May 3, 2005, Introduced by Rep. Green and referred to the Committee on Tax Policy.
A bill to amend 1967 PA 281, entitled
"Income tax act of 1967,"
by amending section 30 (MCL 206.30), as amended by 2004 PA 394.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 30. (1) "Taxable income" means, for a person other than a
corporation, estate, or trust, adjusted gross income as defined in
the internal revenue code subject to the following adjustments
under this section:
(a) Add gross interest income and dividends derived from
obligations or securities of states other than Michigan, in the
same amount that has been excluded from adjusted gross income less
related expenses not deducted in computing adjusted gross income
because of section 265(a)(1) of the internal revenue code.
(b) Add taxes on or measured by income to the extent the taxes
have been deducted in arriving at adjusted gross income.
(c) Add losses on the sale or exchange of obligations of the
United States government, the income of which this state is
prohibited from subjecting to a net income tax, to the extent that
the loss has been deducted in arriving at adjusted gross income.
(d) Deduct, to the extent included in adjusted gross income,
income derived from obligations, or the sale or exchange of
obligations, of the United States government that this state is
prohibited by law from subjecting to a net income tax, reduced by
any interest on indebtedness incurred in carrying the obligations
and by any expenses incurred in the production of that income to
the extent that the expenses, including amortizable bond premiums,
were deducted in arriving at adjusted gross income.
(e) Deduct, to the extent included in adjusted gross income,
compensation, including retirement benefits, received for services
in the armed forces of the United States.
(f) Deduct the following to the extent included in adjusted
gross income:
(i) Retirement or pension benefits received from a federal
public retirement system or from a public retirement system of or
created by this state or a political subdivision of this state.
(ii) Retirement or pension benefits received from a public
retirement system of or created by another state or any of its
political subdivisions if the income tax laws of the other state
permit a similar deduction or exemption or a reciprocal deduction
or exemption of a retirement or pension benefit received from a
public retirement system of or created by this state or any of the
political subdivisions of this state.
(iii) Social security benefits as defined in section 86 of the
internal revenue code.
(iv) Before October 1, 1994, retirement or pension benefits
from any other retirement or pension system as follows:
(A) For a single return, the sum of not more than $7,500.00.
(B) For a joint return, the sum of not more than $10,000.00.
(v) After September 30, 1994, retirement or pension benefits
not deductible under subparagraph (i) or subdivision (e) from any
other retirement or pension system or benefits from a retirement
annuity policy in which payments are made for life to a senior
citizen, to a maximum of $30,000.00 for a single return and
$60,000.00 for a joint return. The maximum amounts allowed under
this subparagraph shall be reduced by the amount of the deduction
for retirement or pension benefits claimed under subparagraph (i) or
subdivision (e) and for tax years after the 1996 tax year by the
amount of a deduction claimed under subdivision (r). For the 1995
tax year and each tax year after 1995, the maximum amounts allowed
under this subparagraph shall be adjusted by the percentage
increase in the United States consumer price index for the
immediately preceding calendar year. The department shall annualize
the amounts provided in this subparagraph and subparagraph (iv) as
necessary for tax years that end after September 30, 1994. As used
in this subparagraph, "senior citizen" means that term as defined
in section 514.
(vi) The amount determined to be the section 22 amount eligible
for the elderly and the permanently and totally disabled credit
provided in section 22 of the internal revenue code.
(g) Adjustments resulting from the application of section 271.
(h) Adjustments with respect to estate and trust income as
provided in section 36.
(i) Adjustments resulting from the allocation and
apportionment provisions of chapter 3.
(j) Deduct political contributions as described in section 4
of the Michigan campaign finance act, 1976 PA 388, MCL 169.204, or
section
301 of title III of the federal election campaign act of
1971,
Public Law 92-225, 2 U.S.C. 431 2
USC 431, not in excess of
$50.00 per annum, or $100.00 per annum for a joint return.
(k) Deduct, to the extent included in adjusted gross income,
wages not deductible under section 280C of the internal revenue
code.
(l) Deduct the following payments made by the taxpayer in the
tax year:
(i) The amount of payment made under an advance tuition payment
contract as provided in the Michigan education trust act, 1986 PA
316,
MCL 390.1421 to 390.1444 390.1442.
(ii) The amount of payment made under a contract with a private
sector investment manager that meets all of the following criteria:
(A) The contract is certified and approved by the board of
directors of the Michigan education trust to provide equivalent
benefits and rights to purchasers and beneficiaries as an advance
tuition payment contract as described in subparagraph (i).
