In August 2011, we released an insight regarding Michigan’s change to a corporate income tax (CIT) for tax years beginning after December 31, 2011. Following is a summary of the items to consider as you prepare your 2011 income tax returns and 2012 estimated tax payments:
- Fiscal-year taxpayers must file a short-year Michigan Business Tax (MBT) return for the period ended December 31, 2011. Filers can elect to compute their tax base by using either the Actual Method or the Annual Method.
- Partnerships (including limited liability companies) and S corporations are not subject to the new CIT and, as such, will no longer be required to file an annual return under the MBT. However, depending on their anticipated net income levels, these pass-through entities may be required to remit withholding taxes on behalf of their corporate and/or pass-through owners. Pass-through entities may also be required to withhold individual income tax on behalf of their nonresident members.
- C corporations subject to the new CIT must compute their 2012 estimated tax payments based on the actual CIT base for each quarter. The estimates cannot be based on the safe harbor calculation under the MBT.
- The new CIT eliminates the Gross Receipts Tax that was part of the MBT. However, the corporate income tax rate increases to 6% on the tax base (formerly 4.95% under the MBT).
In addition, it is important to note that this is Michigan’s third revision to its business tax system since 2007. Navigating the new rules, and their interaction with the old rules, can be quite complicated and burdensome to companies doing business in Michigan. Fortunately, Schneider Downs has a dedicated State And Local Tax (SALT) group that has the knowledge and experience, along with a working relationship with the State of Michigan, to understand these tax law changes. For assistance with the transition to the new CIT, or to discuss the potential for continuing to file under the MBT, please contact a member of our SALT Team.
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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