All posts in Michigan Business Tax

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May

Flow-Through Withholding Law: Some New and Some Old

Categories: Business, Michigan Business Tax

Tags: CIT, MBT, Michigan Corporate Income Tax, Michigan Withholding

Written by: Scot Smith, CPA

NEW MICHIGAN CORPORATE INCOME TAX (CIT) EFFECTIVE JANUARY 1, 2012

With the new Michigan Corporate Income Tax replacing the old Michigan Business Tax effective January 1, 2012 we want to inform you of a new law regarding flow-through income tax withholding responsibilities:

Michigan based partnerships, “S” corporations and Limited Liability Companies (also known as flow-through entities) are now required to withhold and pay Michigan corporate income tax on a quarterly basis at a rate of 6%, if:

The partner, shareholder or member (K-1 recipient) is a “C” corporation, and
The business income of the flow-through entity is over $200,000.

Michigan business income is Federal taxable income adding back bonus depreciation and the domestic production activities deduction, if any. Withholding and payment of income taxes is required quarterly based on the K-1 recipients’ distributive share of income, using Form 4917. In addition, the withholding requirement only applies to Michigan-based sales, so a proration will be necessary if there are sales in other states.

If the flow-through entity has K-1 recipients who are also flow-through entities, it must be determined who the ultimate taxpayer is to determine if there should be Michigan corporate income tax withheld at 6% or Michigan individual income tax withheld at 4.35%.

OLD LAW REGARDING NON-RESIDENT MICHIGAN WITHHOLDING

If the K-1 recipient is a Michigan non-resident individual, the flow-through entity is required to withhold and remit Michigan income tax at a rate of 4.35% on their distributive share of income regardless of the amount of the flow-through entity’s business income.

In addition to the quarterly forms and remittances noted above (Form 4917), Form 4918, Annual Withholding Reconciliation Return is due by February 28th.

Mar

The New Michigan Corporate Income Tax

Categories: Business, Michigan Business Tax

Tags: CIT, Corporate Tax, MBT, Michigan Corporate Income Tax, michigan tax

Comments: No

Written By: Tina Powell, CPA

Most of you may have heard that there is a new tax in town. Effective January 1, 2012, the Michigan Corporate Income Tax (CIT) replaces the unpopular Michigan Business Tax (MBT.) It is estimated that it will relieve 95,000 Michigan businesses from the burden of filing a business return and paying business taxes.

The CIT applies only to C corporations and entities taxed as C corporations for federal income tax purpose (for example, a limited liability company that checks-the-box to be taxed as a corporation.) A C corporation will be exempt from the CIT if its Michigan annual gross receipts are less than $350,000 or its CIT liability is less than $100. C corporations with an ownership or beneficial interest in a flow-through entity with Michigan nexus will also be subject to the CIT.

For those of you who do business in multiple states, gross receipts will be apportioned based on the ratio of Michigan sales to total sales.

The CIT is equal to 6% of the federal taxable income subject to specified additions and subtractions.

Since the CIT will apply only to C corporations, businesses that are taxed as C corporations may want to consider converting to an S corporation or another type of “pass-through” entity. This conversion could help reduce the business’s effective income tax rate, and it might also help to reduce the owner’s payroll or self-employment taxes. However, several tax and business issues should be considered before pursuing such a conversion.

A downside to the CIT is that all of the tax credits and deductions that were available under the MBT are no longer available. One exception is the small business alternative tax credit. The credit will allow qualified small businesses to pay tax at a rate of 1.8% of adjusted business income instead of 6%. This credit will be available to C corporations with gross receipts of less than $20 million and adjusted business income of $1.3 million or less, and officers’ and owners’ compensation that does not exceed $180,000 per individual. The credit will be subject to phase-out for gross receipts between $19 million and $20 million and officers’ and owners’ compensation between $160,000 and $180,000 per individual.

Another downside is that there are no provisions for the use of net operating losses incurred during years that the MBT was in effect (2008-2011.)

The MBT is gone, or is it? Actually, some businesses may have select credits available under the MBT and if they elect, they may continue to file under the MBT, rather than the CIT. But beware, if you were filing as a unitary group, and if one member of the group elects to continue to file under the MBT, ALL members must continue to file under the MBT. Additionally, the CIT retains unitary filing requirements for C corporations under common control. Unitary groups are required to file a combined return.