(B) The contract applies only for a state institution of
higher education as defined in the Michigan education trust act,
1986
PA 316, MCL 390.1421 to 390.1444 390.1442, or a community or
junior college in Michigan.
(C) The contract provides for enrollment by the contract's
qualified beneficiary in not less than 4 years after the date on
which the contract is entered into.
(D) The contract is entered into after either of the
following:
(I) The purchaser has had his or her offer to enter into an
advance tuition payment contract rejected by the board of directors
of the Michigan education trust, if the board determines that the
trust cannot accept an unlimited number of enrollees upon an
actuarially sound basis.
(II) The board of directors of the Michigan education trust
determines that the trust can accept an unlimited number of
enrollees upon an actuarially sound basis.
(m) If an advance tuition payment contract under the Michigan
education
trust act, 1986 PA 316, MCL 390.1421 to
390.1444
390.1442, or another contract for which the payment was deductible
under subdivision (l) is terminated and the qualified beneficiary
under that contract does not attend a university, college, junior
or community college, or other institution of higher education, add
the amount of a refund received by the taxpayer as a result of that
termination or the amount of the deduction taken under subdivision
(l) for payment made under that contract, whichever is less.
(n) Deduct from the taxable income of a purchaser the amount
included as income to the purchaser under the internal revenue code
after the advance tuition payment contract entered into under the
Michigan
education trust act, 1986 PA 316, MCL 390.1421 to 390.1444
390.1442, is terminated because the qualified beneficiary attends
an institution of postsecondary education other than either a state
institution of higher education or an institution of postsecondary
education located outside this state with which a state institution
of higher education has reciprocity.
(o) Add, to the extent deducted in determining adjusted gross
income, the net operating loss deduction under section 172 of the
internal revenue code.
(p) Deduct a net operating loss deduction for the taxable year
as determined under section 172 of the internal revenue code
subject to the modifications under section 172(b)(2) of the
internal revenue code and subject to the allocation and
apportionment provisions of chapter 3 of this act for the taxable
year in which the loss was incurred.
(q) For a tax year beginning after 1986, deduct, to the extent
included in adjusted gross income, benefits from a discriminatory
self-insurance medical expense reimbursement plan.
(r) After September 30, 1994 and before the 1997 tax year, a
taxpayer who is a senior citizen may deduct, to the extent included
in adjusted gross income, interest and dividends received in the
tax year not to exceed $1,000.00 for a single return or $2,000.00
for a joint return. However, for tax years before the 1997 tax
year, the deduction under this subdivision shall not be taken if
the taxpayer takes a deduction for retirement benefits under
subdivision (e) or a deduction under subdivision (f)(i), (ii), (iv),
or (v). For tax years after the 1996 tax year, a taxpayer who is a
senior citizen may deduct to the extent included in adjusted gross
income, interest, dividends, and capital gains received in the tax
year not to exceed $3,500.00 for a single return and $7,000.00 for
a joint return for the 1997 tax year, and $7,500.00 for a single
return and $15,000.00 for a joint return for tax years after the
1997 tax year. For tax years after the 1996 tax year, the maximum
amounts allowed under this subdivision shall be reduced by the
amount of a deduction claimed for retirement benefits under
subdivision (e) or a deduction claimed under subdivision (f)(i),
(ii), (iv), or (v). For the 1995 tax year, for the 1996 tax year, and
for each tax year after the 1998 tax year, the maximum amounts
allowed under this subdivision shall be adjusted by the percentage
increase in the United States consumer price index for the
immediately preceding calendar year. The department shall annualize
the amounts provided in this subdivision as necessary for tax years
that end after September 30, 1994. As used in this subdivision,
"senior citizen" means that term as defined in section 514.
(s) Deduct, to the extent included in adjusted gross income,
all of the following:
(i) The amount of a refund received in the tax year based on
taxes paid under this act.
(ii) The amount of a refund received in the tax year based on
taxes paid under the city income tax act, 1964 PA 284, MCL 141.501
to 141.787.
(iii) The amount of a credit received in the tax year based on a
claim filed under sections 520 and 522 to the extent that the taxes
used to calculate the credit were not used to reduce adjusted gross
income for a prior year.
(t) Add the amount paid by the state on behalf of the taxpayer
in the tax year to repay the outstanding principal on a loan taken
on which the taxpayer defaulted that was to fund an advance tuition
payment contract entered into under the Michigan education trust
act,
1986 PA 316, MCL 390.1421 to 390.1444 390.1442, if the cost
of the advance tuition payment contract was deducted under
subdivision (l) and was financed with a Michigan education trust
secured loan.
