The following answers are no longer valid and have been replaced.

A1. Will taxpayers need to calculate the business income, modified gross receipts, and surcharge separately and pay 85% of each to meet the estimated tax payment safe harbor provision in order to avoid interest?

The following answer has been rescinded and replaced by A22.
Tax liability of the act is imposed on two components; federal taxable income derived from business activity and modified gross receipts. These two components form the basis for tax liability. Estimated tax payments are governed under Section 501. If the sum of the estimated payments equals at least 85% of the liability and the amount of each estimated payment reasonably approximates the tax liability incurred during the quarter for which the estimate is made, interest will not be assessed. Therefore, while a calculation must be made for each component in order to determine tax liability, only one estimated payment of 85% of that liability need be remitted. There is no requirement to remit an estimated payment for each separate tax liability component.

A5. How are quarterly estimates calculated?

The following answer has been rescinded and replaced by A23.
The sum of estimated payments must equal at least 85% of estimated tax liability for the year, and the amount of each estimated payment must reasonably approximate the tax liability for that quarter. For Tax Year 2009 and after, if prior year's tax is $20,000 or less, estimated tax will be prior year's amount in four equal payments, the sum of which equals the previous year's tax liability. If the year's tax liability is $800 or less, quarterly returns are not required.

A13. Will a safe harbor be allowed for 2008 estimates based on the 2007 SBT return?

A21. How does a taxpayer with a fiscal year end calculate tax under the MBT for estimate purposes?

The following answer has been rescinded and replaced by A25.
If estimated tax liability for the year is over $800.00, a taxpayer must file estimated quarterly returns and payments. Quarterly returns for fiscal year taxpayers are due the 15th day of the first month after each quarter. Any quarter less than 3 months is due on the 15th day of the month immediately following the final month of the taxpayer's tax year. In the case of a short taxable year, no estimated tax payment is required if the short taxable year is a period of less than four full calendar months; or the estimated tax liability for the year is $800.00 or less. See IRS Reg. 1.6655-5(b).

The estimated payment made with each quarterly return must be for the total estimated business income tax base and modified gross receipts tax base for the quarter, or 25% of the estimated annual liability. To avoid penalty and interest charges, estimated payments must equal at least 85 percent of the liability for the tax year, and the amount of each estimated payment must reasonably approximate the tax liability for each quarter. If the year's tax liability is $800.00 or less, quarterly returns are not required. Estimates cannot be based on the prior year's SBT liability, and can no longer be based on 1% of gross receipts.

For taxpayer's whose apportioned or allocated gross receipts equal $350,000 or more, the MBTA imposes a 4.95% business income tax and a modified gross receipts tax at the rate of 0.8%. A credit reduces the tax correspondingly if gross receipts are between $350,000 and $700,000.

For most taxpayers, the business income tax base is essentially that part of federal taxable income derived from business activity, modified by the following to the extent included in, excluded from, or deducted in arriving at federal taxable income:

Additions:

• Interest income and dividends derived from obligations or securities of states other than Michigan,
• Taxes on or measured by net income and the tax imposed under the MBT,
• Any carryback or carryover of a net operating loss,
• Loss attributable to another taxable entity,
• Royalty, interest, or other expense paid to a person related to the taxpayer by ownership or control for the use of an intangible asset if the person is not included in the taxpayer's unitary business group.

Subtract:

• Dividends and royalties received from persons other than United States persons and foreign operating entities,
• Income attributable to another taxable entity,
• Interest income derived from United States obligations,
• Earnings that are net earnings from self-employment as defined under section 1402 of the internal revenue code of the taxpayer or a partner or limited liability company member of the taxpayer except to the extent that those net earnings represent a reasonable return on capital.

The modified gross receipts tax base consists of gross receipts less purchases from other firms. Gross receipts are defined as the entire amount received by a taxpayer from any activity carried on for direct or indirect gain, benefit, or advantage to the taxpayer or to others, with certain specific exceptions. "Purchases from other firms" is generally limited to inventory acquired during the tax year, depreciable assets acquired during the tax year, and materials and supplies directly connected to inventory or depreciable assets.

A26. Will a taxpayer be required to make a payment with an extension request or is the listing of estimated payments made going to be accepted as it is in the Single Business Tax?

The following answer has been rescinded and replaced by A30.
Section 505(3) of the Michigan Business Tax Act (MBTA) instructs that upon application of the taxpayer and for good cause shown, the Department may grant an extension to file the annual Michigan Business Tax (MBT) return. MCL 208.1505(3). The section further instructs that the Treasurer shall require, "[w]ith the application payment of the estimated tax liability unpaid for the tax period covered by the extension."

