September 15, 2011, Introduced by Senator PROOS and referred to the Committee on Finance.
A bill to amend 1967 PA 281, entitled
"Income tax act of 1967,"
by amending section 607 (MCL 206.607), as added by 2011 PA 38.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 607. (1) "Federal taxable income" means taxable income as
defined in section 63 of the internal revenue code, except that
federal taxable income shall be calculated as if section 168(k) and
section 199 of the internal revenue code were not in effect.
(2) "Flow-through entity" means an entity that for the
applicable tax year is treated as a subchapter S corporation under
section 1362(a) of the internal revenue code, a general
partnership, a trust, a limited partnership, a limited liability
partnership, or a limited liability company, that for the tax year
is not taxed as a corporation for federal income tax purposes.
(3) "Foreign operating entity" means a United States person
that satisfies each of the following:
(a) Would otherwise be a part of a unitary business group that
has at least 1 person included in the unitary business group that
is taxable in this state.
(b) Has substantial operations outside the United States, the
District of Columbia, any territory or possession of the United
States except for the Commonwealth of Puerto Rico, or a political
subdivision of any of the foregoing.
(c) At least 80% of its income is active foreign business
income as defined in section 861(c)(1)(B) of the internal revenue
code.
(4)
"Gross receipts" means the entire amount received by the
taxpayer
as determined by using the taxpayer's method of accounting
used
for federal income tax purposes, less any amount deducted as
bad
debt for federal income tax purposes from any activity whether
in
intrastate, interstate, or foreign commerce carried on for
direct
or indirect gain, benefit, or advantage to the taxpayer or
to
others except for the following:
(a)
Proceeds from sales by a principal that the taxpayer
collects
in an agency capacity solely on behalf of the principal
and
delivers to the principal.
(b)
Amounts received by the taxpayer as an agent solely on
behalf
of the principal that are expended by the taxpayer for any
of
the following:
(i) The performance of a service by a third party for
the
benefit
of the principal that is required by law to be performed by
a
licensed person.
(ii) The performance of a service by a third party for
the
benefit
of the principal that the taxpayer has not undertaken a
contractual
duty to perform.
(iii) Principal and interest under a mortgage loan or
land
contract,
lease or rental payments, or taxes, utilities, or
insurance
premiums relating to real or personal property owned or
leased
by the principal.
(iv) A capital asset of a type that is, or under the
internal
revenue
code will become, eligible for depreciation, amortization,
or
accelerated cost recovery by the principal for federal income
tax
purposes, or for real property owned or leased by the
principal.
(v) Property not described under subparagraph (iv) that is
purchased
by the taxpayer on behalf of the principal and that the
taxpayer
does not take title to or use in the course of performing
its
contractual business activities.
(vi) Fees, taxes, assessments, levies, fines,
penalties, or
other
payments established by law that are paid to a governmental
entity
and that are the legal obligation of the principal.
(c)
Amounts that are excluded from gross income of a foreign
corporation
engaged in the international operation of aircraft
under
section 883(a) of the internal revenue code.
(d)
Amounts received by an advertising agency used to acquire
advertising
media time, space, production, or talent on behalf of
another
person.
(e)
Amounts received by a newspaper to acquire advertising
space
not owned by that newspaper in another newspaper on behalf of
another
person. This subdivision does not apply to any
consideration
received by the taxpayer for acquiring that
advertising
space.
(f)
Notwithstanding any other provision of this section,
amounts
received by a taxpayer that manages real property owned by
a
third party that are deposited into a separate account kept in
the
name of that third party and that are not reimbursements to the
taxpayer
and are not indirect payments for management services that
the
taxpayer provides to that third party.
(g)
Proceeds from the taxpayer's transfer of an account
receivable
if the sale that generated the account receivable was
included
in gross receipts for federal income tax purposes. This
subdivision
does not apply to a taxpayer that during the tax year
both
buys and sells any receivables.
(h)
Proceeds from any of the following:
(i) The original issue of stock or equity instruments
or equity
issued
by a regulated investment company as that term is defined
under
section 851 of the internal revenue code.
(ii) The original issue of debt instruments.
(i)
Refunds from returned merchandise.
(j)
Cash and in-kind discounts.
(k)
Trade discounts.
(l) Federal, state, or local tax refunds.
(m)
Security deposits.
(n)
Payment of the principal portion of loans.
(o)
Value of property received in a like-kind exchange.
(p)
Proceeds from a sale, transaction, exchange, involuntary
conversion,
maturity, redemption, repurchase, recapitalization, or
other
disposition or reorganization of tangible, intangible, or
real
property, less any gain from the disposition or reorganization
to
the extent that the gain is included in the taxpayer's federal
taxable
income, if the property satisfies 1 or more of the
following:
(i) The property is a capital asset as defined in
section
1221(a)
of the internal revenue code.
