SENATE BILL No. 1154

 

 

October 20, 2016, Introduced by Senators SCHMIDT, BIEDA, STAMAS, KNEZEK, MEEKHOF and ANANICH and referred to the Committee on Economic Development and International Investment.

 

 

 

     A bill to amend 1967 PA 281, entitled

 

"Income tax act of 1967,"

 

by amending sections 703 and 711 (MCL 206.703 and 206.711), as

 

amended by 2016 PA 158.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 703. (1) A person who disburses pension or annuity

 

payments, except as otherwise provided under this section, shall

 

withhold a tax in an amount computed by applying the rate

 

prescribed in section 51 on the taxable part of payments from an

 

employer pension, annuity, profit-sharing, stock bonus, or other

 

deferred compensation plan as well as from an individual retirement

 

arrangement, an annuity, an endowment, or a life insurance contract

 

issued by a life insurance company. Withholding shall be calculated

 

on the taxable disbursement after deducting from the taxable


portion the same proportion of the total amount of personal and

 

dependency exemptions of the individual allowed under this act.

 

Withholding is not required on any part of a distribution that is

 

not expected to be includable in the recipient's gross income or

 

that is deductible from adjusted gross income under section

 

30(1)(e) or (f).

 

     (2) Every employer in this state required under the provisions

 

of the internal revenue code to withhold a tax on the compensation

 

of an individual, except as otherwise provided, shall deduct and

 

withhold a tax in an amount computed by applying, except as

 

provided by subsection (14), the rate prescribed in section 51 to

 

the remainder of the compensation after deducting from compensation

 

the same proportion of the total amount of personal and dependency

 

exemptions of the individual allowed under this act that the period

 

of time covered by the compensation is of 1 year. The department

 

may prescribe withholding tables that may be used by employers to

 

compute the amount of tax required to be withheld.

 

     (3) Except as otherwise provided under this section, for tax

 

years that begin before July 1, 2016, every flow-through entity in

 

this state shall withhold a tax in an amount computed by applying

 

the rate prescribed in section 51 to the distributive share of

 

taxable income reasonably expected to accrue after allocation and

 

apportionment under chapter 3 of each nonresident member who is an

 

individual after deducting from that distributive income the same

 

proportion of the total amount of personal and dependency

 

exemptions of the individual allowed under this act. All of the

 

taxes withheld under this section shall accrue to the state on


April 15, July 15, and October 15 of the flow-through entity's tax

 

year and January 15 of the following year, except a flow-through

 

entity that is not on a calendar year basis shall substitute the

 

appropriate due dates in the flow-through entity's fiscal year that

 

correspond to those in a calendar year. Withholding for each period

 

shall be equal to 1/4 of the total withholding calculated on the

 

distributive share that is reasonably expected to accrue during the

 

tax year of the flow-through entity.

 

     (4) Except as otherwise provided under this section, for tax

 

years that begin before July 1, 2016, every flow-through entity

 

with business activity in this state that has more than $200,000.00

 

of business income reasonably expected to accrue in the tax year

 

after allocation or apportionment shall withhold a tax in an amount

 

computed by applying the rate prescribed in section 623 to the

 

distributive share of the business income of each member that is a

 

corporation or that is a flow-through entity. For purposes of

 

calculating the $200,000.00 withholding threshold, the business

 

income of a flow-through entity shall be apportioned to this state

 

by multiplying the business income by the sales factor of the flow-

 

through entity. The sales factor of the flow-through entity is a

 

fraction, the numerator of which is the total sales of the flow-

 

through entity in this state during the tax year and the

 

denominator of which is the total sales of the flow-through entity

 

everywhere during the tax year. As used in this subsection,

 

"business income" means that term as defined in section 603(2). For

 

a partnership or S corporation, business income includes payments

 

and items of income and expense that are attributable to business


activity of the partnership or S corporation and separately

 

reported to the members. As used in this subsection, "sales" means

 

that term as defined in section 609 and sales in this state is

 

determined as provided in sections 665 and 669. All of the taxes

 

withheld under this section shall accrue to the state on April 15,

 

July 15, and October 15 of the flow-through entity's tax year and

 

January 15 of the following year, except a flow-through entity that

 

is not on a calendar year basis shall substitute the appropriate

 

due dates in the flow-through entity's fiscal year that correspond

 

to those in a calendar year. Withholding for each period shall be

 

equal to 1/4 of the total withholding calculated on the

 

distributive share of business income that is reasonably expected

 

to accrue during the tax year of the flow-through entity.

