At approximately 2:00 A.M. Saturday morning, the House of Representatives passed their version of Senate Bill 1038.  The legislation would provide certain exclusions from the definition of gross receipts under the Michigan Business Tax (MBT).

In the final version, House Democrats stripped out language to exclude gross proceeds from the sale of a business.  The stripped out language was a business interest provision which clarified the exclusion of items that were never intended to be included in gross receipts (e.g., capital contributions) and ensured that only the net gain on a taxable disposition of  a business interest would be included in gross receipts.

In addition, House Democrats "tie-barred" the bill to two un-related issues; "Kreiner" legislation which would lower the bar on what legally qualifies as "serious Impairment of body function" under Michigan's no-fault auto insurance system, and labor legislation that includes campaign check-offs for payroll deductions to go to unions.  Tie-bars mean that all bills must be signed into law in order for any of them to be effective.  Business groups are opposed to both of these "tie-bar" bills. 

As passed by the House, SB 1038 would do the following:

1.Specify that the method of accounting used for federal income tax purposes would be used to determine "gross receipts".

2.Provides that 'gross receipts" does not include bad debt  and previously recognized income relation to proceeds on contingent sales.

3.Provides an exclusion from "gross receipts" for proceeds from hedging transactions, specifying that only the gain from hedging transactions are to be included in "gross receipts'.

4.Provides an exclusion from "gross receipts" for proceeds from treasury functions, specifying that only the gain from hedging transactions are to be included in "gross receipts".

5.Clarify the exclusion for an individual, estate or other person organized for estate and gift purposes when the amount received is not from the active conduct of a trade or business. The term "exclusively" was omitted.

6.Provides an exclusion from "gross receipts" for proceeds from investment activity of an individual and related person.

7.Provides an exclusion from "gross receipts" for interest income and dividends from the US Government, the State of Michigan or other political subdivision.

8.Provides an exclusion from "gross receipts" for foreign dividend and royalty income.

9.Provides an exclusion from "gross receipts" for taxes and other governmental fees collected in an agency capacity and paid to a governmental entity.

10.Provides an exclusion from "gross receipts" for proceeds from a pass-through entity.

The above listing is brief summary of the legislation.  The actual legislation should be read to obtain all the details. 

SB 1038 can be found on the Michigan Legislature's website at:
http://www.legislature.mi.gov/documents/2007-2008/billengrossed/Senate/pdf/2008-SEBH-1038.pdf