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Governor Snyder Proposes New Corporate Income Tax and Other Changes

Governor Rick Snyder has proposed a budget which includes elimination of the Michigan Business Tax (MBT), creation of a Michigan Corporate Income Tax and permanent spending reductions. It also includes increases to revenue by elimination of tax credits for low-income workers, phase-out of most senior tax breaks and elimination of numerous income tax deductions and credits.

The budget proposed by Governor Rick Snyder would repeal the MBT and replace it with a 6% Corporate Income Tax. The new Michigan Corporate Income Tax would be imposed only on C Corporations. All flow through entities such as LLCs and partnerships, as well as individuals, would be exempt from the new tax. The only credit would be a Small Business Credit. The Nexus, Apportionment and Unitary provisions of the MBT would be included in the new Michigan Corporate Income Tax.

The elimination of the MBT and the shift to a 6% Corporate Income Tax would result in a net loss of revenue to the state of approximately $1.8 billion annually. To offset the impact of the revenue loss, the budget proposal would eliminate all Michigan individual income tax deductions and credits except the personal exemption, the exemption for individuals with personal disabilities, special provisions dealing with military personnel and veterans, the homestead property tax exemptions and a few other subtractions.

The following is a summary of the proposed budget changes:

  • The homestead property tax credit would be retained, but at a lower rate.
  • The proposal would allow the personal income tax rate to be reduced from 4.35% to 4.25% on October 1. The tax rate will then remain at 4.25% rather than reduced to 3.9% in future years, as currently scheduled.
  • The film credit available against the MBT would be eliminated and replaced with a grant program. Twenty-five million dollars in grants would be made available for the film industry.
  • The brownfield redevelopment program and the Michigan Economic Growth Authority would be eliminated although current commitments would be honored.
  • A new 1% health care insurance assessment would be levied on all paid health care and dental insurance claims.
  • Funding for universities and community colleges would be transferred from the general fund to the school aid fund, which is the main funding source for K-12 schools.
  • Statutory revenue sharing payments for cities, villages and townships would be eliminated in 2012 and constitutional revenue sharing would be increased by 4%.
  • A new incentive-based revenue sharing program for cities, villages and townships would be created that meets specific standards to be detailed in March.
  • A lifetime limit of 48 months for residents to receive welfare payments, with exemptions for incapacity and hardship would be established.

Edward J. Castellani, J.D., C.P.A., is an attorney with Fraser Trebilcock. He may be contacted at 517.377.0845 or at ecastellani@fraserlawfirm.com