The Replacement: What the new corporate income tax means for you
Last year, the Michigan Business Tax (MBT) was repealed and replaced with a corporate income tax (CIT). In addition to the impact on business the law included major changes to the state's individual income tax law. So what does all this mean to you? Here is the lowdown on the new law – and its likely impact on local business.
Does the new CIT replace the MBT?
The new law created a CIT which is levied on businesses organized as traditional C-corporations under federal law. The rate of the new corporate tax will be six percent on apportioned taxable income.
What further provisions are included in the new CIT?
The corporate tax still maintains the alternative tax credit, better known as the small business credit. The corporate tax is still unitary for C-corporations. The new corporate income tax went into effect on Jan. 1, 2012. This may require short period returns for some taxpayers with fiscal year-ends. You should consult with your trusted tax advisor for complete details and direction.
Are C-corporations the only businesses affected by the change?
Sole proprietorships and pass-through entities such as partnerships, S- corporations and limited liability companies currently taxed at the entity level under the MBT will not be required to pay taxes or file returns under the CIT. The income from a pass-through entity would be taxed to the individual on their personal income tax return.
What about the changes impacting individuals?
The law eliminates numerous individual income tax credits, deductions and exemptions and changes future income tax rates. Many of the credits have been eliminated, such as the Community Foundation credit, the City Income Tax credit, the Public Contribution Credit and the Homeless/Food Bank credit.
Arguably the most far-reaching change is the effect on retirement income. For all those retirees who were younger than 67 years of age as of Dec. 31, 2011, part of the retirement income tax will be based on income levels and year of birth.
These are only some of the provisions in the law. For complete details on how it impacts you and your business, consult your trusted tax advisor.
Jeannine Habich, CPA, is a senior manager for Rehmann and is located in the Traverse City office. She has more than 12 years of experience in public accounting specializing in multi-state taxes and has experience in providing tax services to family-owned and closely held businesses, their shareholders and officers.