MBT Overview

1
MBT Overview

• Robert J. Kleine
• State Treasurer

Educational Meeting on MBT Grand Valley State
University Grand Rapids, Michigan August 1, 2007
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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 AidMichigans Economy

• Compensation Credit 0.37 compensation paid in
  Michigan
• Investment Credit 2.9 of cost of net new
  capital located in Michigan
• RD Credit 1.9 of amount business spends on
  RD in Michigan
• Compensation plus investment credit limited to
  65 of liability Together with RD 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

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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

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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

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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

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Balance Sheet for Michigan Business Tax
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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.

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Who Will Pay More

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

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Most Manufacturing Firms Pay Less
14
Twice as Many Firms Receive a Tax Reduction
Number of Firms
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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

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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

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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