A working group has been meeting under the leadership of House Tax Policy Chair Representative Steve Bieda to consider amendments to the MBT as passed the Senate in the form of Senate Bill 1038.  Commentators have given this legislation a very good chance of passage.

Following are the key provisions from the working group:

1.Codify in the statute that the method of accounting to be used for the computation of the modified gross receipts tax base will be the method of accounting used for purposes of the federal income tax.  However, if the accrual method is used, it raises issues with bad debts and similar items for which a deduction or other adjustment is later allowed for federal income tax and which would need to be dealt with for Michigan receipts purposes.

2.Only the net gain from transactions involved with the treasury functions would be included in gross receipts.  This provision may also specifically address hedging transactions and tax-free or other reorganizations.

3.Passive personal investment activity of partnerships and trusts not involved in a trade or business would be excluded from the MBT if for estate or gift purposes.  The proposed law would exclude "exclusively" from the definition.

4.Interest and dividends from federal and Michigan investments would be excluded from gross receipts along with other federal, state or municipal bond income.

5.Foreign royalties and dividends, including deemed foreign dividends, would be excluded from gross receipts.

6.Sales, use, excise, telecommunications, utility, fuel taxes and bottle deposits would be excluded from gross receipts.

7.A flow-through entity receiving income from another flow-through entity subject to the MBT could exclude from gross receipts such income.

8.Exclude gross receipts from property acquired and fully depreciated under IRC section 168 prior to January 1, 2008.

The above list provides a brief sketch of what the working group and the House Tax Policy Committee is working on.