(ii) The property is land that qualifies as property
used in
the
trade or business as defined in section 1231(b) of the internal
revenue
code.
(iii) The property is used in a hedging transaction
entered into
by
the taxpayer in the normal course of the taxpayer's trade or
business
primarily to manage the risk of exposure to foreign
currency
fluctuations that affect assets, liabilities, profits,
losses,
equity, or investments in foreign operations; interest rate
fluctuations;
or commodity price fluctuations. For purposes of this
subparagraph,
the actual transfer of title of real or tangible
personal
property to another person is not a hedging transaction.
Only
the overall net gain from the hedging transactions entered
into
during the tax year is included in gross receipts. As used in
this
subparagraph, "hedging transaction" means that term as defined
under
section 1221 of the internal revenue code regardless of
whether
the transaction was identified by the taxpayer as a hedge
for
federal income tax purposes, provided, however, that
transactions
excluded under this subparagraph and not identified as
a
hedge for federal income tax purposes shall be identifiable to
the
department by the taxpayer as a hedge in its books and records.
(iv) The property is investment and trading assets
managed as
part
of the person's treasury function. For purposes of this
subparagraph,
a person principally engaged in the trade or business
of
purchasing and selling investment and trading assets is not
performing
a treasury function. Only the overall net gain from the
treasury
function incurred during the tax year is included in gross
receipts.
As used in this subparagraph, "treasury function" means
the
pooling and management of investment and trading assets for the
purpose
of satisfying the cash flow or liquidity needs of the
taxpayer's
trade or business.
(q)
The proceeds from a policy of insurance, a settlement of a
claim,
or a judgment in a civil action less any proceeds under this
subdivision
that are included in federal taxable income.
(r)
For a sales finance company, as defined in section 2 of
the
motor vehicle sales finance act, 1950 (Ex Sess) PA 27, MCL
492.102,
and directly or indirectly owned in whole or in part by a
motor
vehicle manufacturer as of January 1, 2008, and for a person
that
is a broker or dealer as defined under section 78c(a)(4) or
(5)
of the securities exchange act of 1934, 15 USC 78c, or a person
included
in the unitary business group of that broker or dealer
that
buys and sells for its own account, contracts that are subject
to
the commodity exchange act, 7 USC 1 to 27f, amounts realized
from
the repayment, maturity, sale, or redemption of the principal
of
a loan, bond, or mutual fund, certificate of deposit, or similar
marketable
instrument provided such instruments are not held as
inventory.
(s)
For a sales finance company, as defined in section 2 of
the
motor vehicle sales finance act, 1950 (Ex Sess) PA 27, MCL
492.102,
and directly or indirectly owned in whole or in part by a
motor
vehicle manufacturer as of January 1, 2008, and for a person
that
is a broker or dealer as defined under section 78c(a)(4) or
(5)
of the securities exchange act of 1934, 15 USC 78c, or a person
included
in the unitary business group of that broker or dealer
that
buys and sells for its own account, contracts that are subject
to
the commodity exchange act, 7 USC 1 to 27f, the principal amount
received
under a repurchase agreement or other transaction properly
characterized
as a loan.
(t)
For a mortgage company, proceeds representing the
principal
balance of loans transferred or sold in the tax year. For
purposes
of this subdivision, "mortgage company" means a person
that
is licensed under the mortgage brokers, lenders, and servicers
licensing
act, 1987 PA 173, MCL 445.1651 to 445.1684, or the
secondary
mortgage loan act, 1981 PA 125, MCL 493.51 to 493.81, and
has
greater than 90% of its revenues, in the ordinary course of
business,
from the origination, sale, or servicing of residential
mortgage
loans.
(u)
For a professional employer organization, any amount
charged
by a professional employer organization that represents the
actual
cost of wages and salaries, benefits, worker's compensation,
payroll
taxes, withholding, or other assessments paid to or on
behalf
of a covered employee by the professional employer
organization
under a professional employer arrangement.
(v)
Any invoiced items used to provide more favorable floor
plan
assistance to a person subject to the tax imposed under this
act
than to a person not subject to this tax and paid by a
manufacturer,
distributor, or supplier.
(w)
For an individual, estate, or other person organized for
estate
or gift planning purposes, amounts received other than those
from
transactions, activities, and sources in the regular course of
the
taxpayer's trade or business. For purposes of this subdivision,
all
of the following apply:
(i) Amounts received from transactions, activities,
and sources
in
the regular course of the taxpayer's business include, but are
not
limited to, the following:
(A)
Receipts from tangible and intangible property if the
acquisition,
rental, lease, management, or disposition of the
property
constitutes integral parts of the taxpayer's regular trade
or
business operations.
