SENATE BILL No. 60

 

 

January 25, 2011, Introduced by Senators BIEDA, CASPERSON, GLEASON, ANDERSON, JOHNSON, WARREN and KOWALL and referred to the Committee on Finance.

 

 

 

     A bill to amend 1967 PA 281, entitled

 

"Income tax act of 1967,"

 

by amending section 30 (MCL 206.30), as amended by 2009 PA 134.

 

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) Beginning on and after January 1, 2007, 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 $42,240.00 for a

 

single return and $84,480.00 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 by the amount of a

 

deduction claimed under subdivision (r). For the 2008 tax year and

 

each tax year after 2008, 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 as necessary. As used in this subparagraph,

 

"senior citizen" means that term as defined in section 514.

 

     (v) 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

 

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) For the 2010 tax year and each tax year after 2010, the

 

amount of a charitable contribution made to the advance tuition

 

payment fund created under section 9 of the Michigan education

 

trust act, 1986 PA 316, MCL 390.1429.

 

     (ii) 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 390.1442.

 

     (iii) 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 (ii).

 

     (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 390.1442, 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 390.1442, 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

 

390.1442, 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) Deduct, to the extent included in adjusted gross income,

 

benefits from a discriminatory self-insurance medical expense

 

reimbursement plan.

 

     (r) Beginning on and after January 1, 2007, 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 $9,420.00 for a single return and

 

$18,840.00 for a joint return. 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 2008 tax year and each tax year after 2008, 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. 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 390.1442, 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) Deduct the amount calculated under section 30d.

 

     (v) 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 victim assets litigation, CV-96-4849, 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) Deduct, to the extent not deducted in determining adjusted

 

gross income, both of the following:

 

     (i) Contributions made by the taxpayer in the tax year less

 

qualified withdrawals made in the tax year from education savings

 

accounts, calculated on a per education savings account basis,

 

pursuant to the Michigan education savings program act, 2000 PA

 

161, MCL 390.1471 to 390.1486, not to exceed a total deduction of

 

$5,000.00 for a single return or $10,000.00 for a joint return per

 

tax year. The amount calculated under this subparagraph for each

 

education savings account shall not be less than zero.

 

     (ii) The amount under section 30f.

 

     (x) 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, not to exceed the total amount deducted

 

under subdivision (w) in the tax year and all previous tax years,

 

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. This subdivision does not apply to withdrawals that

 

are less than the sum of all contributions made to an education

 

savings account in all previous tax years for which no deduction

 

was claimed under subdivision (w), less any contributions for which

 

no deduction was claimed under subdivision (w) that were withdrawn

 

in all previous tax years.

 

     (y) 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) 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 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, 2006, deduct,

 

to the extent included in adjusted gross income, all or a portion

 

of the gain, as determined under this section, realized from an

 

initial equity investment of not less than $100,000.00 made by the

 

taxpayer before December 31, 2009, in a qualified business, if an

 

amount equal to the sum of the taxpayer's basis in the investment

 

as determined under the internal revenue code plus the gain, or a

 

portion of that amount, is reinvested in an equity investment in a

 

qualified business within 1 year after the sale or disposition of

 

the investment in the qualified business. If the amount of the

 

subsequent investment is less than the sum of the taxpayer's basis


 

from the prior equity investment plus the gain from the prior

 

equity investment, the amount of a deduction under this section

 

shall be reduced by the difference between the sum of the

 

taxpayer's basis from the prior equity investment plus the gain

 

from the prior equity investment and the subsequent investment. As

 

used in this subdivision:

 

     (i) "Advanced automotive, manufacturing, and materials

 

technology" means any technology that involves 1 or more of the

 

following:

 

     (A) Materials with engineered properties created through the

 

development of specialized process and synthesis technology.

 

     (B) Nanotechnology, including materials, devices, or systems

 

at the atomic, molecular, or macromolecular level, with a scale

 

measured in nanometers.

 

     (C) Microelectromechanical systems, including devices or

 

systems integrating microelectronics with mechanical parts and a

 

scale measured in micrometers.

