Michigan Business Tax

THE TAX ATTIC with Jerry Coon

October 13, 2011 // 0 Comments

A closer look at business tax changes Last week, I discussed the Michigan individual tax changes that will take effect on January 1, 2012. The blunt fact is that individual taxes will increase for many Michigan taxpayers. This week, I will discuss the reason for many of those changes. That reason predominantly is explained by looking at the changes in how businesses will be taxed as of January 1, 2012. The blunt fact is that taxes will decrease for many Michigan businesses. By reducing the taxes on businesses, total revenues are decreased. The State of Michigan requires a certain amount of money to operate. If that money isn’t coming from businesses, it comes from individuals. It’s not rocket science. The decision was made by the legislators to lower the gross amount of taxes paid by businesses. Once that decision was made, increased taxes on individuals in some format had to occur. Those individual changes were the changes we discussed last week and they effectively shifted approximately one billion dollars of tax from businesses to individuals. On December 31, 2011, the old way of taxing businesses, called the Michigan Business Tax (MBT), becomes extinct. From a professional income tax preparer point of view, good riddance to the MBT. It was a difficult return to prepare and full of exceptions to the rules. I like to call those exceptions “gotchas.” If you make a mistake on one of those exceptions, the Michigan Department of Treasury sends out one of those “gotcha” letters and the recipient ends up paying more tax. Most tax professionals are not unhappy to see the MBT eliminated. Let’s look more closely at those business tax changes. Most importantly, only businesses that file the federal Form 1120 will be subject to the Corporate Income Tax (CIT). Currently, entities with gross receipts of at least $350,000 are subject to MBT tax. This includes corporations filing Form 1120, Subchapter S corporations filing Form 1120S, partnerships filing Form 1065, and LLCs and individuals filing a Schedule C or Schedule E. The MBT was a tax on business activity regardless of the entity generating the business activity as long as the activity generated at least $350,000 of gross receipts. That’s an important item to note. It was a […]

THE TAX ATTIC with Jerry Coon

February 10, 2011 // 0 Comments

From an income tax professional’s point of view, I am very interested in hearing what our new governor, Rick Snyder, has to say about balancing Michigan’s budget. The previous governor and legislature apparently used up all of the smoke and mirrors that were available and might become available for the next several years. Most likely, there will be no more stimulus money coming from the federal government to balance the budget. There will be no more shifting of funds from one account to the other in a sleight-of-hand maneuver to balance the budget. Bottom line: Governor Snyder has his work cut out for him. The state of Michigan continues to be in poor financial condition and when the state government is in trouble, that tends to put the various municipalities and quasi-governmental organizations operating in Michigan also in trouble. If, as expected, the governor calls for elimination of the Michigan Business Tax (MBT), he also has to replace almost $2,000,000,000 in revenue. How he replaces that $2,000,000,000 is the $64,000 question. He has suggested that cutting all state employee pay by an average of 5% while also making all state employees pay 25% of their health insurance costs will cover a chunk of the deficit. Instituting a 6% corporation income tax based on federal taxable income would raise about $1,000,000,000. Dropping the 20% Earned Income Tax Credit (EITC) on the Michigan tax return would keep the Michigan Treasury from paying out approximately $280,000,000. Cutting waste and inefficiencies in the various departments could cover the rest of the shortfall. It all sounds easy sitting here in Rockford, but I’m quite sure Mr. Snyder won’t find it quite so easy or painless. The $280,000,000 that Michigan pays out on the EITC pales in comparison to the billions and billions of dollars the federal government spends on the EITC. Last week I discussed the EITC in general. The EITC has become an entitlement of sorts and, on the federal level, the EITC is not going away unless our entire tax system is reformed. For the most part, taxpayers must have a qualifying child in order to get their share of the pot. Let’s discuss what defines a qualifying child. There are four tests that must be met in […]