If the application for an extension for good cause and/or the tentative return submitted with a federal extension show that estimated payments have been made that result in the "estimated tax liability unpaid for the tax period covered by the extension" to be zero, then no payment must accompany the extension request.

C6. What is the compensation credit?

The following answer has been rescinded and replaced by C21.
MCL 208.1403 provides a credit in the amount of .370% of a taxpayer's compensation in Michigan, not to exceed 65% of the taxpayer's liability imposed under the MBT.

"Compensation" is defined as all wages, salaries, fees, bonuses, commissions, other payments made in the tax year on behalf of or for the benefit of employees, officers, or directors of the taxpayers, and any earnings that are net earnings from self-employment as defined under section 1402 of the internal revenue code of the taxpayer or a partner or limited liability company member of the taxpayer. (Additional information is provided in MCL 208.1107(2)).

C11. Is the farmland preservation credit available under the Michigan Business Tax?

The following answer has been rescinded and replaced by C22.
No. The farmland preservation credit is found in the Natural Resources and Environmental Protection Act, 1994 PA 451. This is a stand-alone statute apart from both the Single Business Tax and the Michigan Business Tax. The public act was written to provide the farmland preservation credit (for qualifying taxpayers) against the SBT and the individual income tax. MCL 324.36109. The calculation of the credit is performed in reference to the SBT and the statute does not provide a similar credit for the MBT. MCL 324.36109(2).

C12. Will the recapture limiting language of MCL 208.1403(3)(d)-(f) apply to both the Michigan Business Tax Investment Tax Credit (ITC) and ITC taken under the former Single Business Tax?

The following answer has been rescinded and replaced by C27.
Yes, under MCL 208.1403(3)(d)-(f) ITC recapture is limited to the extent ITC was taken when the cost for the original asset acquisition was paid or accrued and at the rate at which the credit was used under the former SBTA or the MBTA. The recapture applies to depreciable assets acquired before and after December 31, 2007. In other words, a person must recapture ITC upon disposition of assets acquired under both the MBT and the SBT subject to the recapture limitations of MCL 208.1403(3)(d)-(f) that apply to both the SBTA and the MBTA.

M1. Does the Modified Gross Receipts Tax component of the Michigan Business Tax Act tax capital gains of investors, including trusts, Family Limited Partnerships and individuals?

The following answer has been rescinded and replaced by M26.
Yes, the modified gross receipts tax is a tax on every taxpayer with nexus. "Taxpayer" means a person or a unitary business group liable for a tax, interest, or penalty under this act. The term "person" means an individual, firm, bank, financial institution, insurance company, limited partnership, limited liability partnership, copartnership, partnership, joint venture, association, corporation, subchapter S corporation, limited liability company, receiver, estate, trust, or any other group or combination of groups acting as a unit. Therefore, the modified gross receipts tax is imposed on the above named persons if taxpayer nexus with Michigan exists.

The modified gross receipts tax base is a taxpayer's gross receipts less purchases from other firms before apportionment. The definition of "gross receipts" means the entire amount received by the taxpayer from any activity whether intrastate, interstate, or foreign commerce carried on for direct or indirect gain, benefit, or advantage to the taxpayer or to others with certain exceptions. MCL 208.1111(1)(o) excepts from gross receipts, proceeds from sales of capital assets as defined in section 1221(a) of the internal revenue code, less any gain from the disposition to the extent that gain is included in federal taxable income. Stated another way, the gain included in federal taxable income is included in the modified gross receipts tax base. There are no other statutory exceptions or exclusions that are applicable to capital gains recognized from the sale of investment assets. As a result, these gains are included in gross receipts.

Mi5. Are limited liability companies subject to the MBT?

Mi6. What is the meaning of the acronym FIRE which appears in the presentation entitled MBT Overview?August 1, 2007 on the MBT Website?

The following answer has been rescinded and replaced by Mi34.
The acronym FIRE, at slide 12 of the presentation, stands for Financial Sector, Insurance Sector and Real Estate Sector. The presentation, which was one of the Department's earliest overviews of the newly enacted Michigan Business Tax Act (MBTA), indicated that these industries may pay more under the MBT than under the SBT.

Insurance companies will pay a gross direct premiums tax of 1.25% under the MBT, as addressed in Chapter 2A of the MBTA. Financial institutions will pay a tax on net capital at a rate of 0.235%, as explained in Chapter 2B. Real estate entities, like all taxpayers not taxed under Chapters 2A or 2B, are subject to the Business Income and Modified Gross Receipts taxes found in MCL 208.1201 and MCL 208.1203, respectively.