(u) For the 1998 tax year and each tax year after the 1998 tax
year, deduct the amount calculated under section 30d.
(v) For tax years that begin on and after January 1, 1994,
deduct, to the extent included in adjusted gross income, any
amount, and any interest earned on that amount, received in the tax
year by a taxpayer who is a Holocaust victim as a result of a
settlement of claims against any entity or individual for any
recovered asset pursuant to the German act regulating unresolved
property claims, also known as Gesetz zur Regelung offener
Vermogensfragen, as a result of the settlement of the action
entitled
In re: Holocaust victims victim assets litigation, CV-
96-4849, CV-96-6161
CV-96-5161, and CV-97-0461 (E.D. NY), or as a
result of any similar action if the income and interest are not
commingled in any way with and are kept separate from all other
funds and assets of the taxpayer. As used in this subdivision:
(i) "Holocaust victim" means a person, or the heir or
beneficiary of that person, who was persecuted by Nazi Germany or
any Axis regime during any period from 1933 to 1945.
(ii) "Recovered asset" means any asset of any type and any
interest earned on that asset including, but not limited to, bank
deposits, insurance proceeds, or artwork owned by a Holocaust
victim during the period from 1920 to 1945, withheld from that
Holocaust victim from and after 1945, and not recovered, returned,
or otherwise compensated to the Holocaust victim until after 1993.
(w) For tax years that begin after December 31, 1999, deduct,
to the extent not deducted in determining adjusted gross income,
both of the following:
(i) The total of all contributions made on and after October 1,
2000 by the taxpayer in the tax year to education savings accounts
pursuant to the Michigan education savings program act, 2000 PA
161, MCL 390.1471 to 390.1486, not to exceed $5,000.00 for a single
return or $10,000.00 for a joint return per tax year. A deduction
under this subparagraph is not allowed for contributions to an
education savings account in the tax year in which the initial
withdrawal is made from that account or any subsequent year.
(ii) The amount under section 30f.
(x) For tax years that begin after December 31, 1999, add to
the extent not included in adjusted gross income the amount of
money withdrawn by the taxpayer in the tax year from education
savings accounts if the withdrawal was not a qualified withdrawal
as provided in the Michigan education savings program act, 2000 PA
161, MCL 390.1471 to 390.1486.
(y) For tax years that begin after December 31, 1999, deduct,
to the extent included in adjusted gross income, the amount of a
distribution from individual retirement accounts that qualify under
section 408 of the internal revenue code if the distribution is
used to pay qualified higher education expenses as that term is
defined in the Michigan education savings program act, 2000 PA 161,
MCL 390.1471 to 390.1486.
(z) For tax years that begin after December 31, 2000, deduct,
to the extent included in adjusted gross income, an amount equal to
the qualified charitable distribution made in the tax year by a
taxpayer to a charitable organization. The amount allowed under
this subdivision shall be equal to the amount deductible by the
taxpayer under section 170(c) of the internal revenue code with
respect to the qualified charitable distribution in the tax year in
which the taxpayer makes the distribution to the qualified
charitable organization, reduced by both the amount of the
deduction for retirement or pension benefits claimed by the
taxpayer under subdivision (f)(i), (ii), (iv), or (v) and by 2 times
the total amount of credits claimed under sections 260 and 261 for
the tax year. As used in this subdivision, "qualified charitable
distribution" means a distribution of assets to a qualified
charitable organization by a taxpayer not more than 60 days after
the date on which the taxpayer received the assets as a
distribution from a retirement or pension plan described in
subsection (8)(a). A distribution is to a qualified charitable
organization if the distribution is made in any of the following
circumstances:
(i) To an organization described in section 501(c)(3) of the
internal revenue code except an organization that is controlled by
a political party, an elected official or a candidate for an
elective office.
(ii) To a charitable remainder annuity trust or a charitable
remainder unitrust as defined in section 664(d) of the internal
revenue code; to a pooled income fund as defined in section
642(c)(5) of the internal revenue code; or for the issuance of a
charitable gift annuity as defined in section 501(m)(5) of the
internal revenue code. A trust, fund, or annuity described in this
subparagraph is a qualified charitable organization only if no
person holds any interest in the trust, fund, or annuity other than
1 or more of the following:
(A) The taxpayer who received the distribution from the
retirement or pension plan.
(B) The spouse of an individual described in sub-subparagraph
(A).
(C) An organization described in section 501(c)(3) of the
internal revenue code.
