The lost revenue from the repeal of the Use Tax on Services (PA 36 of 2007) will be replaced entirely by adjustments to the Michigan Business Tax Act (MBTA). The revenue is enhanced by the imposition of a surcharge and further limitations on the compensation credit, investment tax credit and the research and development credit.

New Section 281 - Surcharge

The new section 281 imposes a surcharge in the amount of 21.99%. The surcharge is imposed as a percentage of the taxpayer’s tax liability after allocation and apportionment but before credits. The surcharge for a financial institution is 27.7% for tax years ending in 2008 and 23.4% for tax years ending after 2008.

The surcharge is not imposed on an insurance company subject to the tax imposed under Chapter 2A of the MBTA and a financial institution subject to the tax imposed under Chapter 2B of the MBTA that is authorized to exercise only trust powers.

The surcharge will sunset after January 1, 2017 if the Michigan personal income growth exceeds certain statutory percentage figures in any one of the three years preceding 2017. The surcharge is capped at $6,000,000 for any taxpayer for any single tax year.

Amended Section 403(1) – Compensation Credit Limitation

The compensation credit was originally limited to 65% of the tax liability before credits. The amendment to Section 403(1) reduces the limitation to 50% for the 2008 tax year and 52% for the 2009 tax year and each year thereafter. The limitation is imposed on the tax liability before the imposition and levy of the surcharge under Section 281 and before all other credits.

Amended Section 403(2) – Compensation Credit Percentage

The compensation credit was originally 0.370% of the taxpayer’s compensation in Michigan. The amendment to Section 403(2) reduces the percentage amount to 0.296% for the 2008 tax year only. For the 2009 tax year and each tax year thereafter, the credit percentage remains at 0.370%.

Amended Section 403(3) – Investment Tax Credit Percentage

The investment tax credit was originally 2.9% of the taxpayer’s net acquisitions in Michigan. The amendment to Section 403(3) reduces the percentage amount to 2.32% for the 2008 tax year only. For the 2009 tax year and each tax year thereafter, the credit percentage remains at 2.9%.

Amended Section 405 – Research and Development Credit Percentage

The research and development credit was originally 1.9% of the taxpayer’s research and development expenses in Michigan. The amendment to Section 405 reduces the percentage amount to 1.52% for the 2008 tax year only. For the 2009 tax year and each tax year thereafter, the credit percentage remains at 1.9%.

Amended Section 405 – Research and Development Credit Limitation

In the original MBTA, the combination of compensation credit, investment tax credit and the research and development credit could not exceed 75% of the total tax liability. The amendment to Section 405 reduces the limitation amount to 65% of the tax liability before the imposition and levy of the surcharge under Section 281.