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F103.SBE
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@072 CHAP 11
@CODE: MI
@CODE:NF
┌───────────────────────────────────────┐
│ THE MICHIGAN "SINGLE BUSINESS TAX" │
└───────────────────────────────────────┘
Businesses are taxed in Michigan under a relatively uniform tax system,
applicable to all forms of business organizations. There is no income
tax, as such, on business income, although the "Single Business Tax" is
very much like an income tax, albeit with some major differences. To
some extent, it also substitutes for the Michigan property tax on in-
tangibles as well, since intangible assets of a business that is sub-
ject to the Single Business Tax are exempt from the ad valorem tax on
intangible property.
The tax base for the Single Business Tax, for sole proprietorships,
partnerships, corporations, joint ventures, estates, trusts, financial
institutions, joint ventures and associations having business activity
in Michigan is essentially federal taxable income with the following
adjustments:
. Add back employee compensation;
. Eliminate any interest income received or interest expense
incurred;
. Deduct the entire cost of capital assets acquired during the
taxable year ("capital acquisition deduction"), but add back the
depreciation deductions claimed for federal income tax purposes;
. Upon sale of capital assets, the capital acquisition deduction is
recaptured to the extent of the sales proceeds; and
. Exclude 100% of any dividends or oil and gas royalties received
by corporations subject to the Single Business Tax.
Thus, in effect, the Single Business Tax is not an income tax but a tax
based on value-added or economic size (that is, selling price of pro-
duced goods less the cost the raw material used in production). The
tax base and the 2.35% tax rate are generally the same for all enti-
ties, although there are exceptions. Unincorporated businesses and
S corporations are eligible for a credit against the Single Business
Tax and, where certain requirements are met, partnerships, S corpora-
tions and professional corporations are eligible for substantial addi-
tional statutory exemptions. Taxpayers with gross receipts of less
than $44,000 in 1992 are not required to file.
(Michigan has just amended this exemption, which was scheduled to
increase to $45,000 in 1993, and no higher after that, so that a
$100,000 exemption for small businesses from the Single Business Tax
will now go into effect.)
Note that the Single Business Tax taxes all businesses as though they
are corporations, imposing the tax at the entity level, even though
the business may be conducted as a sole proprietorship or partnership.
If the business is unincorporated, or is an S corporation, its TAXABLE
income passes through to the individual owners and is subject to
Michigan personal income tax at the individual's level, just as for
federal income tax purposes. The amount taxable to the partners, etc.
is determined under income tax principles, without regard to the Single
Business Tax base, which is determined at the entity level.
The Single Business Tax return for a business entity is due at the end
of the fourth month following its taxable year-end.
The Michigan Single Business Tax law was amended for tax years be-
ginning in 1989. The single business tax credit is now allowed to a
person whose gross receipts do not exceed $7 million for the tax year
(formerly $6 million) in 1989, $7.25 million in 1990, and $7.5 million
afterwards. The credit begins phasing out at gross receipts levels
$1 million below the foregoing amounts (i.e., at $6.5 million in 1991,
etc.).
The credit still applies only to a person whose adjusted business
income is not in excess of $475,000.