SENATE BILL No. 120

February 6, 2001, Introduced by Senators BENNETT, MC COTTER, DUNASKISS,

BULLARD and STEIL and referred to the Committee on Finance.

A bill to amend 1975 PA 228, entitled

"Single business tax act,"

by amending section 9 (MCL 208.9), as amended by 1998 PA 539.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

1 Sec. 9. (1) "Tax base" means business income, before appor-

2 tionment or allocation as provided in chapter 3, even if zero or

3 negative, subject to the adjustments in subsections (2) to (9)

4 UNDER THIS SECTION.

5 (2) Add gross interest income and dividends derived from

6 obligations or securities of states other than Michigan, in the

7 same amount that was excluded from federal taxable income, less

8 the related portion of expenses not deducted in computing federal

9 taxable income because of sections 265 and 291 of the internal

10 revenue code.

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1 (3) Add all taxes on or measured by net income and the tax

2 imposed by this act to the extent the taxes were deducted in

3 arriving at federal taxable income.

4 (4) Add the following, to the extent deducted in arriving at

5 federal taxable income:

6 (a) A carryback or carryover of a net operating loss.

7 (b) A carryback or carryover of a capital loss.

8 (c) A deduction for depreciation, amortization, or immediate

9 or accelerated write-off related to the cost of tangible assets.

10 (d) A dividend paid or accrued except a dividend that repre-

11 sents a reduction of premiums to policyholders of insurance

12 companies.

13 (e) A deduction or exclusion by a taxpayer due to a classi-

14 fication as, or the payment of commissions or other fees to, a

15 domestic international sales corporation or any like special

16 classification the purpose of which is to reduce or postpone the

17 federal income tax liability. This subdivision does not apply to

18 the special provisions of sections 805, 809, and 815(c)(2)(A) of

19 the internal revenue code.

20 (f) All interest including amounts paid, credited, or

21 reserved by insurance companies as amounts necessary to fulfill

22 the policy and other contract liability requirements of sections

23 805 and 809 of the internal revenue code. Interest does not

24 include payments or credits made to or on behalf of a taxpayer by

25 a manufacturer, distributor, or supplier of inventory to defray

26 any part of the taxpayer's floor plan interest, if these payments

27 are used by the taxpayer to reduce interest expense in

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1 determining federal taxable income. For purposes of this

2 section, "floor plan interest" means interest paid that finances

3 any part of the taxpayer's purchase of automobile inventory from

4 a manufacturer, distributor, or supplier. However, amounts

5 attributable to any invoiced items used to provide more favorable

6 floor plan assistance to a taxpayer than to a person who is not a

7 taxpayer is considered interest paid by a manufacturer, distribu-

8 tor, or supplier.

9 (g) All royalties except for the following:

10 (i) On and after July 1, 1985, oil and gas royalties that

11 are excluded in the depletion deduction calculation under the

12 internal revenue code.

13 (ii) Cable television franchise fees described in section

14 622 of part III of title VI of the communications act of 1934,

15 CHAPTER 652, 98 STAT. 2787, 47 U.S.C. 542.

16 (iii) Except as provided in subparagraph (iv), for the tax

17 years 1986 and after 1986, a franchise fee as defined by section

18 3 of the franchise investment law, 1974 PA 269, MCL 445.1503, in

19 the following amounts:

20 (A) For the tax years 1986, 1987, and 1988, 20% of the fran-

21 chise fee.

22 (B) For the tax years 1989 and 1990, 50% of the franchise

23 fee.

24 (C) For the tax years 1991 and after 1991, 100% of the fran-

25 chise fee.

26 (iv) For the tax years ending before 1991, this subdivision

27 does not apply to a fee for services paid by a franchisee that,

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1 with respect to a specific provision of a franchise agreement, a

2 court of competent jurisdiction, before June 5, 1985, has deter-

3 mined is not a royalty payment under this act.

4 (v) Film rental or royalty payments paid by a theater owner

5 to a film distributor, a film producer, or a film distributor and

6 producer.

7 (vi) Royalties, fees, charges, or other payments or consid-

8 eration paid or incurred by radio or television broadcasters for

9 program matter or signals.

10 (vii) Royalties, fees, charges, or other payments or consid-

11 eration paid by a film distributor for copyrighted motion picture

12 films, program matter, or signals to a film producer.

13 (viii) For tax years that begin after December 31, 1993,

14 royalties paid by a licensee of application computer software,

15 operating system software, or system software pursuant to a

16 license agreement. As used in this subparagraph and

17 subsection (7)(c)(vii):

18 (A) "Application computer software" means a set of state-

19 ments or instructions that when incorporated in a machine usable

20 medium is capable of causing a machine or device having informa-

21 tion processing capabilities to indicate, perform, or achieve a

22 particular business function, task, or result for the nontechni-

23 cal end user. Application computer software includes any other

24 computer software that does not qualify under sub-subparagraph

25 (b) (B) or (c) (C).

26 (B) "Operating system software" means a set of statements or

27 instructions that when incorporated into a machine or device

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1 having information processing capabilities is an interface

2 between the computer hardware and the application computer soft-

3 ware or system software.

