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The Michigan Legislature has passed Public Act 282 of 2014 that retroactively repeals the Multistate Tax Compact (MTC) and makes changes to the Michigan Business Tax (MBT). More so, the legislation negates the effect of Michigan's Supreme Court's recent ruling in the IBM case (International Business Machines v. Michigan Dept. of Treasury ("IBM") and the potential refund claims resulting from the court decision. The court held that IBM could elect to compute the MBT apportionment using the MTC three-factor apportionment formula (property, payroll and sales) in lieu of the single sales factor formula as prescribed by the MBT Act. The three-factor approach is viewed as a more reasonable approximation of the share of a company's profit that arises from doing business in a state, based on both the demand for company output in the state (the sales factor) and the production activity in that state (the property and payroll factors). With Act 282, the legislature has repealed elements of the MTC retroactively, effective January 1, 2008. Additional legislative changes (listed below) are retroactive to January 1, 2010.


The Act also provides for changes to the MBT, which include the following:

  • Modified Gross Receipts Tax: For purposes of the "Modified Gross Receipts Tax" portion of the MBT, the legislation amends the definition of "gross receipts" to exclude amounts attributable to the taxpayer pursuant to a discharge of debt as described under Internal Revenue Code Section 61(a)(12), including the forgiveness of nonrecourse debt. 
  • Renaissance Zone Credit: A taxpayer that is a business located and conducting business activity in a renaissance zone may claim a credit against the MBT. The Act revises the calculation of the credit, depending on the date business activity is conducted. For a taxpayer located in a zone after November 30, 2002, a credit is equal to the lesser of: (1) the tax attributable to the business activity conducted within a zone in the tax year or (2) ten percent of adjusted services performed in a zone. If the taxpayer is in the renaissance zone prior to December 1, 2002, the credit is equal to the greater of (1) the amount of allowable credit as if the taxpayer had located in the zone after November 30, 2002, as defined above or (2) the product of the credit claimed under the SBT for the tax year ending 2007; the ratio of the taxpayer's payroll in this state in the tax year divided by the taxpayer's payroll in this state in its tax year ending in 2007; the ratio of the taxpayer's renaissance zone business activity factor for the tax year divided by the taxpayer's renaissance zone business activity factor for its tax year ending in 2007 under the SBT. The credit continues through the tax year in which the renaissance zone designation expires. If the amount of the credit exceeds the tax liability for the tax year, that portion of the credit that exceeds the tax liability will not be refunded. 
  • Investment Tax Credit: The Act revises the calculation of the credit with respect to the recapture of revenue when assets eligible for the credit are sold or disposed. The amount to be recaptured depends on whether the assets were eligible for the Investment Tax Credit (ITC) under the former Single Business Tax (SBT) or the Michigan Business Tax (MBT). If the credit applied against the SBT, the recapture is based on the rate of the ITC when it was claimed and how much of the credit was utilized. If assets were eligible for credit under the MBT, the recapture calculation was based on the rate of the ITC at the time the property was sold or disposed, not taking into account the amount of the credit used. Under the amended law, if the ITC was claimed against the MBT, adjusted proceeds from the sale or disposal of the asset would be recaptured to the extent that the credit was used and would be based on the ITC rate in effect when the credit was claimed. 
  • Dock Sales: A provision has been revised by the Act for the purposes of apportionment. Sales of tangible personal property are sourced to Michigan if the property is shipped or delivered to a purchaser within the state based on the ultimate destination at the point where the property comes to a final resting location. Generally, dock sales are sourced to the purchaser's destination state. Should the purchaser not pick up the dock sale within 60 days, the sale would be considered to have come to rest at the final resting point and treated as a Michigan sale. With the change in law, clarification was added that if the purchaser retrieves the goods within 60 days, the activity will not be treated as a sale for Michigan tax purposes. 
  • Refund Claims: Should a taxpayer determine that changes in the legislation have created an overpayment of tax for the years 2010 through 2014, a refund can be claimed in 2015. Filing for refunds must occur beginning January 1, 2015 and no later than December 31, 2015. Refunds pertaining to this Act will be paid in equal annual payments over six years, beginning in 2016. After review of the refund claim, the Department may assess a taxpayer should the refund amount be incorrect. The standard audit and assessment time requirements and statute of limitations do not apply; however, the assessment must be issued within four years after the taxpayer has filed claim for a refund.
For more information or questions on this topic, please contact your local UHY LLP professional.