Michigan Basic Business Taxes 2012
Michigan's economic development, finance and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include the Michigan Business Tax, sales and use taxes, property tax, and property tax abatements.
Effective January 1st, 2012, Michigan levies a flat 6% corporate income tax on firms structured as C corporations. Income for other business entities flow through to the owner's personal income taxes and are taxed at the personal income tax rate of 4.35%, a rate that will decline to 4.25% in 2013. Certain small businesses may use an alternative 1.8% profits tax. The filing threshold is $350,000 in Michigan sales and tax is apportioned to Michigan on a 100%
Sales and use taxes:
Michigan has a 6% state sales tax and allows no local sales tax. Many industrial and consumer goods and transactions are exempt from Michigan sales taxes: food, prescription drugs, medical devices, newspapers and periodicals, water, and commercial vessels. Also exempt are sales for resale, property in interstate or foreign commerce, computers used in industrial processing, custom computer software, information services, railroad rolling stock, air and water pollution-control facilities, and energy fuels. Machinery and materials used directly in a manufacturing process are also exempt. Michigan's sales-and-use tax acts exempt tangible personal property when that property is used or consumed in industrial processing. Industrial processing includes research and experimental activities; any person may qualify for an exemption under industrial processing for research or experimental activities if specific criteria are met.
Property taxes in Michigan are levied at the state and local levels. The taxable value of property is 50% of the current market value. Both real and personal property are subject to taxation. Industrial personal property is exempt from the 24-mill property tax for schools. Commercial personal property is exempt from 12 mills of the local school levy. In comparing Michigan's property taxes to those of other states, Michigan's relative competitiveness improves as real property becomes a larger portion of the total property assets of a firm, since some states that tax only real property impose a much higher rate.
Property tax abatements:
Michigan's industrial property tax abatement provides incentives to build new manufacturing facilities or renovate aging plants in Michigan by significantly reducing property taxes. Industrial facilities eligible for this tax abatement are those that primarily manufacture or process goods or materials by physical or chemical change. Related facilities of Michigan manufacturers such as offices, engineering, research and development, warehousing, or parts distribution are also eligible for exemption.
The definition of "industrial property" also includes high-technology activities such as advanced computing, advanced materials, biotechnology, electronic device technology, engineering or laboratory testing, medical-device technology, product research and development, and advanced vehicles technology.
Another personal property tax abatement allows "distressed communities" and county seats to abate all new property taxes in certain geographic areas to spur economic development. Eligible projects include manufacturing, mining, research and development, wholesale and trade, and office operations. The local community and the business negotiate the length of abatement. There is no minimum or maximum number of years.
Michigan also has 140 property-tax-free Renaissance Zones, which effectively eliminate general property taxes.
Michigan also abates personal property taxes for property used to develop new alternative energy technologies.
There are 140 geographic areas around the state designated free of property taxes for any business or resident within a zone. These Renaissance Zones are located throughout Michigan and include urban and rural zones as well as three former military bases. The zones provide selected communities with the most powerful market-based incentive - essentially no property taxes - to spur new jobs and investment. The duration of the zone designations ranges up to 15 years. In all cases, the tax relief will be phased out in 25% increments over the last three years of the zone.
Specialized Renaissance Zones have been created to meet particular needs. Under this program, the state has the ability to grant essentially tax-free status to agricultural processing, forest products processing and renewable energy operations that are project driven requests.
Tool and die recovery zones are also included under the program. To qualify, a business must enter into a collaborative agreement with other tool and die shops.
All business inventories are exempt from local ad valorem property taxes.
Goods in transit:
An exemption from personal property tax is allowed for products arriving from out of state and products destined for out of state.
Pollution-control equipment is exempt from sales and use taxes. Pollution control facilities may be exempt from state real and personal property taxes.
Brownfield redevelopment incentives:
Michigan's Brownfield Redevelopment Act is designed to encourage and assist developers who want to return contaminated, obsolete or blighted property to productive use, while still protecting human health and natural resources. Owners and operators of contaminated sites are no longer required to pay for cleanup actions unless they caused the contamination. Flexible cleanup standards give developers the option of proposing a solution to historical contamination based on future use of the property. The Brownfield tax increment-financing feature allows reimbursement of costs for cleanup of contamination, demolition of site features and structures, site preparation, and infrastructure improvements that support the redevelopment project.
The Michigan Business Development and Michigan Community Revitalization Programs replace the state's previous MEGA, Brownfield and Historic tax credit programs that were features of the Michigan Business Tax.
Industrial machinery and equipment:
Machinery and equipment used in manufacturing, intrastate telephone and telegraph service, and certain commercial vessels are exempt from sales and use taxes. A sales tax exemption is provided for certified motor vehicles delivered in the state to nonresidents. A property tax exemption is provided for certain short-lived tools, wood-harvesting equipment, farm implements, and registered motor vehicles.
Industrial fuels and raw materials:
Tangible personal property used or consumed in industrial processing, sales of water, and certain sales to radio and television stations are exempt from sales and use tax. Returnable beverage containers are exempt from the use tax. Raw materials and solid or liquid sugar owned by processors are exempt from local property taxation. A 10-year exemption is provided for metallic mineral ore that is newly discovered and not part of an operating mine.
Michigan has a highly experience-rated unemployment insurance (UI) system. This means that firms with few layoffs pay very low UI costs, while those that are highly cyclical and have large layoffs pay significantly higher rates.
Other credits and exemptions:
Specified property owned by mass-transit systems is exempt from local ad valorem taxation.
Michigan State Contact:
Michigan Economic Development Corporation
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.