Michigan Basic Business Taxes
The Michigan Business Tax (MBT) is a combined income tax and modified gross receipts tax with an additional surcharge. The MBT is levied on all business located or doing business in Michigan. Special provisions lessen the tax burden on small businesses. Apportioned business income is taxed at 4.95 percent. A modified gross receipts tax of .08 percent is based on apportioned gross receipts (minus certain purchases from other firms). Apportionment is based on 100 percent of Michigan sales. A surcharge of 21.99 percent is applied to the business income tax and modified gross receipts tax before credits. There is a 35 percent credit for taxes paid on industrial personal property; tax credits provided for capital investment, R&D expenditures; and compensation; certain small businesses may use an alternative 1.8 percent profits tax.
Sales and use taxes:
Michigan has a 6 percent 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 percent 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. Additionally, companies may claim a 35 percent Michigan Business Tax credit for the remaining local property taxes on industrial personal property. 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. Projects receiving a "MEGA" credit (see below) are also qualified for this abatement. 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 155 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.
Job creation tax credits:
The Michigan Economic Growth Authority (MEGA) may provide a refundable tax credit against the Michigan Business Tax (MBT) to companies expanding or locating their operations in Michigan. Companies eligible for a MEGA tax credit are those engaged in manufacturing, research and development, wholesale trade, or office operations that are financially sound and have solid proposals. Each credit may be awarded for up to 20 years and up to 100 percent of an amount equal to the personal income tax generated by new workers. To be eligible for a standard MEGA tax credit a business must create at least 50 new jobs. For a high-technology or rural MEGA, the expansion or location in Michigan must create at least five new full-time jobs in the first year of the project and 25 new full-time jobs within five years. Other eligibility criteria apply as well. Businesses in danger of closing may receive a refundable credit for the number of jobs the business retains with the aid of the incentive. The credit requires a significant capital investment by the business and a public statement that the facility would close without this credit.
Anchor Zones and Anchor Companies:
New in 2008, Anchor zone incentives are directed at companies, suppliers and customers active in high-growth, high technology industries targeted in the governor's 21st Century Jobs Fund initiative, particularly in the area of alternative energy. Others are advanced manufacturing and materials, information technology, life sciences and homeland security and defense.
The first of two bills signed into law in 2008 provides tax credits for anchor companies, defined as those companies that attract or influence suppliers or customers to expand anywhere in Michigan. A second bill grants the anchor company a Michigan Business Tax credit incentive for up to 10 years for successfully encouraging a customer or supplier company to locate within a 10-mile radius of the anchor company's facility.
There are 155 geographic areas around the state designated free of nearly all state and local taxes for any business or resident within a zone. 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 - no 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 percent increments over the last three years of the program.
Specialized Renaissance Zones have been created to meet particular needs. Under this program, the state has the ability to grant tax-free status to agricultural processing operations; to date, 22 companies have been designated. In addition, the state may designate renewable energy facilities; to date, one company has been designated. 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. To date, 25 recovery zones have been designated consisting of 238 companies located through the state with durations ranging from 5 to 15 years.
An Alternative Energy Renaissance Zone in the City of Detroit designated for a period of 20 years offers state and local tax exemptions for companies that locate there and perform alternative energy R&D.
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 tax incentives:
Michigan's brownfield law is designed to encourage and assist developers who want to return property to productive use more quickly and at a lower cost than before, 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.
To promote redevelopment of brownfield sites, Michigan allows qualified businesses to claim a credit against MBT liability up to 12.5 percent of the investment made on a brownfield site. A 20 percent credit may be granted in certain urban areas. Total credit per eligible investment is up to $1 million. Under expansions to the brownfield law, credits are now granted per project. These credits, which can go to lessee or owner, can be as much as $30 million, but are limited in the number that can be issued (e.g., up to 17 credits per year can exceed $1 million). In addition, projects in 103 urban core communities around the state may receive credits for functionally obsolete, blighted, or contaminated property under the brownfield credit program.
The brownfield tax increment-financing feature has been expanded to allow not only for cleanup of contamination, but also demolition of structures, site preparation, and infrastructure improvements.
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
300 N. Washington Square
Lansing, MI 48913
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.