General Business Tax Changes

Transcription

1 General Business Tax Changes Michigan is replacing the Michigan Business Tax (MBT) in 2012 with a new, simpler and more competitive corporate income tax. o Low tax rates will be established in Michigan. The new structure will tax C- Corporations at 6% on federal taxable income apportioned to Michigan. Other entities individuals, partnerships, LLCs, etc. would have income flow to their personal income tax. The personal income tax rate remains 4.35% and is scheduled to decline to 4.25%in o The change will reduce business taxes by an estimated 86%. All industries are in line for significant tax cuts, thus reducing operational costs and encouraging new investment in the state. o Michigan s overall business tax climate ranking is now 13 th in the U.S., according to the Tax Foundation. In isolating the corporate tax rankings, the Foundation s Michigan ranking jumps to 22 nd from the previous level of 48 th. The new, simplified tax system provides a significant broad- based reduction in business taxes and eliminates a laundry list of credits and deductions currently included in the MBT. Furthermore, the alternative business income tax for small business remains intact and other economic development tools are still available. Michigan s tax structure will not change until January 1, The MEDC can work with firms to provide them with more tax information about their specific business.

2 Pure Michigan: Asset-Based Economic Development The MEDC and State of Michigan provides significant value to businesses looking to expand or locate their business here, including: o $175 Million annually in business attraction and economic gardening programs and business assistance through MEDC; $100 million available for attraction and economic gardening $25 million available for business acceleration $25 million available to support the film and digital media industry $25 million available to support the Pure Michigan promotion program o A Simplified and Competitive Business Tax Structure. With a new and improved tax system, Michigan is a better place to do business. o Talent Enhancement. A suite of services are available to firms that need to find the right people for their business. The MEDC s Talent Enhancement team works closely with businesses to identify and screen talent, provide HR consulting and training services. o Cost-Cutting & Ombudsman Services. The MEDC helps companies save money through our Workers Compensation Cost Control Service. We also assist companies in finding property for expansions. Our Business Ombudsman Office provides impartial, independent and confidential assistance in resolving disputes and investigating business complaints against state government agencies. o Pure Michigan Business Connect an economic gardening tool. The MEDC is working closely with major businesses, state agencies, financial institutions and sources of funding to encourage them to source work within Michigan and to invest in Michigan-based businesses. This opportunity will provide Michigan firms with over $1.5 billion in supplier contracts, capital access and business resources. o Federal Contract Assistance. With the growing need for qualified defense contractors, the Michigan Defense Center strategically connects defense industry buyers and prime contractors with Michigan based-companies. In addition, our network of Procurement Technical Assistance Centers assists

3 companies throughout the entire government procurement process from preaward to post-award. MEDC also tracks federal grant programs and makes companies aware of opportunities and offer letters of support where applicable. o Strengthening Michigan Companies. In partnership with our strategic service providers, we assist companies in the development of business and marketing plans, in matchmaking with Michigan suppliers, and in connecting companies to the best manufacturing practices and technologies available. o Financing Assistance. The MEDC works to match company needs with available financing programs. The MEDC can assist companies with a full complement of financing programs from angel investors and venture capital funds, to accessing SBA financing programs, to credit enhancement and collateral support. o Patent/Trademark Work. In conjunction with Michigan law firms and our Small Business Technology Development Center network, the MEDC is launching an initiative to make available pro bono services in the IP sectors of patents, trademark and copyright laws. o Local Incentives. An array of property tax abatement programs is available at the local government level, including PA198 and PA328. Obsolete property redevelopment projects may garner incentives under PA146, PA210, and PA255, as well as PA198.

4 What Will Stay the Same with the New Tax Structure? Michigan s property tax system retains all exemptions and abatement programs. The automatic 24-mill reduction on industrial personal property and automatic 12-mill reduction on commercial personal property will continue. In addition, firms may still apply for property tax abatements under the Plant Rehabilitation and Industrial Development Districts Act (PA198) and the New Personal Property Tax Exemption(PA 328) through their local unit of government. Commercial and industrial property rehabilitation incentives are still available for community redevelopment projects. Obsolete property may garner property tax incentives under Obsolete Property Redevelopment Act (OPRA), Commercial Rehabilitation Act (PA 210), Commercial Redevelopment Act (PA 255), or Plant Rehabilitation and Industrial Development Districts Act (PA198), depending on the details of the project. Property tax exemptions for inventory, special tooling and pollution control equipment will remain in place under standard operating procedures. Sales tax exemptions for industrial machinery & equipment, pollution control equipment, and energy used in manufacturing are still available. Renaissance Zones remain in effect. Geographic zones are available throughout the state, as well as specialized zones for agriculture processing, forest products processing, renewable energy, and tool & die. The property tax reductions under the Renaissance Zone program will continue. However, Renaissance Zones credits under the new corporate income tax will not be available. Only specific companies in Renaissance Zones with development agreements with the Michigan Strategic Fund in place prior to January 1, 2012, will be allowed to continue the business tax credit.

