Monday, May 23, 2011

Michigan Business Tax (MBT) Repeal Continued

As previously mentioned, the repeal of the Michigan Business Tax is a near guarantee, but with change comes confusion.

So as details become clear I will do my best to clarify how this change will affect your business.

First, I feel I should cover what the MBT tax was, and what types of businesses were required to file a Michigan Business Tax return.

The MBT was enacted on January 1, 2008.

The MBT was a required filing for businesses, doing business in Michigan, whom had Michigan Gross Receipts in excess of $350,000. All businesses that had gross receipts below this level were not required to file an MBT return.

The MBT was a two part tax, well actually a three part tax, because there was a surcharge if you had tax from either of the first two tests. The first part was a pure Gross Receipts Tax which (after adjustments) taxed Gross Receipts at a flat .8%. The second part was a pure income tax, which taxed net taxable income at a flat 4.95% (after adjustments). The "third tax" was a surcharge which added an additional 21.99% onto your tax, but only if you had tax from the previously mentioned taxes. As an example, I will show you how a business would have been taxed if they only had the following issues/ assumptions under the MBT:

Assume you have a C-Corporation, that only does business in Michigan, had $1,000,000 in gross receipts, had net taxable income of 10,000. Under these assumptions, their federal taxable income would be only $1,500. With the MBT, here is breakdown of their tax bill:

Gross Receipts Tax = $8,000
Net Income Tax = $495
Annual Surcharge= $1,868
Total MBT Tax= $10,363

This company usually would have qualified for additional tax credits that would reduce the total tax bill. How fair is it to ask a business to potentially have a tax bill that is larger than their net taxable income for a given year? These inequities and the complexity of the MBT are ultimately what led to its demise.
There were many additional adjustments, and tax credits that I will not get into on this posting, if you would like additional information relating to any of those credits or have a specific question related to this topic, send me an e-mail, or reply to this posting and I will do my best to address that specific issue. For purposes of this posting I am trying to show the nature of the tax, not an individual company's tax issues as it relates to the MBT, the tax is actually much more complex than I could possibly cover in one blog posting...

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