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MBT Overview

MBT Overview. Robert J. Kleine State Treasurer. Educational Meeting on MBT Grand Valley State University Grand Rapids, Michigan August 1, 2007. Michigan Business Tax Replaces SBT.

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MBT Overview

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  1. MBT Overview Robert J. Kleine State Treasurer Educational Meeting on MBT Grand Valley State University Grand Rapids, Michigan August 1, 2007

  2. Michigan Business Tax Replaces SBT • New Tax base of income and gross receipts less purchases shifts part of burden to ability to pay while maintaining a stable base • Substantial personal property tax relief will attract capital to Michigan • Tax credits provide incentives to invest in Michigan, to employ Michigan residents, and to perform research and development in the state • Special provisions lower tax burden for small businesses helping them to grow • SBT revenues fully replaced

  3. New Tax Base • Business Income Tax – 4.95% rate • Base includes non-corporate entities • Subject to PL 86-272 • Modified Gross Receipts- 0.8% rate • Base is gross receipts less purchases from other firms • Purchases from other firms includes inventory, depreciable property, materials and supplies, and construction payments to a subcontractor • Tax Base is 1/3 business income and 2/3 modified gross receipts

  4. New Tax Base • Insurance Companies – 1.25% rate • Base is gross direct premiums written • Retaliatory tax is still in place • - Financial Institutions Tax – 0.235% • Base is value of net capital averaged over 5 years • A financial institution is a bank, bank holding company, certain thrift institutions and savings and loans, and a business other than an insurance company owned by the bank that is part of the unitary group

  5. Personal Property Tax Relief • Commercial personal property exempt from 12 of 24 education mills (23 percent) • Industrial property exempt from 24 education mills and firms receive 35 percent refundable credit for remaining industrial personal property tax • Provides a personal property tax cut of 65 percent on average for industrial property • Schools protected by dedicating a portion of the MBT to the School Aid Fund • No cuts to city, village, townships, and county property taxes • Reduces burden on mobile capital

  6. New Credits Designed to AidMichigan’s Economy • Compensation Credit – 0.37% compensation paid in Michigan • Investment Credit – 2.9% of cost of net new capital located in Michigan • R&D Credit – 1.9% of amount business spends on R&D in Michigan • Compensation plus investment credit limited to 65% of liability; Together with R&D credit cannot exceed 75% of liability • Entrepreneurial Credit – businesses with less than $25M in gross receipts can claim if they add at least 20 jobs and invest at least $1.25M

  7. Key SBT Credits Continued in MBT • SBT Credits Continued • MEGA • Brownfield • Historic Preservation • Renaissance Zone • SBT Credits Continued and Expanded • Public Contribution and Community Foundation • Alternate Credit • Personal Property Tax Credit

  8. Special Provisionsfor Small Businesses • Firms with less than $350,000 in gross receipts exempt • Alternate rate phased-in for $350,000 to $700,000 in gross receipts • Allow qualifying firms to pay 1.8% on adjusted business income • Raise officer compensation disqualifiers to $160,000 to $180,000 • Double gross receipts threshold phase-out to $18-20 million • Entrepreneurial credit to encourage hiring and investment in Michigan

  9. MBT Revenue Trigger • MBT has a trigger to ensure that it does not represent a large tax increase • If revenues exceed trigger, ½ refunded to taxpayers and ½ deposited into BSF • For FY 2008, triggers if tax is 5 percent more than revenue neutral amount • For FY 2009 and FY 2010 trigger grows by growth in personal income plus 1 percent

  10. Balance Sheet for Michigan Business Tax

  11. 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 multi-state firms.

  12. Who Will Pay More • FIRE. • Profitable firms. • Firms without much personal property. • Firms that operate in Michigan but have little payroll or property here.

  13. Most Manufacturing Firms Pay Less

  14. Twice as Many Firms Receive a Tax Reduction Number of Firms

  15. Steps to Implement the MBT • Treasury Tax Policy analyzes the operational impacts and develops policies and procedures • Design of new forms begins • Project control office established to create full project plan with IT vendor and DIT • Tax calculator placed on web • Training seminars developed and other communications are scheduled and launched

  16. Steps to Implement the MBT • Materials are prepared for U of M and MSU tax schools • Materials prepared for MACPA and other preparer group presentations • Web based training module available

  17. MBT Timeline • 1st estimated payments due – April 08 • New automation design complete – May 08 • Final build of MBT system – November 08 • Final testing and implementation – January 09

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