REDUCE INTANGIBLES TAX                                              H.B. 4233 (S-1): FLOOR ANALYSIS

House Bill 4233 (Substitute S-1 as reported)

Sponsor: Senator Charles Perricone

House Committee: Tax Policy

Senate Committee: Finance

CONTENT

The bill would amend the intangibles tax Act to increase the credit allowed against the intangibles tax to $280 (from the current $175), or to $560 for a joint return (from $350), for tax years after 1993. Further, the bill would provide for a reduction in the tax for 1994 through 1997; the tax computed under the Act, minus the deduction, would be reduced by 25% in 1994 and 1995, 50% in 1996, and 75% in 1997.

The bill is tie-barred to Senate Bill 233, which would repeal the intangibles tax effective January 1, 1998.

MCL 205.133 & 205.134                                                                   Legislative Analyst: G. Towne

FISCAL IMPACT

Increasing the intangibles tax credit from $175 to $280 for single returns and from $350 to

$560 for joint returns, would reduce intangibles tax revenue each year by an estimated $14 million. These increases in the tax credits would raise the amount of earnings from intangible property that is exempt from the intangibles tax from $5,000 to $8,000 for single returns and from $10,000 to $16,000 for joint returns. Phasing out the tax under the schedule described above, would further reduce intangibles tax revenue by an estimated

$29 million in FY 1994-95 and $31 million in FY 1995-96. As a result of these two reductions in the intangibles tax, total revenue would be cut by an estimated $43 million in FY 1994-95 and $45 million in FY 1995-96. Senate Bill 233 (H-1) would repeal the intangibles tax effective January 1, 1998. This would reduce revenue by an estimated $155 million in FY 1998-99. These tax cuts would affect the State’s General Fund/General Purpose budget and potentially local governments. The revenue from the intangibles tax goes into the General Fund/General Purpose budget, except for $9.5 million which is earmarked to cities, villages and townships as part of revenue sharing; however, this revenue sharing payment has not been made since FY 1991-92.

The table on the following page indicates the bill’s estimated revenue impact from FY 1994-95 to FY 1998-99.

H.B. 4233 (S-1): Reduction in Intangibles Tax Estimated Revenue Impact FY 1994-95 to FY 1998-99

                                                              (dollars in millions)                                                                

Current Law

FY 95 FY 96 FY 97 FY 98 FY 99*

Exemption Increase	14.0	14.0	14.0	14.0	---
Tax Phase-Out Rate	25%	25%	50%	75%	100%
Revenue Reduction	29.1	31.0	64.7	101.3	155.0

Projected Revenue:                  $130.5        $137.8        $143.3        $149.0        $155.0 Tax Cut Revenue Reduction

Total Tax Cut                                   $43.1          $45.0          $78.7        $115.3        $155.0

*The intangibles tax would be repealed effective January 1, 1998, by Substitute Senate Bill 233 (H-

1).                                                                                                                                                        

Date Completed: 2-21-95                                                                        Fiscal Analyst: J. Wortley

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This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.