A brief overview of the new mbt
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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 and commercial personal property. The Tax. Business income tax at a rate of 4.95%; 1/3 of tax base.

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Presentation Transcript

The bills
The Bills

  • SB 94 provides the new replacement tax.

  • HB 4368 - HB 4372 provide partial exemptions for industrial and commercial personal property.


The tax
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
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
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
Small Business Features

  • $350,000 filing threshold maintained.

  • Cliff effect eliminated; (phase in from $350, 000 - $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
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
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
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
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
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
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
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.