Single Business Tax
What is the Single Business Tax?
Per Public Act (PA) 325 of 2006, the Single Business Tax (SBT) is repealed on business activity after December 31, 2007. The Michigan Business Tax (MBT), which replaces the SBT effective January 1, 2008, provides for a limited carry-forward of SBT business losses and credits.
The Single Business Tax (SBT) is the only general business tax levied by the State of Michigan. When enacted in 1976 it replaced seven separate business taxes, including the corporate income tax. The SBT is a Value Added Tax (VAT). Value added taxes are levied on a "Services Consumed" or "Benefits Received" principle. The SBT replaced taxation of net income with value-added taxation. The SBT base consists of essentially three components: labor, capital and profit.
- Labor is measured by the compensation (including benefits) an employer pays to its employees.
- Capital used is measured by depreciation, interest, dividends and royalties paid by the taxpayer.
- Profit is measured by the taxpayer's federal taxable income as adjusted for SBT purposes.
Several different credits are available as well as methods of reducing a taxpayer's taxable base. P.A. 531 of 2002 repeals the Single Business Tax Act for tax years beginning after December 31, 2007.
What activity is subject to the SBT?
The SBT applies to "business activity," which includes:
- The sale of real or personal property in exchange for a tangible or intangible consideration.
- Property rental, including both real property and personal property.
- Performance of a service for a fee, except services rendered as an employee or services rendered as the director of a corporation.
What persons or activities are exempt from the SBT?
The following may be exempt from the SBT. Each of these exemptions, however, has some restrictions.
- Most persons, other than non-US persons, who are exempt from federal income tax under the Internal Revenue Code.
- Nonprofit cooperative housing corporations.
- Production of agricultural goods, if the taxpayer's primary activity is production of agricultural goods.
- Partners of partnerships and shareholders of Sub S corporations (unless they have other business activities). Partnerships and Sub S corporations, however, are subject to the SBT.
Partners and shareholders should contact the Individual Taxes Division at 517-636-4486 for information on Michigan income tax filing requirements.
Who is subject to the SBT?
All persons engaged in a "business activity" in Michigan are subject to the SBT. A "person" includes an individual, trust, estate, and every type of business entity.
Persons engaged in "business activity" both within and without the State of Michigan should refer to RAB 98-1 "Single Business Tax Nexus Standards" for guidance.
Who must file an SBT return?
Any "person" engaged in a business activity in Michigan whose gross receipts allocated or apportioned to Michigan are $350,000 or more is required to file a return.
Gross receipts include all receipts derived from a business activity including rental and lease receipts. If a business operated for less than 12 months (and is not a sole proprietor), it must annualize allocated or apportioned gross receipts to determine whether it meets the filing requirement. Special rules apply for controlled groups.
What are the filing requirements for a member of a controlled group of entities?
If you are a member of an affiliated group, a controlled group of corporations or an entity under common control, the group must combine its members' allocated or apportioned gross receipts on Form C-8010AGR, Single Business Tax Adjusted Gross Receipts For Controlled Groups, to determine if members of the group are required to file.
- Do not include a member whose allocated or apportioned gross receipts are less than $100,000.
- Members whose allocated or apportioned gross receipts equal or exceed $100,000 are required to file a return if the group's allocated or apportioned gross receipts are $350,000 or more.
- Each member's business activities attributable to its tax year ending within a calendar year must be consolidated on Form C-8010AGR.
- Members whose allocated or apportioned gross receipts are less than $100,000 must include their business activity to determine the small business credit for the controlled group on Form C-8009, Single Business Tax Allocation of Statutory Exemption, Standard Small Business Credit and Alternate Tax for Members of Controlled Groups.
Gross receipts of all members must also be included to determine the Adjusted Gross Receipts Percentage for calculating the Investment Tax Credit on Form C-8000ITC, Single Business Tax Investment Tax Credit.
Do I need to file an SBT return if my allocated or apportioned gross receipts are below the filing requirement ($350,000 for tax years beginning after 2002)?
If your allocated or apportioned gross receipts are below the filing requirement, you are not legally required to file a return. There may be situations in which you choose to file; for example, to allow a business loss or credit carryforward to remain viable for a subsequent year.
What is the tax rate?
Please see the Single Business Tax Rate Tables for more information.
How is the SBT calculated?
The SBT liability starts with calculation of the total tax base. For most taxpayers the primary components of the tax base are compensation, business income (federal taxable income), and several additions or subtractions.
- Compensation includes salaries and wages, plus the employer's costs for nearly all fringe benefits. Beginning in 2004, there is a partial exclusion of certain medical benefit costs. Compensation does not include FICA, unemployment insurance or workers' compensation.
- Additions include depreciation, taxes based on income, net operating loss carryover or carryback, dividend and interest payments, and certain royalty expenses. These are added only to the extent they were deducted on the federal return.