 

     (5) For tax years that begin before July 1, 2016, if a flow-

 

through entity is subject to the withholding requirements of

 

subsection (4), then a member of that flow-through entity that is

 

itself a flow-through entity shall withhold a tax on the

 

distributive share of business income as described in subsection

 

(4) of each of its members. The department shall apply tax withheld

 

by a flow-through entity on the distributive share of business

 

income of a member flow-through entity to the withholding required

 

of that member flow-through entity. All of the taxes withheld under

 

this section shall accrue to the state on April 15, July 15, and

 

October 15 of the flow-through entity's tax year and January 15 of

 

the following year, except a flow-through entity that is not on a

 

calendar year basis shall substitute the appropriate due dates in

 

the flow-through entity's fiscal year that correspond to those in a


calendar year. Withholding for each period shall be equal to 1/4 of

 

the total withholding calculated on the distributive share of

 

business income that is reasonably expected to accrue during the

 

tax year of the flow-through entity.

 

     (6) Every casino licensee shall withhold a tax in an amount

 

computed by applying the rate prescribed in section 51 to the

 

winnings of a nonresident reportable by the casino licensee under

 

the internal revenue code.

 

     (7) Every race meeting licensee or track licensee shall

 

withhold a tax in an amount computed by applying the rate

 

prescribed in section 51 to a payoff price on a winning ticket of a

 

nonresident reportable by the race meeting licensee or track

 

licensee under the internal revenue code that is the result of

 

pari-mutuel wagering at a licensed race meeting.

 

     (8) Every casino licensee or race meeting licensee or track

 

licensee shall report winnings of a resident reportable by the

 

casino licensee or race meeting licensee or track licensee under

 

the internal revenue code to the department in the same manner and

 

format as required under the internal revenue code.

 

     (9) Every eligible production company shall, to the extent not

 

withheld by a professional services corporation or professional

 

employer organization, deduct and withhold a tax in an amount

 

computed by applying the rate prescribed in section 51 to the

 

remainder of the payments made to the professional services

 

corporation or professional employer organization for the services

 

of a performing artist or crew member after deducting from those

 

payments the same proportion of the total amount of personal and


dependency exemptions of the individuals allowed under this act.

 

     (10) Every publicly traded partnership that has equity

 

securities registered with the securities and exchange commission

 

under section 12 of title I of the securities and exchange act of

 

1934, 15 USC 78l, shall not be subject to withholding.

 

     (11) Except as otherwise provided under this subsection, all

 

of the taxes withheld under this section shall accrue to the state

 

on the last day of the month in which the taxes are withheld but

 

shall be returned and paid to the department by the employer,

 

eligible production company, casino licensee, or race meeting

 

licensee or track licensee within 15 days after the end of any

 

month or as provided in section 705. For an employer that has

 

entered into an agreement with a community college pursuant to

 

chapter 13 of the community college act of 1966, 1966 PA 331, MCL

 

389.161 to 389.166, a portion of the taxes withheld under this

 

section that are attributable to each employee in a new job created

 

pursuant to the agreement shall accrue to the community college on

 

the last day of the month in which the taxes are withheld but shall

 

be returned and paid to the community college by the employer

 

within 15 days after the end of any month or as provided in section

 

705 for as long as the agreement remains in effect. For purposes of

 

this act and 1941 PA 122, MCL 205.1 to 205.31, payments made by an

 

employer to a community college under this subsection shall be

 

considered income taxes paid to this state. For an employer that is

 

an authorized business pursuant to a written agreement entered into

 

with the Michigan strategic fund pursuant to chapter 8D of the

 

Michigan strategic fund act, 1984 PA 270, MCL 125.2090g to


125.2090i, a portion of the taxes withheld under this section that

 

are attributable to each qualified new job created pursuant to the

 

agreement does not accrue to the state but shall be retained by the

 

employer in accordance with the terms of the written agreement. For

 

purposes of this act and 1941 PA 122, MCL 205.1 to 205.31, the

 

withholdings retained by the employer under this subsection shall

 

be considered income taxes paid to this state.