(aa) A taxpayer who is a resident tribal member may deduct, to
the extent included in adjusted gross income, all nonbusiness
income earned or received in the tax year and during the period in
which an agreement entered into between the taxpayer's tribe and
this state pursuant to section 30c of 1941 PA 122, MCL 205.30c, is
in full force and effect. As used in this subdivision:
(i) "Business income" means business income as defined in
section 4 and apportioned under chapter 3.
(ii) "Nonbusiness income" means nonbusiness income as defined
in section 14 and, to the extent not included in business income,
all of the following:
(A) All income derived from wages whether the wages are earned
within the agreement area or outside of the agreement area.
(B) All interest and passive dividends.
(C) All rents and royalties derived from real property located
within the agreement area.
(D) All rents and royalties derived from tangible personal
property, to the extent the personal property is utilized within
the agreement area.
(E) Capital gains from the sale or exchange of real property
located within the agreement area.
(F) Capital gains from the sale or exchange of tangible
personal property located within the agreement area at the time of
sale.
(G) Capital gains from the sale or exchange of intangible
personal property.
(H) All pension income and benefits including, but not limited
to, distributions from a 401(k) plan, individual retirement
accounts under section 408 of the internal revenue code, or a
defined contribution plan, or payments from a defined benefit plan.
(I) All per capita payments by the tribe to resident tribal
members, without regard to the source of payment.
(J) All gaming winnings.
(iii) "Resident tribal member" means an individual who meets all
of the following criteria:
(A) Is an enrolled member of a federally recognized tribe.
(B) The individual's tribe has an agreement with this state
pursuant to section 30c of 1941 PA 122, MCL 205.30c, that is in
full force and effect.
(C) The individual's principal place of residence is located
within the agreement area as designated in the agreement under sub-
subparagraph (B).
(bb) For tax years that begin after December 31, 2005, deduct,
to the extent not deducted in determining adjusted gross income,
premiums paid by the taxpayer in the tax year to obtain long-term
care benefits. As used in this subdivision, "long-term care
benefits" means coverage under a long-term care policy,
certificate, or rider issued by an insurer pursuant to the
insurance code of 1956, 1956 PA 218, MCL 500.100 to 500.8302.
(2) The following personal exemptions multiplied by the number
of personal or dependency exemptions allowable on the taxpayer's
federal income tax return pursuant to the internal revenue code
shall be subtracted in the calculation that determines taxable
income:
(a) For a tax year beginning during 1987 ........... $ 1,600.00.
(b) For a tax year beginning during 1988 ........... $ 1,800.00.
(c) For a tax year beginning during 1989 ........... $ 2,000.00.
(d) For a tax year beginning after 1989 and
before 1995 ............................................. $ 2,100.00.
(e) For a tax year beginning during 1995
or 1996 ................................................. $ 2,400.00.
(f) Except as otherwise provided in subsection (7),
for a tax year beginning after 1996 ..................... $ 2,500.00.
(3) A single additional exemption determined as follows shall
be subtracted in the calculation that determines taxable income in
each of the following circumstances:
(a) For tax years beginning after 1989 and before 2000,
$900.00 in each of the following circumstances:
(i) The taxpayer is a paraplegic, a quadriplegic, a hemiplegic,
a person who is blind as defined in section 504, or a person who is
totally and permanently disabled as defined in section 522.
(ii) The taxpayer is a deaf person as defined in section 2 of
the deaf persons' interpreters act, 1982 PA 204, MCL 393.502.
(iii) The taxpayer is 65 years of age or older.
(iv) The return includes unemployment compensation that amounts
to 50% or more of adjusted gross income.
(b) For tax years beginning after 1999, $1,800.00 for each
taxpayer and every dependent of the taxpayer who is 65 years of age
or older. When a dependent of a taxpayer files an annual return
under this act, the taxpayer or dependent of the taxpayer, but not
both, may claim the additional exemption allowed under this
subdivision. As used in this subdivision and subdivision (c),
"dependent" means that term as defined in section 30e.
(c) For tax years beginning after 1999, $1,800.00 for each
taxpayer and every dependent of the taxpayer who is a deaf person
as defined in section 2 of the deaf persons' interpreters act, 1982
PA 204, MCL 393.502; a paraplegic, a quadriplegic, or a hemiplegic;
a person who is blind as defined in section 504; or a person who is
totally and permanently disabled as defined in section 522. When a
dependent of a taxpayer files an annual return under this act, the
taxpayer or dependent of the taxpayer, but not both, may claim the
additional exemption allowed under this subdivision.