Fiscal-year taxpayers will have a short year for both 2011 and 2012. A fiscal-year taxpayer will likely be allowed to file its first return on April 30, 2013, the same as a calendar-year taxpayer.

Feb

A Perspective on Michigan’s Tax Overhaul

Categories: Business, Michigan Business Tax, Point of View

Tags: business tax, Corporate Tax, MBT, Michigan Tax Overhaul

Comments: No

Written by: Keith O. Frame, CPA

It seems I continually still see newspaper articles, editorials and letters to the editor in various publications referring to the Michigan tax overhaul as a “$1.8 billion dollar give-a-way to business”. Let’s investigate this claim.

If you work in Michigan as an employee of a business in Michigan, you pay State of Michigan income tax on your wages. It doesn’t matter if you make minimum wage or $1,000,000 per year, you pay tax at the statutory rate on the Michigan Form MI-1040 (currently 4.35%).

However, if you start your own business, grow it into a success, hire others and otherwise prosper, you have had the privilege of paying extra tax to the State of Michigan. The Michigan Business Tax (MBT) is (was) calculated in two different ways, generally applying a more favorable calculation to smaller businesses, but having an absolute cliff for larger or more profitable businesses where the tax liability, depending on several factors, could increase exponentially for a small increase in income. The more favorable calculation is a 1.8% tax on the taxable income of the business plus all wages and benefits paid on behalf of the owner and his family members.

Here is where businesses have been getting double taxed for years: most small businesses are organized as pass-through entities (S corporations, partnerships, LLC’s). These entities pay no tax at the federal level – their income is passed through and taxed on the tax returns of their owners. This treatment at the federal level has effectively been ignored in Michigan. These businesses still had to prepare an MBT return and pay any applicable tax.

These pass-through entities prepare their federal tax return, passing the income through to their owners who include it on their federal tax returns. These same owners prepare their Michigan MI-1040 by starting with Adjusted Gross Income on their federal return which, of course, includes the income from the pass-through entity.

So, the unsuspecting business owner, perhaps in the same economic circumstances of someone in a similar field working as an employee for someone else, has had the privilege of paying a significantly higher tax rate. Two taxes on the same income – seems like that should be unconstitutional!

The tax overhaul eliminates the filing requirement for most pass-through entities and no longer results in double taxation in the State of Michigan. Only C corporations are subject to the new corporate income tax – all pass-through entities and individuals will pay tax at the Michigan individual income tax rate only. This creates basic fairness in the tax system that has not existed for 35 years.

Michigan has recently vaulted from near the bottom to near the top of best places to do business in the U.S. as a result of these changes according to the Tax Foundation. This is obviously great news for the State and will ultimately result in more revenue flowing into the State Treasury.

Basic economics still rule – if you want more of something – tax it less.

Oct

Michigan Sales & Use Tax Issues

Categories: Business, In The News, Michigan Business Tax

Tags: macpa, michigan sales and use tax, michigan taxes

Comments: No

Michigan sales and use tax audits are on the rise. Many Michigan taxpayers are facing these audits and because of this, the MACPA is offering a Sales and Use Tax seminar on October 28, 2011 in Grand Rapids.

Click here for more information.

Some of the topics covered will be the ten year audit, audit techniques, vendor liability, interstate trucking, bundled transactions, transfer of title or ownership, discounts, installation charges, delivery charges and sales of a service.

Feel free to call us if you have any questions! We are here to help!

Jun

Michigan Tax Amnesty- Expires June 30th!!

Categories: Business, Individuals, Michigan Business Tax, Planning & Strategies, Tax Tips & Alerts, Tax Updates

Tags: michigan tax, tax amnesty, tax penalties

Comments: No

The Michigan Tax Amnesty program provides a 45-day window for taxpayers to settle tax liabilities with the State, for return periods ending on or before December 31, 2009 and avoid penalty payments. Qualifying taxpayers also avoid civil and criminal penalties and prosecution by the Michigan Depatment of Treasury.