 

     (12) A Except as otherwise provided under this subsection, a

 

person required by this section to deduct and withhold taxes on

 

income under this section holds the amount of tax withheld as a

 

trustee for this state and is liable for the payment of the tax to

 

this state or, if applicable, to the community college and is not

 

liable to any individual for the amount of the payment. An employer

 

that is an authorized business pursuant to a written agreement

 

entered into with the Michigan strategic fund for a withholding

 

abatement pursuant to chapter 8D of the Michigan strategic fund

 

act, 1984 PA 270, MCL 125.2090g to 125.2090i, that is required by

 

this section to deduct and withhold taxes on compensation does not

 

hold that portion of the withholdings tax attributable to those

 

qualified new jobs as a trustee for this state and is not liable

 

for the payment of that tax to this state and is not liable to any

 

individual for the amount of the payment.

 

     (13) An employer in this state is not required to deduct and

 

withhold a tax on the compensation paid to a nonresident individual

 

employee, who, under section 256, may claim a tax credit equal to

 

or in excess of the tax estimated to be due for the tax year or is

 

exempted from liability for the tax imposed by this act. In each


tax year, the nonresident individual shall furnish to the employer,

 

on a form approved by the department, a verified statement of

 

nonresidence.

 

     (14) A person required to withhold a tax under this act, by

 

the fifteenth day of the following month, shall provide the

 

department with a copy of any exemption certificate on which a

 

person with income subject to withholding under subsection (6) or

 

(7) claims more than 9 personal or dependency exemptions, claims a

 

status that exempts the person subject to withholding under

 

subsection (6) or (7) from withholding under this section.

 

     (15) A person who disburses annuity payments pursuant to the

 

terms of a qualified charitable gift annuity is not required to

 

deduct and withhold a tax on those payments as prescribed under

 

subsection (1). As used in this subsection, "qualified charitable

 

gift annuity" means an annuity described under section 501(m)(5) of

 

the internal revenue code and issued by an organization exempt

 

under section 501(c)(3) of the internal revenue code.

 

     (16) Notwithstanding the requirements of subsections (4) and

 

(5), if a flow-through entity receives an exemption certificate

 

from a member other than a nonresident individual, the flow-through

 

entity shall not withhold a tax on the distributive share of the

 

business income of that member if all of the following conditions

 

are met:

 

     (a) The exemption certificate is completed by the member in

 

the form and manner prescribed by the department and certifies that

 

the member will do all of the following:

 

     (i) File the returns required under this act.


     (ii) Pay or withhold the tax required under this act on the

 

distributive share of the business income received from any flow-

 

through entity in which the member has an ownership or beneficial

 

interest, directly or indirectly through 1 or more other flow-

 

through entities.

 

     (iii) Submit to the taxing jurisdiction of this state for

 

purposes of collection of the tax under this act together with

 

related interest and penalties under 1941 PA 122, MCL 205.1 to

 

205.31, imposed on the member with respect to the distributive

 

share of the business income of that member.

 

     (b) The department may require the member to file the

 

exemption certificate with the department and provide a copy to the

 

flow-through entity.

 

     (c) The department may require a flow-through entity that

 

receives an exemption certificate to attach a copy of the exemption

 

certificate to the annual reconciliation return as required by

 

section 711. A flow-through entity that is entirely exempt from the

 

withholding requirements of subsection (4) or (5) by this

 

subsection may be required to furnish a copy of the exemption

 

certificate in another manner prescribed by the department.

 

     (d) A copy of the exemption certificate shall be retained by

 

the member and flow-through entity and made available to the

 

department upon request. Any copy of the exemption certificate

 

shall be maintained in a format and for the period required by 1941

 

PA 122, MCL 205.1 to 205.31.

 

     (17) The department may revoke the election provided for in

 

subsection (16) if it determines that the member or a flow-through


entity is not abiding by the terms of the exemption certificate or

 

the requirements of subsection (16). If the department does revoke

 

the election option under subsection (16), the department shall

 

notify the affected flow-through entity that withholding is

 

required on the member under subsection (4) or (5), beginning 60

 

days after notice of revocation is received.

 

     (18) Notwithstanding the requirements of subsections (4) and

 

(5), a flow-through entity is not required to withhold in

 

accordance with this section for a member that voluntarily elects

 

to file a return and pay the tax imposed by the Michigan business

 

tax act under section 680 or section 500 of the Michigan business

 

tax act, 2007 PA 36, MCL 208.1500.

