SENATE BILL No. 870

November 1, 2007, Introduced by Senator WHITMER and referred to the Committee on Finance.

A bill to amend 2007 PA 36, entitled

"Michigan business tax act,"

by amending section 417 (MCL 208.1417).

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 417. (1) The credit provided in under this section shall

be taken after the credits under sections 403 and 405 and before

any other credit under this act and is available to any taxpayer

with gross receipts that do not exceed $20,000,000.00 and with

adjusted business income minus the loss adjustment that does not

exceed $1,300,000.00 as adjusted annually for inflation using the

Detroit consumer price index and subject to the following:

(a) An individual, a partnership, a limited partnership, a

limited liability company, or a subchapter S corporation is

disqualified if the individual, any 1 partner of the partnership,

any 1 partner of the limited partnership, any 1 member of the

limited liability company, or any 1 shareholder of the subchapter S

corporation receives more than $180,000.00 as a distributive share

of the adjusted business income minus the loss adjustment of the

individual, the partnership, the limited partnership, the limited

liability company, or the subchapter S corporation.

(b) A corporation other than a subchapter S corporation is

disqualified if either of the following occur for the respective

tax year:

(i) Compensation and directors' fees of a shareholder or

officer exceed $180,000.00.

(ii) The sum of the following amounts exceeds $180,000.00:

(A) Compensation and directors' fees of a shareholder.

(B) The product of the percentage of outstanding ownership or

of outstanding stock owned by that shareholder multiplied by the

difference between the sum of business income and, to the extent

deducted in determining federal taxable income, a carryback or a

carryover of a net operating loss or capital loss, minus the loss

adjustment.

subsection (3), the credit determined under this subsection shall

be reduced by the following percentages in the following

circumstances:

(i) If an individual, any 1 partner of the partnership, any 1

partner of the limited partnership, any 1 member of the limited

liability company, or any 1 shareholder of the subchapter S

corporation receives as a distributive share of adjusted business

income minus the loss adjustment of the individual, partnership,

limited partnership, limited liability company, or subchapter S

corporation; if compensation and directors' fees of a shareholder

or officer of a corporation other than a subchapter S corporation

are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B)

is more than $160,000.00 but less than $165,000.00, the credit is

reduced by 20%.

(ii) If an individual, any 1 partner of the partnership, any 1

partner of the limited partnership, any 1 member of the limited

liability company, or any 1 shareholder of the subchapter S

corporation receives as a distributive share of adjusted business

income minus the loss adjustment of the individual, partnership,

limited partnership, limited liability company, or subchapter S

corporation; if compensation and directors' fees of a shareholder

or officer of a corporation other than a subchapter S corporation

are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B)

is $165,000.00 or more but less than $170,000.00, the credit is

reduced by 40%.

(iii) If an individual, any 1 partner of the partnership, any 1

partner of the limited partnership, any 1 member of the limited

liability company, or any 1 shareholder of the subchapter S

corporation receives as a distributive share of adjusted business

income minus the loss adjustment of the individual, partnership,

limited partnership, limited liability company, or subchapter S

corporation; if compensation and directors' fees of a shareholder

or officer of a corporation other than a subchapter S corporation

are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B)

is $170,000.00 or more but less than $175,000.00, the credit is

reduced by 60%.

(iv) If an individual, any 1 partner of the partnership, any 1

partner of the limited partnership, any 1 member of the limited

liability company, or any 1 shareholder of the subchapter S

corporation receives as a distributive share of adjusted business

income minus the loss adjustment of the individual, partnership,

limited partnership, limited liability company, or subchapter S

corporation; if compensation and directors' fees of a shareholder

or officer of a corporation other than a subchapter S corporation

are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B)

is $175,000.00 or more but not in excess of $180,000.00, the credit

is reduced by 80%.

(2) For the purposes of determining disqualification under

subsection (1), an active shareholder's share of business income

shall not be attributed to another active shareholder.