Tax Amnesty is available for individual or business taxpayers who have tax liabilities for eligible taxes for return periods ending on or before December 31, 2009. This includes:

Underreported tax liabilities
Non-reported tax liabilities
Overstated deductions, credits, or exemptions
Failure to file Michigan tax returns
Delinquent payment of past due taxes
Taxpayers who have received a final tax due notice

Individuals and business taxpayers are not eligible for Tax Amnesty if they are:

The subject of a current tax-related Court of Claims case or criminal investigation
Eligible to enter into a Voluntary Disclosure agreement with the State

Qualifying taxes and interest, which are paid under the Tax Amnesty program, will have penalty waived, and the Department will not pursue criminal prosecution relating to taxes paid under Tax Amnesty.

A taxpayer who is eligible for Tax Amnesty and who does NOT apply for Tax Amnesty during the Tax Amnesty period is liable for any tax, accumulated interest, and penalty due. Civil penalties will not be waived and criminal prosecution may be sought.

Jun

New Michigan Tax Law Changes

Categories: In The News, Michigan Business Tax, Tax Tips & Alerts, Tax Tips & Alerts, Tax Updates

Tags: Corporate Tax, MBT, Michigan, pension, Snyder, tax law

Comments: 4

photo credit: mbowlersr

On May 25, 2011, Governor Rick Snyder signed and eight-bill package in an effort to make Michigan more competitive economically as well as to bring fairness and simplicity to Michigan’s current tax structure. These new laws become effective January 1, 2012.

Snyder is quoted as saying, “The current tax system is riddled with inequities that are hostile to job growth. Eliminating these longstanding barriers will level the playing field for taxpayers, encourage entrepreneurship and spur more investment in Michigan. Working in conjunction with other reforms such as a balanced state budget and refocused economic development strategies, the overhaul of our tax structure lets job providers nationwide know that Michigan is the place to be.”

Some of the changes for individual taxpayers are:

The current income tax rate of 4.35% will remain in effect until January 1, 2013. At that time, it will be lowered to 4.25%. In the Great Lakes states, only Indiana’s flat rate of 3.4% is lower.
A three-tiered system will determine whether retirement income is taxed.
- Taxpayers born before 1946 will continue to receive the current retirement income exemptions as well as the personal exemption, Social Security exemption and the exemption for dividends, interest and capital gains.
- Taxpayers born between 1946 and 1952 will have a $20,000 single and $40,000 joint retirement income exemption in addition to the Social Security exemption and personal exemption until age 67. After attaining age 67, the taxpayer will receive a $20,000 single and $40,000 joint exemption against all income in addition to Social Security and personal exemptions.
- For individuals born after 1952 there will be no deduction allowed for retirement income. Once they reach age 67, the individual can elect to deduct $20,000 single and $40,000 joint against income. This exemption can be taken instead of the Social Security and personal exemptions if it is more beneficial to the filer.
The current personal exemption is fixed at $3,700 through 2012, after that it will be adjusted annually for inflation. This personal exemption will be phased out for single taxpayers with household income between $75,000 and $100,000 and married couples filing jointly with household income between $150,000 and $200,000.
Military pensions will continue to be exempt.
The Michigan Earned Income Tax Credit would be reduced from 20% of the federal credit to 6%.
Political contributions are no longer deductible.
An individual born after 1945 can no longer deduct a portion of interest, dividends and capital gains received.
Non-refundable credits like the public contribution credit, the homeless/food bank credit, the city income tax credit, the vehicle donation credit, the college tuition credit and the community foundation credit (which is a very popular contribution in Midland as well as Mount Pleasant) have been eliminated.

Some of the changes for business taxpayers are:

The Michigan Business Tax will be replaced with a 6% Corporate Income Tax. This will only apply to companies that file as “C” corporations effective January 1, 2012. This means that nearly 100,000 small businesses will no longer have to file returns. Companies with apportioned gross receipts of less than $350,000 will not be required to file a return.
The apportionment factor provided by the Multistate Tax Compact is eliminated. Income will be apportioned to Michigan based on the ratio of Michigan sales to total sales.
If a company wishes to take advantage of previously issued certified credits, they may choose to continue to file under the MBT Act as opposed to the new corporate tax act to utilize the credits enumerated. Some of these certified credits are: Brownfield Redevelopment, Historic Preservation, Battery, Film and Michigan Economic Growth and Authority.

If you would like further information regarding the changes, please contact us at 800-448-0257 or 877-299-8334.