(d) For tax years beginning after 1999, $1,800.00 if the
taxpayer's return includes unemployment compensation that amounts
to 50% or more of adjusted gross income.
(4) For a tax year beginning after 1987, an individual with
respect to whom a deduction under section 151 of the internal
revenue code is allowable to another federal taxpayer during the
tax year is not considered to have an allowable federal exemption
for purposes of subsection (2), but may subtract $500.00 in the
calculation that determines taxable income for a tax year beginning
in 1988, $1,000.00 for a tax year beginning after 1988 and before
2000, and $1,500.00 for a tax year beginning after 1999.
(5) A nonresident or a part-year resident is allowed that
proportion of an exemption or deduction allowed under subsection
(2), (3), or (4) that the taxpayer's portion of adjusted gross
income from Michigan sources bears to the taxpayer's total adjusted
gross income.
(6) For a tax year beginning after 1987, in calculating
taxable income, a taxpayer shall not subtract from adjusted gross
income the amount of prizes won by the taxpayer under the McCauley-
Traxler-Law-Bowman-McNeely lottery act, 1972 PA 239, MCL 432.1 to
432.47.
(7) For each tax year after the 1997 tax year, the personal
exemption allowed under subsection (2) shall be adjusted by
multiplying the exemption for the tax year beginning in 1997 by a
fraction, the numerator of which is the United States consumer
price index for the state fiscal year ending in the tax year prior
to the tax year for which the adjustment is being made and the
denominator of which is the United States consumer price index for
the 1995-96 state fiscal year. The resultant product shall be
rounded to the nearest $100.00 increment. The personal exemption
for the tax year shall be determined by adding $200.00 to that
rounded amount. As used in this section, "United States consumer
price index" means the United States consumer price index for all
urban consumers as defined and reported by the United States
department of labor, bureau of labor statistics. For each year
after the 2000 tax year, the exemptions allowed under subsection
(3) shall be adjusted by multiplying the exemption amount under
subsection (3) for the tax year beginning in 2000 by a fraction,
the numerator of which is the United States consumer price index
for the state fiscal year ending the tax year prior to the tax year
for which the adjustment is being made and the denominator of which
is the United States consumer price index for the 1998-1999 state
fiscal year. The resultant product shall be rounded to the nearest
$100.00 increment.
(8) As used in subsection (1)(f), "retirement or pension
benefits" means distributions from all of the following:
(a) Except as provided in subdivision (d), qualified pension
trusts and annuity plans that qualify under section 401(a) of the
internal revenue code, including all of the following:
(i) Plans for self-employed persons, commonly known as Keogh or
HR 10 plans.
(ii) Individual retirement accounts that qualify under section
408 of the internal revenue code if the distributions are not made
until the participant has reached 59-1/2 years of age, except in
the case of death, disability, or distributions described by
section 72(t)(2)(A)(iv) of the internal revenue code.
(iii) Employee annuities or tax-sheltered annuities purchased
under section 403(b) of the internal revenue code by organizations
exempt under section 501(c)(3) of the internal revenue code, or by
public school systems.
(iv) Distributions from a 401(k) plan attributable to employee
contributions mandated by the plan or attributable to employer
contributions.
(b) The following retirement and pension plans not qualified
under the internal revenue code:
(i) Plans of the United States, state governments other than
this state, and political subdivisions, agencies, or
instrumentalities of this state.
(ii) Plans maintained by a church or a convention or
association of churches.
(iii) All other unqualified pension plans that prescribe
eligibility for retirement and predetermine contributions and
benefits if the distributions are made from a pension trust.
(c) Retirement or pension benefits received by a surviving
spouse if those benefits qualified for a deduction prior to the
decedent's death. Benefits received by a surviving child are not
deductible.
(d) Retirement and pension benefits do not include:
(i) Amounts received from a plan that allows the employee to
set the amount of compensation to be deferred and does not
prescribe retirement age or years of service. These plans include,
but are not limited to, all of the following:
(A) Deferred compensation plans under section 457 of the
internal revenue code.
(B) Distributions from plans under section 401(k) of the
internal revenue code other than plans described in subdivision
(a)(iv).
(C) Distributions from plans under section 403(b) of the
internal revenue code other than plans described in subdivision
(a)(iii).
(ii) Premature distributions paid on separation, withdrawal, or
discontinuance of a plan prior to the earliest date the recipient
could have retired under the provisions of the plan.
(iii) Payments received as an incentive to retire early unless
the distributions are from a pension trust.