Michigan Business Tax

March 15th, 2022 by admin Leave a reply »

Effective January 1, 2008, the Single Business Tax as we have known it for 30+ years is no longer the business tax for Michigan. The Single Business Tax was often criticized for taxing compensation. The MBT no longer requires this “add-back” of compensation.

The legislature enacted the Michigan Business Tax (MBT) in the summer of 2007. We all heard a lot about the “services tax” which was repealed December 1, 2007 and now the attention will turn to the MBT.

As our economy continues to expand globally, the MBT was developed to reward investment in capital, jobs and research & development within the state of Michigan. It also captures tax revenues from businesses which were previously not taxed in Michigan.

Business income will be taxed at a rate of 4.95% and a Margins tax on sales minus purchases of tangible property at .8%. Due to the elimination of the services tax and the Governor’s requirement that the tax revenues lost be replaced in order to balance the budget, there is a “surcharge tax” which will exist through the year 2017 (unless re-legislated). This surcharge is 21.99% of your MBT liability after allocations and apportionments but before credits.

As was the case with the SBT, if your gross receipts are less than $350,000 you are not required to file Michigan Business Tax. However, with the MBT, if gross receipts are between $350,000 and $700,000 there is a smoothing of the tax rate. This means that you pay fraction of the tax liability using the formula ($700,000 – gross receipts)/$350,000. This smoothing formula was not part of the former Single Business Tax.

Lastly, there are numerous credits available under the new MBT. Certain of them are limited but each of them encourages jobs, investments and research & development within the State of Michigan.

If you are not a 12/31 year end client, please contact your CPA as there are special rules for filing a final Single Business Tax versus your initial Michigan Business Tax return.

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