5 What will happen to credits approved in the past? All credit agreements executed before January 1, 2012 will be honored under the new tax system. These credits, called Certificated Credits, include the following: MEGA (including standard, high-tech and retention) Brownfield Credit Renaissance Zones Credits designated for the following: Agriculture Processing, Forest Products, Renewable Energy, Next Michigan, Tool & Die, and Border Crossing. Historic Preservation Credit Michigan Film Credits, including infrastructure and production company credits Michigan Early Stage Venture Investment Credit Photovoltaic MBT Credit Anchor Jobs Credit Defense Contracting MBT Credit Anchor District Credit Polycrystalline Energy Credit Battery Production Credit Hybrid R&D Technology Credit The new tax reform will allow taxpayers to receive the benefits of their certificated credits by electing to continue to file the MBT. Companies will calculate and apply the value of their other credits to the higher of either the MBT liability or the calculated Corporate Income Tax (CIT) liability as if they were subject to the CIT. Companies may also opt-out of this option and simply file under the CIT.

6 Is the MEDC still providing incentives to projects? The MEDC remains committed to businesses looking to expand, locate, or stay in Michigan. MEDC, along with its local partners, will continue to provide services, support and incentives to business clients. Going forward, MEDC will have an annual incentive budget from which to work and will develop programs that are simple to explain and simple to execute and track. Please contact your Business Development Manager or Community Assistance Team Member to discuss specific projects and needs. The MEDC s project intake process remains unchanged and the MEGA and MSF Boards will continue to make final decisions regarding incentives. Property tax abatements and exemptions will remain in place. Firms may still apply for PA 198, PA 328, commercial rehabilitation, OPRA, Neighborhood Enterprise Zones, and others are still available through local governmental units. The MEDC will continue to utilize existing tools within the framework and intent of the new budget. The MEDC will have an annual incentive budget from which to work and we will develop new programs that are simple to explain and simple to execute and track. The MEDC s annual allocation could be up to $50 million, which would be used to incent all business growth and retention projects, including community and economic development projects.

7 Renaissance Zones The Renaissance Zone Program will continue to be available for projects even with the changes to the business tax laws going into effect on January 1, Projects considered and approved for Renaissance Zone benefits after January 1, 2012 will have to qualify for one of the targeted zones listed below. Businesses approved for Renaissance Zone status will not be eligible to receive an exemption from the new Corporate Income Tax (CIT) but will receive all other renaissance zone benefits, including all property tax exemptions. Existing Renaissance Zone projects will continue to receive their benefits if they are defined as Certificated Credits under the new tax reform law. A Certificated Credit is generally defined as a project approved prior to January 1, 2012 and that also has a development agreement between the taxpayer and the Michigan Strategic Fund. Firms with projects that meet this definition may continue to file the Michigan Business Tax (MBT) which will allow them to apply the credit value to the higher of the MBT liability of the new CIT. All other Renaissance Zone benefits will continue to apply to projects without change until the duration of the zone expires. AVAILABLE RENAISSANCE ZONES Agricultural Processing Renaissance Zones (APRZ) Five APRZs are available for designation. Forest Products Processing Renaissance Zones (FPPRZ) Nine FPPRZs are available for designation. Renewable Energy Renaissance Zones (RERZs) Six RERZs are available for designation, with two required for cellulosic biofuels projects. Tool & Die Recovery Zones Six Tool & Die Recovery Zones are available for designation. Michigan Strategic Fund (MSF) Designated Renaissance Zones (MSF RZs) Twelve MSFRZs are available for designation, with two being site-specific. Of the remaining available zones, a minimum of three designations must be located in rural areas. Next Michigan Renaissance Zones Specified Next Michigan Development Corporations (NMDCs) may designate Renaissance Zones within a geographic plan approved by the MSF. Under this program, there are limits on the number of NMDCs, zones, and participating companies. Interested local governments should work closely with the MEDC in reviewing the scope of the program parameters. Border Crossing Renaissance Zones (BCRZ) BCRZs designations are available and limited to Port Huron and two of its contiguous townships.