 

     (D) Improvements to vehicle safety, vehicle performance,

 

vehicle production, or environmental impact, including, but not

 

limited to, vehicle equipment and component parts.

 

     (E) Any technology that involves an alternative energy vehicle

 

or its components. "Alternative energy vehicle" means that term as

 

defined in section 2 of the Michigan next energy authority act,

 

2002 PA 593, MCL 207.822.

 

     (F) A new technology, device, or system that enhances or

 

improves the manufacturing process of wood, timber, or

 

agricultural-based products.


 

     (G) Advanced computing or electronic device technology related

 

to technology described under this subparagraph.

 

     (H) Design, engineering, testing, or diagnostics related to

 

technology described under this subparagraph.

 

     (I) Product research and development related to technology

 

described under this subparagraph.

 

     (ii) "Advanced computing" means any technology used in the

 

design and development of 1 or more of the following:

 

     (A) Computer hardware and software.

 

     (B) Data communications.

 

     (C) Information technologies.

 

     (iii) "Alternative energy technology" means applied research or

 

commercialization of new or next generation technology in 1 or more

 

of the following:

 

     (A) Alternative energy technology as that term is defined in

 

section 2 of the Michigan next energy authority act, 2002 PA 593,

 

MCL 207.822.

 

     (B) Devices or systems designed and used solely for the

 

purpose of generating energy from agricultural crops, residue and

 

waste generated from the production and processing of agricultural

 

products, animal wastes, or food processing wastes, not including a

 

conventional gasoline or diesel fuel engine or a retrofitted

 

conventional gasoline or diesel fuel engine.

 

     (C) A new technology, product, or system that permits the

 

utilization of biomass for the production of specialty, commodity,

 

or foundational chemicals or of novel or economical commodity

 

materials through the application of biotechnology that minimizes,


 

complements, or replaces reliance on petroleum for the production.

 

     (D) Advanced computing or electronic device technology related

 

to technology described under this subparagraph.

 

     (E) Design, engineering, testing, or diagnostics related to

 

technology described under this subparagraph.

 

     (F) Product research and development related to a technology

 

described under this subparagraph.

 

     (iv) "Competitive edge technology" means 1 or more of the

 

following:

 

     (A) Advanced automotive, manufacturing, and materials

 

technology.

 

     (B) Alternative energy technology.

 

     (C) Homeland security and defense technology.

 

     (D) Life sciences technology.

 

     (v) "Electronic device technology" means any technology that

 

involves microelectronics, semiconductors, electronic equipment,

 

and instrumentation, radio frequency, microwave, and millimeter

 

electronics; optical and optic-electrical devices; or data and

 

digital communications and imaging devices.

 

     (vi) "Homeland security and defense technology" means

 

technology that assists in the assessment of threats or damage to

 

the general population and critical infrastructure, protection of,

 

defense against, or mitigation of the effects of foreign or

 

domestic threats, disasters, or attacks, or support for crisis or

 

response management, including, but not limited to, 1 or more of

 

the following:

 

     (A) Sensors, systems, processes, or equipment for


 

communications, identification and authentication, screening,

 

surveillance, tracking, and data analysis.

 

     (B) Advanced computing or electronic device technology related

 

to technology described under this subparagraph.

 

     (C) Aviation technology including, but not limited to,

 

avionics, airframe design, sensors, early warning systems, and

 

services related to the technology described in this subparagraph.

 

     (D) Design, engineering, testing, or diagnostics related to

 

technology described under this subparagraph.

 

     (E) Product research and development related to technology

 

described under this subparagraph.

 

     (vii) "Life sciences technology" means any technology derived

 

from life sciences intended to improve human health or the overall

 

quality of human life, including, but not limited to, systems,

 

processes, or equipment for drug or gene therapies, biosensors,

 

testing, medical devices or instrumentation with a therapeutic or

 

diagnostic value, a pharmaceutical or other product that requires

 

United States food and drug administration approval or registration

 

prior to its introduction in the marketplace and is a drug or

 

medical device as defined by the federal food, drug, and cosmetic

 

act, 21 USC 301 to 399 399a, or 1 or more of the following:

 

     (A) Advanced computing or electronic device technology related

 

to technology described under this subparagraph.