4 (C) "System software" means a set of statements or instruc-

5 tions that interacts with operating system software that is

6 developed, licensed, and intended for the exclusive use of data

7 processing professionals to build, test, manage, or maintain

8 application computer software for which a license agreement is

9 signed by the licensor and licensee at the time of the transfer

10 of the software and that is not transferred to the licensee as

11 part of or in conjunction with a sale or lease of computer

12 hardware.

13 (h) A deduction for rent attributable to a lease back that

14 continues in effect under the former provisions of section

15 168(f)(8) of the internal revenue code of 1954 as that section

16 provided immediately before the tax reform act of 1986, Public

17 Law 99-514, became effective or to a lease back of property to

18 which the amendments made by the tax reform act of 1986 do not

19 apply as provided in section 204 of the tax reform act of 1986.

20 (5) Add compensation.

21 (6) Add a capital gain related to business activity of indi-

22 viduals to the extent excluded in arriving at federal taxable

23 income.

24 (7) Deduct the following, to the extent included in arriving

25 at federal taxable income:

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1 (a) A dividend received or considered received, including

2 the foreign dividend gross-up provided for in the internal

3 revenue code.

4 (b) All interest except amounts paid, credited, or reserved

5 by an insurance company as amounts necessary to fulfill the

6 policy and other contract liability requirements of sections 805

7 and 809 of the internal revenue code.

8 (c) All royalties except for the following:

9 (i) On and after July 1, 1985, oil and gas royalties that

10 are included in the depletion deduction calculation under the

11 internal revenue code.

12 (ii) Except as provided in subparagraph (iii), for the 1986

13 tax year and after the 1986 tax year, a franchise fee as defined

14 in section 3 of the franchise investment law, 1974 PA 269,

15 MCL 445.1503, in the following amounts:

16 (A) For the tax years 1986, 1987, and 1988, 20% of the fran-

17 chise fee.

18 (B) For the tax years 1989 and 1990, 50% of the franchise

19 fee.

20 (C) For the tax years 1991 and after 1991, 100% of the fran-

21 chise fee.

22 (iii) For the tax years ending before 1991, this subdivision

23 does not apply to a fee for services paid by a franchisee that,

24 with respect to a specific provision of a franchise agreement, a

25 court of competent jurisdiction, before June 5, 1985, has deter-

26 mined is not a royalty payment under this act.

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1 (iv) Film rental or royalty payments paid by a theater owner

2 to a film distributor, a film producer, or a film distributor and

3 producer.

4 (v) Royalties, fees, charges, or other payments or consider-

5 ation paid or incurred by radio or television broadcasters for

6 program matter or signals.

7 (vi) Royalties, fees, charges, or other payments or consid-

8 eration paid by a film distributor for copyrighted motion picture

9 films, program matter, or signals to a film producer.

10 (vii) For tax years that begin after December 31, 1997, roy-

11 alties received by a licensor, distributor, developer, marketer,

12 or copyright holder of application computer software or operating

13 system software pursuant to a license agreement. System software

14 is not included within the exception under this subparagraph.

15 (d) Rent attributable to a lease back that continues in

16 effect under the former provisions of section 168(f)(8) of the

17 internal revenue code of 1954 as that section provided immedi-

18 ately before the tax reform act of 1986, Public Law 99-514,

19 became effective or to a lease back of property to which the

20 amendments made by the tax reform act of 1986 do not apply as

21 provided in section 204 of the tax reform act of 1986.

22 (8) Deduct a capital loss not deducted in arriving at fed-

23 eral taxable income in the year the loss occurred.

24 (9) To the extent included in federal taxable income, add

25 the loss or subtract the gain from the tax base that is attribut-

26 able to another entity whose business activities are taxable

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1 under this act or would be taxable under this act if the business

2 activities were in this state.

3 (10) FOR TAX YEARS THAT BEGIN ON AND AFTER JANUARY 1, 2001,

4 TO THE EXTENT NOT DEDUCTED IN DETERMINING FEDERAL TAXABLE INCOME,

5 DEDUCT THE AMOUNT OF A MONETARY DONATION MADE BY THE TAXPAYER IN

6 THE TAX YEAR OR THE FAIR MARKET VALUE OF GOODS OR SERVICES

7 DONATED BY THE TAXPAYER IN THE TAX YEAR TO A PUBLIC SCHOOL OR

8 SCHOOL DISTRICT IN THIS STATE. AS USED IN THIS SUBSECTION:

9 (A) "FAIR MARKET VALUE" MEANS THE VALUE OF THE ITEM OR SERV-

10 ICE AT THE TIME THE GOODS OR SERVICES ARE DONATED.

11 (B) "PUBLIC SCHOOL" MEANS THAT TERM AS DEFINED IN SECTION 5

12 OF THE REVISED SCHOOL CODE, 1976 PA 451, MCL 380.5.

13 (C) "SCHOOL DISTRICT" MEANS THAT TERM AS DEFINED IN SECTION

14 6 OF THE REVISED SCHOOL CODE, 1976 PA 451, MCL 380.6.

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