2023 Michigan Compiled Laws › Chapter 208 - Business Tax › Act 36 of 2007 - Michigan Business Tax Act (208.1101 - 208.1601) › 36-2007-4 - Chapter 4 (208.1400...208.1471) › Section 208.1417 - Taxpayer With Gross Receipts Not Exceeding $20,000,000.00 and Certain Adjusted Business Income; Disqualification; Determination of Reduction Percentage; Tax Credit; Reduced Credit; Fraction; Filing and Payment of Tax; Inclusion of Compensation Paid by Professional Employer Organization to Officers of Client and Employees; Definitions.

***** 208.1417 THIS SECTION IS REPEALED BY ACT 90 OF 2019 EFFECTIVE FOR TAX YEARS THAT BEGIN AFTER DECEMBER 31, 2031 *****
208.1417 Taxpayer with gross receipts not exceeding $20,000,000.00 and certain adjusted business income; disqualification; determination of reduction percentage; tax credit; reduced credit; fraction; filing and payment of tax; inclusion of compensation paid by professional employer organization to officers of client and employees; definitions.
Sec. 417.
(1) The credit provided in this section shall be taken after the credits under sections 403 and 405 and before any other credit under this act and is available to any taxpayer with gross receipts that do not exceed $20,000,000.00 and with adjusted business income minus the loss adjustment that does not exceed $1,300,000.00 as adjusted annually for inflation using the Detroit consumer price index and subject to the following:
(a) An individual, a partnership, a limited liability company, or a subchapter S corporation is disqualified if the individual, any 1 partner of the partnership, any 1 member of the limited liability company, or any 1 shareholder of the subchapter S corporation receives more than $180,000.00 as a distributive share of the adjusted business income minus the loss adjustment of the individual, the partnership, the limited liability company, or the subchapter S corporation.
(b) A corporation other than a subchapter S corporation is disqualified if either of the following occur for the respective tax year:
(i) Compensation and directors' fees of a shareholder or officer exceed $180,000.00.
(ii) The sum of the following amounts exceeds $180,000.00:
(A) Compensation and directors' fees of a shareholder.
(B) The product of the percentage of outstanding ownership or of outstanding stock owned by that shareholder multiplied by the difference between the sum of business income and, to the extent deducted in determining federal taxable income, a carryback or a carryover of a net operating loss or capital loss, minus the loss adjustment.
(c) Subject to the reduction percentage determined under subsection (3), the credit determined under this subsection shall be reduced by the following percentages in the following circumstances:
(i) If an individual, any 1 partner of the partnership, any 1 member of the limited liability company, or any 1 shareholder of the subchapter S corporation receives as a distributive share of adjusted business income minus the loss adjustment of the individual, partnership, limited liability company, or subchapter S corporation; if compensation and directors' fees of a shareholder or officer of a corporation other than a subchapter S corporation are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B) is more than $160,000.00 but less than $165,000.00, the credit is reduced by 20%.
(ii) If an individual, any 1 partner of the partnership, any 1 member of the limited liability company, or any 1 shareholder of the subchapter S corporation receives as a distributive share of adjusted business income minus the loss adjustment of the individual, partnership, limited liability company, or subchapter S corporation; if compensation and directors' fees of a shareholder or officer of a corporation other than a subchapter S corporation are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B) is $165,000.00 or more but less than $170,000.00, the credit is reduced by 40%.
(iii) If an individual, any 1 partner of the partnership, any 1 member of the limited liability company, or any 1 shareholder of the subchapter S corporation receives as a distributive share of adjusted business income minus the loss adjustment of the individual, partnership, limited liability company, or subchapter S corporation; if compensation and directors' fees of a shareholder or officer of a corporation other than a subchapter S corporation are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B) is $170,000.00 or more but less than $175,000.00, the credit is reduced by 60%.
