Yesterday, I had the privilege and opportunity to moderate a three hour discussion of the Michigan Business Tax at the State Tax Forum sponsored by the Michigan Association of CPAs.  There were over 200 in attendance.

Throughout the morning the various speakers discussed some of the major changes in the MBT as opposed to the SBT.  It seemed after each presentation I added "these provisions are designed to aid or assist a Michigan based business activity".  Then, during the Question and Answer session, someone asked:  How does the MBT provide incentive for service industries to locate in Michigan?

My Answer:  If a service business provides services in Michigan for customers located outside of Michigan, the changes in the nexus standard will make it easier to qualify for apportionment of tax base.  The changes in the apportionment rules for sourcing sales from services will allow the service business to exclude from the numerator of the sales factor those sales where the customer receives the benefit outside of Michigan.  In theory, if all the customers of a service business were located outside of Michigan, they would pay no MBT even if all the service work was performed in Michigan, assuming nexus was established in at least one state other than Michigan.

Also, the Michigan based service business could claim credits for compensation paid in Michigan, investments of tangible property made in Michigan and research and development done in Michigan.  These credits are only available if the business activity was conducted in Michigan.