 

     (B) Design, engineering, testing, or diagnostics related to

 

technology or the commercial manufacturing of technology described

 

under this subparagraph.

 

     (C) Product research and development related to technology


 

described under this subparagraph.

 

     (viii) "Life sciences" means science for the examination or

 

understanding of life or life processes, including, but not limited

 

to, all of the following:

 

     (A) Bioengineering.

 

     (B) Biomedical engineering.

 

     (C) Genomics.

 

     (D) Proteomics.

 

     (E) Molecular and chemical ecology.

 

     (F) Biotechnology, including any technology that uses living

 

organisms, cells, macromolecules, microorganisms, or substances

 

from living organisms to make or modify a product for useful

 

purposes. Biotechnology or life sciences do not include any of the

 

following:

 

     (I) Activities prohibited under section 2685 of the public

 

health code, 1978 PA 368, MCL 333.2685.

 

     (II) Activities prohibited under section 2688 of the public

 

health code, 1978 PA 368, MCL 333.2688.

 

     (III) Activities prohibited under section 2690 of the public

 

health code, 1978 PA 368, MCL 333.2690.

 

     (IV) Activities prohibited under section 16274 of the public

 

health code, 1978 PA 368, MCL 333.16274.

 

     (V) Stem cell research with human embryonic tissue.

 

     (ix) "Qualified business" means a business that complies with

 

all of the following:

 

     (A) The business is a seed or early stage business as defined

 

in section 3 of the Michigan early stage venture investment act of


 

2003, 2003 PA 296, MCL 125.2233.

 

     (B) The business has its headquarters in this state, is

 

domiciled in this state, or has a majority of its employees working

 

a majority of their time in this state.

 

     (C) The business has a preinvestment valuation of less than

 

$10,000,000.00.

 

     (D) The business has been in existence less than 5 years. This

 

sub-subparagraph does not apply to a business, the business

 

activity of which is derived from research at an institution of

 

higher education located within this state or an organization

 

exempt from federal taxation under section 501c(3) of the internal

 

revenue code and that is located within this state.

 

     (E) The business is engaged only in competitive edge

 

technology.

 

     (F) The business is certified by the Michigan strategic fund

 

as meeting the requirements of sub-subparagraphs (A) to (E) at the

 

time of each proposed investment.

 

     (cc) For tax years that begin after December 31, 2010, deduct,

 

to the extent included in adjusted gross income, compensation

 

received in the tax year pursuant to the wrongful imprisonment

 

compensation act.

 

     (2) Except as otherwise provided in subsection (7), a personal

 

exemption of $2,500.00 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.

 

     (3) Except as otherwise provided in subsection (7), a single


 

additional exemption determined as follows shall be subtracted in

 

the calculation that determines taxable income in each of the

 

following circumstances:

 

     (a) $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.

 

     (b) $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.

 

     (c) $1,800.00 if the taxpayer's return includes unemployment

 

compensation that amounts to 50% or more of adjusted gross income.

 

     (d) For tax years beginning after 2007, $250.00 for each

 

taxpayer and every dependent of the taxpayer who is a qualified

 

disabled veteran. 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:


 

     (i) "Qualified disabled veteran" means a veteran with a

 

service-connected disability.

 

     (ii) "Service-connected disability" means a disability incurred

 

or aggravated in the line of duty in the active military, naval, or

 

air service as described in 38 USC 101(16).

 

     (iii) "Veteran" means a person who served in the active

 

military, naval, marine, coast guard, or air service and who was

 

discharged or released from his or her service with an honorable or

 

general discharge.

 

     (4) 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 $1,500.00 in the calculation that determines taxable

 

income for a tax year.

 

     (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) 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, 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 tax year, the exemptions allowed under

 

subsection (3) shall be adjusted by multiplying the exemption

 

amount under subsection (3) for the tax year 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

 

HR10 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.

 

     Enacting section 1. This amendatory act does not take effect

 

unless Senate Bill No. 61                                       

 

          of the 96th Legislature is enacted into law.