(iv) If an individual, any 1 partner of the partnership, any 1 member of the limited liability company, or any 1 shareholder of the subchapter S corporation receives as a distributive share of adjusted business income minus the loss adjustment of the individual, partnership, limited liability company, or subchapter S corporation; if compensation and directors' fees of a shareholder or officer of a corporation other than a subchapter S corporation are; or if the sum of the amounts in subdivision (b)(ii)(A) and (B) is $175,000.00 or more but not in excess of $180,000.00, the credit is reduced by 80%.
(2) For the purposes of determining disqualification under subsection (1), an active shareholder's share of business income shall not be attributed to another active shareholder.
(3) To determine the reduction percentage under subsection (1)(c), the following apply:
(a) The reduction percentage for a partnership, limited liability company, or subchapter S corporation is based on the distributive share of adjusted business income minus loss adjustment of the partner, member, or shareholder with the greatest distributive share of adjusted business income minus loss adjustment.
(b) The reduction percentage for a corporation other than a subchapter S corporation is the greater of the following:
(i) The reduction percentage based on the compensation and directors' fees of the shareholder or officer with the greatest amount of compensation and directors' fees.
(ii) The reduction percentage based on the sum of the amounts in subsection (1)(b)(ii)(A) and (B) for the shareholder or officer with the greatest sum of the amounts in subsection (1)(b)(ii)(A) and (B).
(4) A taxpayer that qualifies under subsection (1) is allowed a credit against the tax imposed under this act. The credit under this subsection is the amount by which the tax imposed under this act exceeds 1.8% of adjusted business income.
(5) If gross receipts exceed $19,000,000.00, the credit shall be reduced by a fraction, the numerator of which is the amount of gross receipts over $19,000,000.00 and the denominator of which is $1,000,000.00. The credit shall not exceed 100% of the tax liability imposed under this act.
(6) For a taxpayer that reports for a tax year less than 12 months, the amounts specified in this section for gross receipts, adjusted business income, and share of business income shall be multiplied by a fraction, the numerator of which is the number of months in the tax year and the denominator of which is 12.
(7) The department shall permit a taxpayer that elects to claim the credit allowed under this section based on the amount by which the tax imposed under this act exceeds the percentage of adjusted business income for the tax year as determined under subsection (4), and that is not required to reduce the credit pursuant to subsection (1) or (5), to file and pay the tax imposed by this act without computing the tax imposed under sections 201 and 203.
(8) Compensation paid by the professional employer organization to the officers of the client and to employees of the professional employer organization who are assigned or leased to and perform services for the client shall be included in determining eligibility of the client under this section.
(9) As used in this section:
(a) "Active shareholder" means a shareholder who receives at least $10,000.00 in compensation, directors' fees, or dividends from the business, and who owns at least 5% of the outstanding stock or other ownership interest.
(b) "Adjusted business income" means business income as defined in section 105 with all of the following adjustments:
(i) Add compensation and directors' fees of active shareholders of a corporation.
(ii) Add, to the extent deducted in determining federal taxable income, a carryback or a carryover of a net operating loss.
(iii) Add, to the extent deducted in determining federal taxable income, a capital loss.
(iv) Add compensation and directors' fees of officers of a corporation.
(c) "Detroit consumer price index" means the most comprehensive index of consumer prices available for the Detroit area from the United States department of labor, bureau of labor statistics.
(d) "Loss adjustment" means the amount by which adjusted business income was less than zero in any of the 5 tax years immediately preceding the tax year for which eligibility for the credit under this section is being determined. In determining the loss adjustment for a tax year, a taxpayer is not required to use more of the taxpayer's total negative adjusted business income than the amount needed to qualify the taxpayer for the credit under this section. A taxpayer shall not be considered to have used any portion of the taxpayer's negative adjusted business income amount unless the portion used is necessary to qualify for the credit under this section. A taxpayer shall not reuse a negative adjusted business income amount used as a loss adjustment in a previous tax year or use a negative adjusted business income amount from a year in which the taxpayer did not receive the credit under this section.
History:
2007, Act 36, Eff. Jan. 1, 2008
Compiler's Notes:
Enacting section 1 of Act 36 of 2007 provides:"Enacting section 1. This act takes effect January 1, 2008 and applies to all business activity occurring after December 31, 2007."
Popular Name:
MBT