On December 1, 2007, the MBTA was amended to impose, in addition to the taxes described above, an annual surcharge on each taxpayer, except insurance companies. The surcharge is equal to a specified percentage of the taxpayer's MBT liability, after allocation or apportionment to Michigan, but before calculation of the various credits in the MBTA.

For a financial institution, the MBT surcharge is 27.7% for tax years ending in 2008, and 23.4% for tax years ending in 2009 and later. Financial institutions authorized to exercise only trust powers are not subject to the surcharge.

For real estate entities, like all taxpayers other than insurance companies and financial institutions, the MBT surcharge is equal to 21.99% of MBT liability.

The amount of the surcharge imposed on any taxpayer, other than financial institutions, cannot exceed $6,000,000.00 for any single tax year.

Mi18. Are limited liability companies subject to the MBT?

However, to the extent that a limited liability company is a single member limited liability company disregarded for federal tax purposes, then the owner of that limited liability company will be the taxpayer under the MBT. The disregarded single member limited liability company will be treated as a sole proprietorship, branch, or division of its owner.

U8. What is a unitary business group?

Control Test. The control test is satisfied when one person owns or controls, directly or indirectly, more than 50% of the ownership interest with voting or comparable rights of the other person or persons. Generally, indirect ownership is determined using IRC 318, except that the Department will apply IRC 318 to all forms of ownership interests.

Relationship Tests. In addition to satisfying the control test, the group of persons must have business activities or operations that (1) result in a flow of value between or among persons in the group, or (2) are integrated with, are dependent upon, or contribute to each other.

Flow of value is established when members of the group demonstrate one or more of functional integration, centralized management, and economies of scale. Examples of functional integration include common programs or systems and shared information or property. Examples of centralized management include common management or directors, shared staff functions, and business decisions made for the group rather than separately by each member. Examples of economies of scale include centralized business functions and pooled benefits or insurance. Groups that commonly exhibit a flow of value include vertically or horizontally integrated businesses, conglomerates, parent companies with their wholly owned subsidiaries, and entities in the same general line of business. Flow of value must be more than the mere flow of funds arising out of passive investment.

Businesses are integrated with, are dependent upon, or contribute to each other under many of the same circumstances that establish flow of value. However, this alternate relationship test is also commonly satisfied when one entity finances the operations of another or when there exist intercompany transactions, including financing.

U30. Are foreign entities includable in unitary business group? What if the foreign entity is the single member of a domestic single member limited liability company disregarded for federal tax purposes?

The following answer has been rescinded and replaced by U36.

A unitary business group is defined ? in part ? as:

a group of United States persons, other than a foreign operating entity, 1 of which owns or controls, directly or indirectly, more than 50% of the ownership interest with voting rights or ownership interests that confer comparable rights to voting rights of the other United States persons . . . . [MCL 208.1117(6) (emphasis added).]

"United States person" means "that term as defined in [IRC] 7701(a)(30)." MCL 208.117(7). Under IRC 7701(a)(30), "United States person" means:

(A) a citizen or resident of the United States,
(B) a domestic partnership,
(C) a domestic corporation,
(D)any estate (other than a foreign estate, within the meaning, of paragraph (31)), and
(E) any trust if?
(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and
(ii) one or more United States persons have the authority to control all substantial decisions of the trust. [IRC 7701(a)(30).]

A partnership or corporation is "domestic" when that entity is "created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations." IRC 7701(a)(4).

In other words, a foreign entity is not a U.S. person and is therefore excluded from unitary business groups. Similarly, foreign operating entities are also excluded from unitary business groups under the MBT. "Foreign operating entity" means a U.S. person that:

(a) Would otherwise be a part of a unitary business group that has at least 1 person included in the unitary business group that is taxable in this state.

(b) Has substantial operations outside the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, or a political subdivision of any of the foregoing.

(c) At least 80% of its income is active foreign business income as defined in section 861(c)(1)(B) of the internal revenue code. [MCL 208.1109(5).]

Foreign entities or foreign operating entities are excluded even if that entity owns a domestic single member limited liability company disregarded for federal tax purposes. The domestic disregarded entity and foreign parent will file separately ? the domestic subsidiary as part of the unitary business group and the foreign entity, or foreign operating entity, as a separate taxpayer. [Note: The insertion of a foreign entity or foreign operating entity into a chain of ownership does not cut off the entities under the foreign entity from the unitary business group so long as the control and relationship tests for a unitary business group are satisfied.]

Foreign entities or foreign operating entities are also excluded if that entity is the disregarded entity of a domestic entity included in a unitary business group. In that case, the foreign entity must file a separate return.