Michigan Governor Rick Snyder signed legislation that repeals the Michigan Business Tax (MBT) and adopts a new corporate income tax (CIT) effective January 1, 2012. While Michigan is still working on the details regarding the CIT, some of the highlights of the new tax include the following:
The new CIT will be imposed at of 6%.
Corporations, entities taxed as C corporations for federal income tax purposes and unitary business groups are subject to the tax. However, unlike the MBT, S corporations and other pass-through entities are not subject to the corporate income tax. However, flow-through entities may be subject to withholding.
A taxpayer will be deemed to have nexus with Michigan and be subject to the CIT if it meets any of the following criteria:
• A physical presence in Michigan for more than one day during the tax year, or
• Actively solicits sales in Michigan and has $350,000 or more of Michigan gross receipts, or
• Has a beneficial or ownership interest in a flow-through entity that has nexus with Michigan.
The CIT tax base is calculated from federal taxable income with specified additions and deductions. The Michigan tax base is apportioned using a 100% sales factor.
A unitary group is required to file a combined return.
The CIT is also composed of a 1.25% premiums tax on insurance companies and a .29% franchise tax on financial institutions.
Entities may elect to continue to file and pay under the MBT in lieu of the CIT if the entity has received, has been approved to receive or has been assigned certain certificate tax credits under the MBT.
Michigan plans to publish more detailed information about the Corporate Income Tax in the coming months.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.