DRAFT of Michigan Business Tax Proposed Rule Issued for Comment: Order of Credits
The Michigan Department of Treasury has made available in DRAFT form the following proposed rule: Order of Credits. The proposed rule is circulated for comment before being submitted to the formal rule making process as mandated by the Administrative Procedures Act. I will forward any comments through the MACPA to the Department of Treasury. The comment period is two weeks.
MBT Proposed Draft Rule - Order of Credits
R208.1237-1241; 1400-1459
(1) For purposes of the Michigan Business Tax, the following rules apply to the order of credits.
(a) Insurance Companies taxed under Chapter 2A of the Michigan Business Tax Act shall take Insurance Company Premiums Tax Credits from Chapter 2A of the Michigan Business Tax Act before the credits permitted to insurance companies under Chapter 4 of the Michigan Business Tax Act.
(b) Available Single Business Tax Act carryover credits shall be deducted from liability before any Michigan Business Tax Act credits available under Chapter 4 of the Act.
(c) Unless specified elsewhere in the Michigan Business Tax Act, all credits shall be calculated using tax liability after the deduction of all previous credits.
(d) Unless specified elsewhere in the Michigan Business Tax Act, credits shall be taken according to the statutory language of each credit. In the case of a conflict, the order of enactment shall control. The statutory language of the most recently enacted credit shall control. Where the order of enactment is not determinative, the order of appearance of the credit in statute shall control.
(i) Where the statutory language requires that more than one credit be taken after all other credits, the most recently enacted of such credits shall be taken last.
(ii) Where the statutory language requires that more than one credit be taken before all other credits, the most recently enacted of such credits shall be taken first.
(iii) Where the statutory language requires that more than one credit be taken before or after a specified subset of credits, the most recently enacted credit shall be taken before or after all credits with the same prescribed ordering.
(e) Nonrefundable credits shall be taken before refundable credits.
(f) Where a credit is either nonrefundable or refundable at the election of the taxpayer, and the taxpayer elects a nonrefundable credit, the credit shall be taken before refundable credits.
(g) Where a credit is either nonrefundable or refundable at the election of the taxpayer, and the taxpayer elects a refundable credit, the credit shall be first calculated as nonrefundable and second taken as refundable.
(h) No refundable credit is refundable to the taxpayer until and unless the credit exceeds liability
Is this retro back to 2008. We were going to use the ITC carryover in 2009 rather than 2008.
Reply to this
Ralph,
The final Rule is to explain the law and when promulgated, will have the force and effect of law. It will be effective for 2008 and all years thereafter assuming no legislative change.
The provision specifying that the SBT credit carryover is to be used before all other credits will receive a lot of comments because the law says the compensation credit, the investment tax credit and the research and development credit are taken before the small business alternate tax credit which is taken before all other credits. The SBT credit carryforward should be taken after the small business alternate tax credit.
Reply to this
Ed,
Your comment indicates that the SBT ITC carryforward should be taken after the small business credit, but in the first edition of your MBT Desktop Reference Manual, you indicate that the SBT ITC carryforward should be taken before any other credits are taken. Is one or the other a typo? Or has something changed in your interpretation of the ordering of credits? Also, have you or your staff tried "over-riding" any MBT forms in order to get them to calculate in the way you interpret the law to read, and, if so, have you had any luck with Treasury accepting them? Do you explain what you are doing, or just hope they process as you present it with no explanation?
Thanks,
Michael
Reply to this
Michael,
I am sorry to disappoint you. There is a conflict between the law and Treasury's instructions for Form 4569 Single Business Tax (SBT) Credit Carryforwards. The instructions for Form 4569, Line 31, instruct the taxpayer to carry the total of SBT credit carryforwards to Form 4568, Line 2 which is before all other credits.
Line 31:
Total SBT Credit Carryforwards Used. Standard taxpayers and financial institutions carry this amount to the MBT Nonrefundable Credits Summary (Form 4568), line 2.The MBT Proposed Draft Rule - Ordering of Credits reads in paragraph (1)(b) "Available Single Business Tax Act carryover credits shall be deducted from liability before any Michigan Business Tax Act credits available under Chapter 4 of the Act."
However, the Michigan Business Tax Act in Section 403(l) states: "Notwithstanding any other provision in this act, the credits provided in this section shall be taken before any other credit under this act."
So what does the tax preparer do? In our office we have not encountered this problem yet. However, our tax preparation software will allow us to override the form in order to take the credits as mandated by the law. We recommend that if you do this, first discuss it with the taxpayer and if the taxpayer agrees to take the credits in the order mandated by the law, attach a schedule explaining it.
I would expect Treasury to make an adjustment and advise the taxpayer accordingly. The taxpayer has the right to appeal at an informal conference.
Reply to this