a small business credit under the MBT.  For those companies, purchases from other firms include payments for materials deducted as purchases in determining the cost of goods sold for the purpose of calculating total income on the taxpayer's federal income tax return.  Accordingly, these payments are not be counted in the gross receipts tax base of the MBT.

The amendment would amend the Michigan Business Tax (MBT) Act to include in the definition of "purchases from other firms", for certain builders and contractors, payments for materials deducted as purchases in determining the cost of goods sold for the purpose of calculating total income on a taxpayer's federal income tax return.  Except as otherwise provided, the Act imposes a modified gross receipts tax on every taxpayer with nexus in the State.  The tax is imposed on the modified gross receipts tax base, after allocation or apportionment to the State at a rate of 0.8%. The tax base is a taxpayer's gross receipts less purchases from other firms before apportionment.  The definition of "purchases from other firms" includes, for a person included in Major Groups 15, 16, and 17 under the Standard Industrial Classification Code as compiled by the U.S.  Department of Labor that does not qualify for a credit under Section 417, payments to subcontractors for a construction project under a contract specific to that project.  Under the bill, "purchases from other firms" also would include payments for materials deducted as purchases in determining the cost of goods sold for the purpose of calculating total income on the taxpayer's Federal income tax return. This would apply to the extent the payments were not deducted under provisions allowing deductions for materials and supplies, including repair parts and fuel, and inventory acquired during the tax year, including freight, shipping, delivery, or engineering charges included in the original contract price for that inventory.  The bill would be retroactive and effective for taxes levied after December 31, 2007.  (Major Groups 15, 16, and 17 include general building contractors, heavy construction contractors, and construction special trade contractors.  Section 417 allows a credit against the MBT for any taxpayer with gross receipts that do not exceed $20.0 million and with adjusted business income minus the loss adjustment that does not exceed $1.3 million as adjusted annually for inflation.  [MCL 208.1113]

With the passage of PA 177, the construction industry could have moved from the looser category among MBT taxpayers to the winner circle.  Now a contractor can deduct all payments to subs specific to a job, all materials and supplies used or consumed on a job, the cost of asset acquisitions and the materials and supplies including repair parts and fuel to operate and maintain the construction equipment and other depreciable assets.