Michigan Basic Business Taxes 2011
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.
March 2011
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 tax:
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 140 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.