 

     (19) Notwithstanding the withholding requirements of

 

subsection (3), (4), or (5), a flow-through entity is not required

 

to comply with those withholding requirements to the extent that

 

the withholding would violate any of the following:

 

     (a) Housing assistance payment programs distribution

 

restrictions under 24 CFR part 880, 881, 883, or 891.

 

     (b) Rural housing service return on investment restrictions

 

under 7 CFR 3560.68 or 3560.305.

 

     (c) Articles of incorporation or other document of

 

organization adopted pursuant to section 83 or 93 of the state

 

housing development authority act of 1966, 1966 PA 346, MCL

 

125.1483 and 125.1493.

 

     Sec. 711. (1) Every person required by this part to deduct and

 

withhold taxes for a tax year on income other than distributive

 

share of income from a flow-through entity shall furnish to the


person who received the income a statement in duplicate on or

 

before January 31 of the succeeding year of the total income paid

 

during the tax year and the amount deducted or withheld. However,

 

if employment is terminated before the close of a calendar year by

 

a person that goes out of business or permanently ceases to exist,

 

then the statement required by this subsection shall be issued

 

within 30 days after the last compensation, winnings, or payoff of

 

a winning ticket is paid. A duplicate of a statement made pursuant

 

to this section and an annual reconciliation return, MI-W3, shall

 

be filed with the department by February 28 of the succeeding year

 

except that a person that goes out of business or permanently

 

ceases to exist shall file the statement and the annual

 

reconciliation return within 30 days after going out of business or

 

permanently ceasing to exist. For tax years that begin before July

 

1, 2016, a flow-through entity that was required to withhold taxes

 

on distributive shares of business income shall file an annual

 

reconciliation return with the department no later than the last

 

day of the second month following the end of the flow-through

 

entity's federal tax year. The department may require a flow-

 

through entity to file an annual business income information return

 

with the department on the due date, including extensions, of its

 

annual federal information return.

 

     (2) Every person required by this part to deduct or withhold

 

taxes shall make a return or report in form and content and at

 

times as prescribed by the department. An employer that has entered

 

into an agreement with a community college pursuant to chapter 13

 

of the community college act of 1966, 1966 PA 331, MCL 389.161 to


389.166, and is required to deduct or withhold taxes from

 

compensation and make payments to a community college pursuant to

 

the agreement for a portion of those taxes withheld shall, for as

 

long as the agreement remains in effect, delineate in the return or

 

report required under this subsection between the amount deducted

 

or withheld and paid to the state and that amount paid to a

 

community college. An employer that is an authorized business

 

pursuant to a written agreement entered into with the Michigan

 

strategic fund for a withholding abatement pursuant to chapter 8D

 

of the Michigan strategic fund act, 1984 PA 270, MCL 125.2090g to

 

125.2090i, and is required to deduct and withhold taxes from

 

compensation but may retain a portion of the withholdings tax

 

pursuant to the written agreement shall, for a period of time as

 

provided in the written agreement, delineate in the return or

 

report required under this subsection between the amount deducted

 

or withheld and paid to the state and that amount retained by the

 

employer.

 

     (3) Every person who receives income subject to withholding

 

under this part shall furnish to the person required by this part

 

to deduct and withhold taxes information required to make an

 

accurate withholding. A person who receives income subject to

 

withholding under this part shall file with the person required by

 

this part to deduct and withhold taxes revised information within

 

10 days after a decrease in the number of exemptions or a change in

 

status from a nonresident to a resident. The person who receives

 

income subject to withholding under this part may file revised

 

information when the number of exemptions increases or when a


change in status occurs from that of a resident of this state to a

 

nonresident of this state. Revised information shall not be given

 

retroactive effect for withholding purposes. A person required by

 

this part to deduct and withhold taxes shall rely on this

 

information for withholding purposes unless directed by the

 

department to withhold on some other basis. If a person who

 

receives income subject to withholding under this part fails or

 

refuses to furnish information, the person required by this part to

 

deduct and withhold taxes shall withhold at the full rate of tax

 

from the person's income subject to withholding under this part.

 

     Enacting section 1. This amendatory act does not take effect

 

unless Senate Bill No. 1153

 

          of the 98th Legislature is enacted into law.