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A BRIEF Overview of the New MBT

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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A BRIEF Overview of the New MBT

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  1. A BRIEF Overview of the New MBT July 10,2007

  2. The Bills • SB 94 provides the new replacement tax. • HB 4368 - HB 4372 provide partial exemptions for industrial and commercial personal property.

  3. 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.

  4. 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%.

  5. 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.

  6. 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).

  7. 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.

  8. 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.

  9. 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.

  10. 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.

  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-based multi-state firms.

  12. 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.

  13. 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.

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