A BRIEF Overview of the New MBT

1
A BRIEF Overview of the New MBT

• July 10,2007

2
The Bills

• SB 94 provides the new replacement tax.
• HB 4368 - HB 4372 provide partial exemptions for
  industrial and commercial personal property.

3
The Tax

• Business income tax at a rate of 4.95 1/3 of
  tax base.
• Margins tax on sales minus purchases of tangible
  property at a rate of 0.8 2/3 of tax base.
• Banks pay alternate capital stock (net worth) tax
  at a rate of 0.235, in lieu of other taxes.
• Insurers tax rate increased from 1.07 to 1.25
  with existing credits retained.

4
Credits for Investing in Michigan

• Investment tax credit for purchase of capital
  2.9.
• Compensation credit for jobs created or retained
  .37.
• Research and development 1.9.
• Investment and compensation credit can reduce
  liability by 65.
• R and D credit can combine with other two credits
  to reduce liability by 75.

5
Personal Property Tax Reductions

• 65 for manufacturing 24 mill exemption from
  school taxes and 35 credit.
• 23 for commercial 12 mill exemption from school
  taxes.
• 10 for natural gas pipeline.
• 23 for telephone.

6
Small Business Features

• 350,000 filing threshold maintained.
• Cliff effect eliminated (phase in from 350, 000
  - 700,000).
• Alternative profits rate reduce from 2 to1.8.
• Gross receipts threshold increased from 10
  million to 20 million (phase out from 18
  million to 20 million).
• Compensation limit increased from 115,000 to
  180,000 (phase out from 160,000 - 180,000).

7
Current Economic Development Incentives

• Existing commitment for MEGAs historic
  preservation, brownfields and renaissance zones
  retained.
• MEGAs historic preservation, brownfields and
  renaissance zones continued for new projects.
• Next energy credits continued.

8
Other Features

• Partnerships, LLC and sole proprietorships get
  deduction for net self employment earnings.
• Construction contractors reduce gross receipts by
  payments to subcontractors.
• Mortgage companies reduce gross receipts by
  principle amount of mortgage.

9
Fiscal Impact

• Tax is revenue neutral, fully replacing SBT and
  funding exemptions for personal property.
• Personal property tax relief of 635 million.
• ITC, Comp. and R D credits amount to 627
  million.

10
Revenue / Rebate Trigger

• FY 08 5 over revenue neutral amount.
• Next 2 years personal income plus 1.
• Excess amount distributed 50 to BSF and 50 to
  taxpayers.
• Trigger sunsets after 3 years.

11
Who Will Pay Less

• Manufacturing firms.
• Small businesses between 10 and 20 million of
  gross receipts.
• Small businesses under 10 million with income to
  owners over 115,000.
• Michigan-based multi-state firms.

12
Who Will Pay More

• Finance, Insurance, Real Estate (paid very little
  previously, helped shape new tax and supported it
  this is fair.)
• Profitable firms.
• Firms without much personal property.
• Firms that operate in Michigan but have little
  payroll or property here.

13
A Better Business Tax for Michigan

• 7 out of 10 businesses receive a tax cut.
• More reliant on profits.
• Credit for compensation instead of adding to the
  base.
• Credit for capital investment nearly tripled.
• PPT relief increases return on investment in
  personal property.
• Credit for R and D expenses.