Tax Guide: Salt Activities
Universal Advisor, 2007 Issue No. 3

2007 was a historic year for Michigan’s taxation law, with significant changes in how Michigan companies — and companies doing business in Michigan — are taxed. Repealed is the Single Business Tax (SBT), the closest thing to a value-added tax in the country. To replace the lost revenue, the Michigan Business Tax (MBT) was passed. Despite the replacement of the SBT revenue with the MBT, a budget shortfall remained, leading to the expansion of the use tax to services and an increase in the individual income tax rate. The MBT is scheduled to start on January 1, 2008, for all taxpayers; the use tax on services is effective December 1, 2007; and the shift of the individual income tax rate to 4.35 percent was effective October 1, 2007.

The MBT will tax all companies with Michigan nexus using a formula that taxes modified gross receipts (gross receipts less subtractions that include inventory acquisitions and assets) and business income. Modified gross receipts are taxed at 0.8 percent and business income at 4.95 percent. Credits are available for compensation paid to Michigan workers, capital investments in the state of Michigan, and research and development performed in Michigan. Many of the credits allowable for the SBT will continue to be allowable for the MBT. Insurance companies and financial institutions are exempt from the general MBT but are subject to taxes on gross premiums and net capital, respectively.

The new Services Tax will affect 46 classifications of services defined in the North American Industry Classification System plus 36 other services. The new tax will impose a 6 percent additional tax on the use of services in Michigan (including those provided by out-of-state providers if consumed in Michigan). Services subject to the new tax include taxi and limousine services, sightseeing transportation, couriers, warehousing, investment advice, design services, certain consulting services, security guards, locksmiths, janitorial, landscaping, ski facilities (but not golf facilities), and beauty and barber shops (but not hair care services).