(B)
Receipts received in the course of the taxpayer's trade or
business
from stock and securities of any foreign or domestic
corporation
and dividend and interest income.
(C)
Receipts derived from isolated sales, leases, assignments,
licenses,
divisions, or other infrequently occurring dispositions,
transfers,
or transactions involving tangible, intangible, or real
property
if the property is or was used in the taxpayer's trade or
business
operation.
(D)
Receipts derived from the sale of an interest in a
business
that constitutes an integral part of the taxpayer's
regular
trade or business.
(E)
Receipts derived from the lease or rental of real
property.
(ii) Receipts excluded from gross receipts include, but
are not
limited
to, the following:
(A)
Receipts derived from investment activity, including
interest,
dividends, royalties, and gains from an investment
portfolio
or retirement account, if the investment activity is not
part
of the taxpayer's trade or business.
(B)
Receipts derived from the disposition of tangible,
intangible,
or real property held for personal use and enjoyment,
such
as a personal residence or personal assets.
(x)
Receipts derived from investment activity by a person that
is
organized exclusively to conduct investment activity and that
does
not conduct investment activity for any person other than an
individual
or a person related to that individual or by a common
trust
fund established under the collective investment funds act,
1941
PA 174, MCL 555.101 to 555.113. For purposes of this
subdivision,
a person is related to an individual if that person is
a
spouse, brother or sister, whether of the whole or half blood or
by
adoption, ancestor, lineal descendent of that individual or
related
person, or a trust benefiting that individual or 1 or more
persons
related to that individual.
(y)
Interest income and dividends derived from obligations or
securities
of the United States government, this state, or any
governmental
unit of this state. As used in this subdivision,
"governmental
unit" means that term as defined in section 3 of the
shared
credit rating act, 1985 PA 227, MCL 141.1053.
(z)
Dividends and royalties received or deemed received from a
foreign
operating entity or a person other than a United States
person,
including, but not limited to, the amounts determined under
section
78 of the internal revenue code and sections 951 to 964 of
the
internal revenue code.
(aa)
Each of the following:
(i) Sales or use taxes collected from or reimbursed by
a
consumer
or other taxes the taxpayer collected directly from or was
reimbursed
by a purchaser and remitted to a local, state, or
federal
tax authority.
(ii) In the case of receipts from the sale of
cigarettes or
tobacco
products by a wholesale dealer, retail dealer, distributor,
manufacturer,
or seller, an amount equal to the federal and state
excise
taxes paid by any person on or for such cigarettes or
tobacco
products under subtitle E of the internal revenue code or
other
applicable state law.
(iii) In the case of receipts from the sale of motor fuel
by a
person
with a motor fuel tax license or a retail dealer, an amount
equal
to federal and state excise taxes paid by any person on such
motor
fuel under section 4081 of the internal revenue code or under
other
applicable state law.
(iv) In the case of receipts from the sale of beer,
wine, or
intoxicating
liquor by a person holding a license to sell,
distribute,
or produce those products, an amount equal to federal
and
state excise taxes paid by any person on or for such beer,
wine,
or intoxicating liquor under subtitle E of the internal
revenue
code or other applicable state law.
(v) In the case of receipts from the sale of
communication,
video,
internet access and related services and equipment, any
government
imposed tax, fee, or other imposition in the nature of a
tax
or fee required by law, ordinance, regulation, ruling, or other
legal
authority and authorized to be charged on a customer's bill
or
invoice.
(vi) In the case of receipts from the sale of
electricity,
natural
gas, or other energy source, any government imposed tax,
fee,
or other imposition in the nature of a tax or fee required by
law,
ordinance, regulation, ruling, or other legal authority and
authorized
to be charged on a customer's bill or invoice.
(vii) Any deposit required under any of the following:
(A)
1976 IL 1, MCL 445.571 to 445.576.
(B)
R 436.1629 of the Michigan administrative code.
(C)
R 436.1723a of the Michigan administrative code.
(D)
Any substantially similar beverage container deposit law
of
another state.
(viii) An excise tax collected pursuant to the airport
parking
tax
act, 1987 PA 248, MCL 207.371 to 207.383, collected from or
reimbursed
by a consumer and remitted as provided in the airport
parking
tax act, 1987 PA 248, MCL 207.371 to 207.383.
(bb)
For a regulated investment company as that term is
defined
under section 851 of the internal revenue code, receipts
derived
from investment activity by that regulated investment
company.
