A BRIEF Overview of the New MBT July 10,2007. The Bills SB 94 provides the new replacement tax. HB 4368 - HB 4372 provide partial exemptions for industrial.

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Presentation transcript:

A BRIEF Overview of the New MBT July 10,2007

The Bills SB 94 provides the new replacement tax. HB HB 4372 provide partial exemptions for industrial and commercial personal property.

The Tax Business income tax at a rate of 4.95%; 1/3 of tax base. Margins tax on sales minus purchases of tangible property at a rate of 0.8%; 2/3 of tax base. Banks pay alternate capital stock (net worth) tax at a rate of 0.235%, in lieu of other taxes. Insurers’ tax rate increased from 1.07% to 1.25 % with existing credits retained.

Credits for Investing in Michigan Investment tax credit for purchase of capital; 2.9%. Compensation credit for jobs created or retained;.37%. Research and development; 1.9%. Investment and compensation credit can reduce liability by 65%. R and D credit can combine with other two credits to reduce liability by 75%.

Personal Property Tax Reductions 65 % for manufacturing; 24 mill exemption from school taxes and 35% credit. 23% for commercial; 12 mill exemption from school taxes. 10% for natural gas pipeline. 23 % for telephone.

Small Business Features $350,000 filing threshold maintained. Cliff effect eliminated; (phase in from $350, $700,000). Alternative profits rate reduce from 2% to1.8%. Gross receipts threshold increased from $10 million to $20 million; (phase out from $18 million to $20 million). Compensation limit increased from $115,000 to $180,000; (phase out from $160,000 - $180,000).

Current Economic Development Incentives Existing commitment for MEGA’s historic preservation, brownfields and renaissance zones retained. MEGA’s historic preservation, brownfields and renaissance zones continued for new projects. Next energy credits continued.

Other Features Partnerships, LLC and sole proprietorships get deduction for net self employment earnings. Construction contractors reduce gross receipts by payments to subcontractors. Mortgage companies reduce gross receipts by principle amount of mortgage.

Fiscal Impact Tax is revenue neutral, fully replacing SBT and funding exemptions for personal property. Personal property tax relief of $635 million. ITC, Comp. and R & D credits amount to $627 million.

Revenue / Rebate Trigger FY 08 – 5% over revenue neutral amount. Next 2 years personal income plus 1%. Excess amount distributed 50% to BSF and 50% to taxpayers. Trigger sunsets after 3 years.

Who Will Pay Less Manufacturing firms. Small businesses between $10 and $20 million of gross receipts. Small businesses under $10 million with income to owners over $115,000. Michigan-based multi-state firms.

Who Will Pay More Finance, Insurance, Real Estate (paid very little previously, helped shape new tax and supported it = this is fair.) Profitable firms. Firms without much personal property. Firms that operate in Michigan but have little payroll or property here.

A Better Business Tax for Michigan 7 out of 10 businesses receive a tax cut. More reliant on profits. Credit for compensation instead of adding to the base. Credit for capital investment nearly tripled. PPT relief increases return on investment in personal property. Credit for R and D expenses.