(3) To determine the reduction percentage under subsection

(1)(c), the following apply:

(a) The reduction percentage for a partnership, limited

partnership, limited liability company, or subchapter S corporation

is based on the distributive share of adjusted business income

minus loss adjustment of the partner, limited partner, member, or

shareholder with the greatest distributive share of adjusted

business income minus loss adjustment.

(b) The reduction percentage for a corporation other than a

subchapter S corporation is the greater of the following:

(i) The reduction percentage based on the compensation and

directors' fees of the shareholder or officer with the greatest

amount of compensation and directors' fees.

(ii) The reduction percentage based on the sum of the amounts

in subsection (1)(b)(ii)(A) and (B) for the shareholder or officer

with the greatest sum of the amounts in subsection (1)(b)(ii)(A) and

(B).

(4) A taxpayer that qualifies under subsection (1) is allowed

a credit against the tax imposed under this act. The credit under

this subsection is the amount by which the tax imposed under this

act exceeds 1.8% of adjusted business income.

(5) If gross receipts exceed $19,000,000.00, the credit shall

be reduced by a fraction, the numerator of which is the amount of

gross receipts over $19,000,000.00 and the denominator of which is

$1,000,000.00. The credit shall not exceed 100% of the tax

liability imposed under this act.

(6) For a taxpayer that reports for a tax year less than 12

months, the amounts specified in this section for gross receipts,

adjusted business income, and share of business income shall be

multiplied by a fraction, the numerator of which is the number of

months in the tax year and the denominator of which is 12.

(7) The department shall permit a taxpayer that elects to

claim the credit allowed under this section based on the amount by

which the tax imposed under this act exceeds the percentage of

adjusted business income for the tax year as determined under

subsection (4), and that is not required to reduce the credit

pursuant to subsection (1) or (5), to file and pay the tax imposed

by this act without computing ~~the~~ a tax imposed under sections 201

and 203.

(8) Compensation paid by the professional employer

organization to the officers of the client and to employees of the

professional employer organization who are assigned or leased to

and perform services for the client shall be included in

determining eligibility of the client under this section.

(9) As used in this section:

(a) "Active shareholder" means a shareholder who receives at

least $10,000.00 in compensation, directors' fees, or dividends

from the business, and who owns at least 5% of the outstanding

stock or other ownership interest.

(b) "Adjusted business income" means business income as

defined in section 105 with all of the following adjustments:

(i) Add compensation and directors' fees of active shareholders

of a corporation.

(ii) Add, to the extent deducted in determining federal taxable

income, a carryback or a carryover of a net operating loss.

(iii) Add, to the extent deducted in determining federal taxable

income, a capital loss.

(iv) Add compensation and directors' fees of officers of a

corporation.

comprehensive index of consumer prices available for the Detroit

area from the United States department of labor, bureau of labor

statistics.

(d) "Loss adjustment" means the amount by which adjusted

business income was less than zero in any of the 5 tax years

immediately preceding the tax year for which eligibility for the

credit under this section is being determined. In determining the

loss adjustment for a tax year, a taxpayer is not required to use

more of the taxpayer's total negative adjusted business income than

the amount needed to qualify the taxpayer for the credit under this

section. A taxpayer shall not be considered to have used any

portion of the taxpayer's negative adjusted business income amount

unless the portion used is necessary to qualify for the credit

under this section. A taxpayer shall not reuse a negative adjusted

business income amount used as a loss adjustment in a previous tax

year or use a negative adjusted business income amount from a year

in which the taxpayer did not receive the credit under this

section.

Enacting section 1. This amendatory act takes effect January

1, 2008 and applies to all business activity occurring after

December 31, 2007.

Enacting section 2. This amendatory act does not take effect

unless all of the following bills of the 94th Legislature are

enacted into law:

(a) Senate Bill No. 874.

(b) Senate Bill No. 875.

(d) Senate Bill No. 877.