(cc)
For fiscal years that begin after September 30, 2009,
unless
the state budget director certifies to the state treasurer
by
January 1 of that fiscal year that the federally certified rates
for
actuarial soundness required under 42 CFR 438.6 and that are
specifically
developed for Michigan's health maintenance
organizations
that hold a contract with this state for medicaid
services
provide explicit adjustment for their obligations required
for
payment of the tax under this act, amounts received by the
taxpayer
during that fiscal year for medicaid premium or
reimbursement
of costs associated with service provided to a
medicaid
recipient or beneficiary.
(dd)
For a taxpayer that provides health care management
consulting
services, amounts received by the taxpayer as fees from
its
clients that are expended by the taxpayer to reimburse those
clients
for labor and nonlabor services that are paid by the client
and
reimbursed to the client pursuant to a services agreement.
(4) "Gross receipts" means the entire amount received by the
taxpayer from any activity whether in intrastate, interstate, or
foreign commerce carried on for direct or indirect gain, benefit,
or advantage to the taxpayer or to others except for the following:
(a) Proceeds from sales by a principal that the taxpayer
collects in an agency capacity solely on behalf of the principal
and delivers to the principal.
(b) Amounts received by the taxpayer as an agent solely on
behalf of the principal that are expended by the taxpayer for any
of the following:
(i) The performance of a service by a third party for the
benefit of the principal that is required by law to be performed by
a licensed person.
(ii) The performance of a service by a third party for the
benefit of the principal that the taxpayer has not undertaken a
contractual duty to perform.
(iii) Principal and interest under a mortgage loan or land
contract, lease or rental payments, or taxes, utilities, or
insurance premiums relating to real or personal property owned or
leased by the principal.
(iv) A capital asset of a type that is, or under the internal
revenue code will become, eligible for depreciation, amortization,
or accelerated cost recovery by the principal for federal income
tax purposes, or for real property owned or leased by the
principal.
(v) Property not described under subparagraph (iv) purchased by
the taxpayer on behalf of the principal and that the taxpayer does
not take title to or use in the course of performing its
contractual business activities.
(vi) Fees, taxes, assessments, levies, fines, penalties, or
other payments established by law that are paid to a governmental
entity and that are the legal obligation of the principal.
(c) Amounts that are excluded from gross income of a foreign
corporation engaged in the international operation of aircraft
under section 883(a) of the internal revenue code.
(d) Amounts received by an advertising agency used to acquire
advertising media time, space, production, or talent on behalf of
another person.
(e) Notwithstanding any other provision of this section,
amounts received by a taxpayer that manages real property owned by
the taxpayer's client that are deposited into a separate account
kept in the name of the taxpayer's client and that are not
reimbursements to the taxpayer and are not indirect payments for
management services that the taxpayer provides to that client.
(f) Proceeds from the taxpayer's transfer of an account
receivable if the sale that generated the account receivable was
included in gross receipts for federal income tax purposes. This
subdivision does not apply to a taxpayer that during the tax year
both buys and sells any receivables.
(g) Proceeds from any of the following:
(i) The original issue of stock or equity instruments.
(ii) The original issue of debt instruments.
(h) Refunds from returned merchandise.
(i) Cash and in-kind discounts.
(j) Trade discounts.
(k) Federal, state, or local tax refunds.
(l) Security deposits.
(m) Payment of the principal portion of loans.
(n) Value of property received in a like-kind exchange.
(o) Proceeds from a sale, transaction, exchange, involuntary
conversion, or other disposition of tangible, intangible, or real
property that is a capital asset as defined in section 1221(a) of
the internal revenue code or land that qualifies as property used
in the trade or business as defined in section 1231(b) of the
internal revenue code, less any gain from the disposition to the
extent that gain is included in federal taxable income.
(p) The proceeds from a policy of insurance, a settlement of a
claim, or a judgment in a civil action less any proceeds under this
subdivision that are included in federal taxable income.
(5) "Insurance company" means an authorized insurer as defined
in section 108 of the insurance code of 1956, 1956 PA 218, MCL
500.108.
(6) "Internal revenue code" means the United States internal
revenue code of 1986 in effect on January 1, 2012 or, at the option
of the taxpayer, in effect for the tax year.
(7) "Member", when used for purposes of determining tax
liability for a flow-through entity, means a shareholder of a
subchapter S corporation, a partner in a general partnership, a
limited partnership, or a limited liability partnership, a member
of a limited liability company, or a beneficiary of a trust that is
a flow-through entity, that is not taxed as a corporation for
federal income tax purposes.
Enacting section 1. This amendatory act takes effect January
1, 2012.