Last week and this week I have been reviewing the first of the Michigan Business Tax (MBT) Quarterly Returns.  I have found some issues that affect the tax.  The MBT return is radically different from the Single Business Tax that we have become used to.

The first issue is what number do we use.  You may want to use numbers from the 2007 SBT return.  Be cautious.  SBT numbers from 2007 should be used only if the gross receipts and business income in 2008 is expected to be approximately equal to 2007.  Be careful with the SBT numbers.  There are subtle differences between the SBT and MBT on important numbers like gross receipts, compensation and don't forget the "purchases from other firms" subtraction.  Also, the MBT uses a single factor sales only apportionment formula.

If you use actual numbers for the first three months of 2008, you should annualize these numbers to compute and annual estimated MBT.  The small business credit disqualifier and the smoothing credit require annualization to compute an annual amount. 

Compensation for the MBT credit includes employee benefits but is limited to only Michigan compensation.  Remember the deduction for self-employment income.  The amount of self-employment income is a subtraction from business income and can also be used to calculate the compensation credit.  S Corporations cannot take the subtraction for self-employment income because the S Corporation does not have self-employment income.

I think the biggest area of confusion is the deduction of materials and supplies.  Treasury has taken a very narrow interpretation of what qualifies for the subtraction.

Keep in mind the unitary business income provisions as well as the new rules for nexus and apportionment.

Future quarterly returns should be computed on an annual basis for the quarters involved with a credit for payments made.  Remember, SBT overpayments can be carried forward to the MBT.