8 Michigan Corporate Income Tax Impact on Existing Tax Credits Recipients The new Michigan Corporate Income Tax (CIT) eliminates almost all tax credits; however, any taxpayer that has an existing credit (or a certificated credit ) approved and executed before January 1, 2012 will be able to realize the full benefits of their credit. The certificated credits include all of the following: MEGA Credits (including standard, high-tech, rural and retention) Brownfield Credits Renaissance Zones Credits* Historic Preservation Credits Michigan Film Credits, including infrastructure and production company credits Michigan Early Stage Venture Investment Credits Photovoltaic MBT Credits Anchor Jobs Credits Defense Contracting MBT Credits Anchor District Credits Polycrystalline Energy Credits Battery Production Credits Hybrid R&D Technology Credits *Renaissance Zone Credits are limited to taxpayers with a development agreement executed between the taxpayer and Michigan Strategic Fund or that are part of a qualified collaborative agreement. The tax reform will allow taxpayers to receive the benefits of their certificated credits by electing to continue to file the MBT for the duration of their credits. Companies electing to claim their credits and file the MBT will apply the value of the certificated credit to the higher of either the MBT liability, including non-certificated credits, or the calculated CIT liability as if they were subject to the CIT. Companies may also opt-out of this option and simply file under the CIT if they would have a lower CIT liability compared to the value of their certificated credit under the MBT formula, but they would forego any remaining credits. Companies must determine if they want to continue to file the MBT in their first tax year ending after December 31, 2011, except for Brownfield and Historic Tax Credits. Once a company elects to continue to file the MBT they must remain in the MBT until all their credits and any carryforwards are used up. Taxpayers are encouraged to consult a CPA or tax attorney for professional assistance. Taxpayers with Brownfield and Historic Tax Credits do not have to elect to remain in the MBT in their first tax year after December 31, 2011, and may elect to file the MBT in the specific year in which they want to claim their tax credits. Brownfield and Historic certificated tax credits may also elect to take a refund at 90% of credit value.

9 Certificated Credit Illustration FIRST STEP: For the 2012 tax year, a taxpayer with a certificated credit makes a one time election to file MBT with credits or file the CIT and forego the credits. Treatment will vary for Brownfield and Historic Preservation credits as described on page one of this summary. Company A Company B Company C Gross Receipts Liability $ 6 mil + Business Income Liability $ 3 mil Liability before credits $ 9 mil Non Certificated Credits $ 2 mil Certificated Credits $ 5 mil MBT Liability $2 mil Gross Receipts Liability $ 8 mil + Business Income Liability $ 2 mil Liability before credits $10 mil Non Certificated Credits $ 8 mil Certificated Credits $ 3 mil MBT Liability ($1 mil) Gross Receipts Liability $ 5 mil + Business Income Liability $ 2 mil Total Base Liability $ 7 mil Non Certificated Credits $ 1 mil Certificated Credits $ 2 mil MBT Liability $ 4 mil Liability $2 mil SECOND STEP: For Company A and Company B, the MBT scenario is more favorable and both companies would elect to keep the certificated credits. Hencefore it applies the certificated credits to higher MBT liability or CIT Liability for the life of the certificated credit. Company A Company B In Company C s situation, going with the CIT is more favorable. Thus, Company C foregos their credits and henceforth files taxes under the new CIT (see final step below). Gross Receipts Liability $ 6 mil + Business Income Liability $ 3 mil Gross Receipts Liability $ 8 mil + Business Income Liability $2 mil Use Higher Liability Use Higher Liability Liability Before Credits $ 9 mil Non Certificated Credits $ 2 mil Liability Before Cert Credits $ 7 mil No Credits $0 Liability Before Credits $ 10 mil Non Certificated Credits $8 mil Liability Before CertCredits $2 mil No Credits $0 Liability Before Cert Credits $7 mil Certificated Credits $ 5 mil N/A CertCredit ($ 5 mil) MBT Liability $ 2 mil Liability ($ 2 mil) N/A Liability Before CertCredits $2 mil Certificated Credits $ 3 mil MBT Liability ($ 1 mil) Liability $ 3 mil CertCredit $ 3mil Liability $ 0 mil FINAL STEP: FILE TAX RETURNS COMPANY A LIABILITY = $2 MIL COMPANY B LIABILITY = $0 COMPANY C = $2 MIL