INCOME TAX CREDIT; SHELTER & FOOD BANK S.B. 128 (S-1):
SUMMARY AS PASSED BY THE SENATE
Senate Bill 128 (Substitute S-1 as passed by the Senate)
Sponsor: Senator John N. Damoose
Committee: Finance, Insurance, and Consumer Protection
CONTENT
The bill would amend the Income Tax Act to do the following:
-- Allow a taxpayer, beginning on and after January 1, 2023, to claim a credit against the individual income tax in an amount equal to 50% of the sum of the taxpayer's contributions to a homeless shelter, food kitchen, or food bank if the taxpayer received a written acknowledgement from the entity for which the contribution was made.
-- Limit the maximum amount of the credit to no more than $100, $200 for a joint return, or, in the case of a resident estate or trust, 10% of the taxpayer's total tax liability or $5,000, whichever was less.
-- Allow an entity to request that the Department of Treasury determine whether a contribution to that entity would qualify for the credit.
Tax Credit for Contribution to Homeless Shelter or Food Bank
For tax years beginning on and after January 1, 2023, and subject to the applicable limitations specified below, the bill would allow a taxpayer to claim a credit against the individual income tax in an amount equal to 50% of the sum of the cash amount and, if food items were contributed in conjunction with a vendor's matching contribution program, the value of those food items, the taxpayer contributed during the tax year to a shelter for homeless individuals, food kitchen, food bank, or other entity located in Michigan, the primary purpose of which was to provide overnight accommodation, food, or meals to indigent individuals. The taxpayer would receive a credit only if a contribution to that entity were tax deductible for the donor under the Internal Revenue Code.
To claim a tax credit for a contribution to a homeless shelter or food bank, the tax payer would have to receive a written acknowledgement from the shelter, food bank, or other entity stating that a contribution was made to the entity.
Maximum Amount of Credit
Under the bill, for a taxpayer other than a resident estate or trust, the maximum credit allowed for charitable contributions described above could not exceed $100, or $200 for a joint return. For a resident estate or trust, the maximum credit allowed could not exceed 10% of the taxpayer's tax liability for the tax year before claiming any credits allowed under the individual income tax or $5,000, whichever was less. For a resident estate trust, the amount used to calculate the credits could not have been deducted in arriving at Federal taxable income. If the amount of the credits allowed exceeded the taxpayer's tax liability for the tax year, the portion that exceeded the tax liability could not be refunded.
Administration
Under the bill, an entity could request that the Department determine if a contribution to that entity qualified for the proposed tax credit. The Department would have to decide and respond to a request within 30 days after receiving it.
BRIEF RATIONALE
Legislation enacted in 2011 deleted a provision of the Act that allowed individuals to receive a 50% tax credit for the sum of their contributions to certain entities. Following this elimination, it has been reported that organizations saw a decrease in contributions, leading some people to believe that the tax credit incentivized individuals to contribute. Accordingly, it has been suggested that these tax credits be reinstated to encourage more philanthropy.
PREVIOUS LEGISLATION
(Please note: This section does not provide a comprehensive account of all previous legislative efforts on the relevant subject matter.)
The bill is, in part, similar to Senate Bill 405 of the 2017-2018 Legislative Session. Senate Bill 405 was reported out of the Senate Committee on Finance and was passed by the Senate but received no further action.
Legislative Analyst: Eleni Lionas
FISCAL IMPACT
The bill would reduce General Fund revenue by approximately $18.7 million per year. Between tax years 2006 and 2011, Michigan allowed an identical credit and the number of returns claiming the credit remained relatively stable, at approximately 234,500 each year. Similarly, the total amount claimed each year under each credit remained stable, at approximately $18.7 million per year. Although the School Aid Fund receives revenue from the income tax under Part 1 of the Act, credits are applied against the portion received by the General Fund. As a result, all the reduction in revenue under the bill would lower General Fund revenue.
This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.