- Subtractions include dividend, interest and certain royalty income reported on the federal return.
- There are numerous other exemptions, reductions and credits that may be allowed. These modify the value-added nature of the SBT and reduce the tax liabilities for taxpayers that qualify to use them.
Once the total tax base is determined, multiply it by the tax rate, then subtract any eligible credits. (See an example of Single Business Tax calculation.)
What is the compensation exclusion for medical benefits?
Beginning in 2004, the definition of compensation is modified by partially excluding an employer's costs of providing medical benefits to employees who are Michigan residents. This includes medical insurance premiums, if an employer purchases medical insurance for its employees. It includes both direct and administrative costs for an employer that absorbs such costs internally (sometimes called "self-insured") rather than buying insurance. Only a percentage of employer medical costs are excludable, as follows, for tax years beginning in:
- 2004: 5%
- 2005: 20%
- 2006: 40%
- 2007 or later: 50%
The excluded amount is calculated in the taxpayer's work papers, not on the return. Include the net amount, after exclusion, on the "Employee insurance" line of the form. Costs of any other type of insurance provided to employees, such as disability income or life insurance, must be included in full.
Which SBT return should be filed?
All businesses that have allocated or apportioned gross receipts of $350,000 or more, with the exception of insurance companies, must file either Form C-8000, Single Business Tax Annual Return or, if eligible, Form C-8044, Single Business Tax Simplified Return. Insurance companies must file Form 1366, Insurance Company Annual Return for SBT and Retaliatory Tax.
If my allocated or apportioned gross receipts are less than the filing requirement and I have made estimated payments during the year, do I need to file a return?
Any person who wishes to claim a refund must file an SBT annual return on Form C-8000, Single Business Tax Annual Return, or Form C-8044, Single Business Tax Simplified Return. However, only gross receipts, Form C-8000H, SBT Apportionment Formula, if taxable in another state, and the amount of the estimated payments need to be reported as well as a request for a refund of the overpayment if allocated or apportioned gross receipts are less than the filing requirement.
When is the return due?
The return is due on the last day of the 4th month after the tax year ends. It must be filed for the same tax period covered by the federal income tax return.
What form do you use to file an amended SBT return?
To file an amended SBT return for tax years 1995 forward, use Form C-8000X, SBT Amended Return or Form C-8044X, SBT Simplified Amended Return. To file an amended SBT return for a tax year prior to 1995, use the appropriate year's Form C-8000, Single Business Tax Annual Return or Form C-8044, SBT Simplified Return and write "AMENDED" at the top of the form.
Can an individual having separate sole proprietorship businesses (meat market, grocery, and bar) file separate SBT returns for each separate business?
Single Business Tax Act defines a "person" as "an individual, firm, bank, financial institution, limited partnership, co-partnership, partnership, joint venture, association, corporation, receiver, estate, trust, or any other group or combination acting as a unit." The SBT is imposed on the adjusted tax base of every "person". If you own more than one business that is registered as an individual, you must file one SBT return and use the combined gross receipts to determine filing requirements.
How is an extension requested?
To request a Michigan extension, file Form 4, Application for Extension of Time to File Michigan Tax Returns by the original due date of the return, with full payment of the estimated tax due. If you have paid estimates and met the statutory requirements for estimated payments during the year, the estimated payments will be considered as a payment on a tentative return. You must complete the appropriate lines on the extension application. If you did not make estimated payments during the year, you must include a payment with Form 4 or an extension will not be granted.
What is the SBT policy on extensions?
The SBT return is due the last day of the fourth month after the end of the tax year. If it has been determined that additional time is needed to file an annual SBT return, then Form 4, Application for Extension of Time to File Michigan Tax Returns, must be filed by the original due date of the return with full payment of the estimated tax due. Form 4 must be filed to request an extension, even if the Internal Revenue Service has approved a federal extension. Treasury grants an extension for filing of the annual return, not an extension for payment of tax due.
- Estimated payment or payment with Form 4 must be received or an extension request will not be accepted.
- Extension applications received without proper payment will not be processed.
- If Form 4 is received with a copy of the federal extension by the due date of the return and with proper payment on the account, Treasury will grant a state extension for the same length of time as the federal extension plus 60 days.
- If Form 4 is received without a copy of the federal extension, Treasury will grant a 180-day extension on the state return.
For example, if an SBT extension is granted, a 2005 calendar-year filer who has a federal extension has an SBT return due date of December 31, 2006. The same filer without a federal extension has an SBT due date of October 31, 2006.
It is important that Form 4 shows the total amount of payments made during the tax year and those included with the extension application. If you do not owe tax, you do not need to file a Michigan extension to avoid late penalty. However, without an approved extension, you must file your annual return as soon as the information is available to do so. An extension of time to file will also extend the statute of limitations.
Who must file SBT quarterly tax estimates?
If the estimated liability for the tax year is over $600, quarterly estimated payments must be filed. For calendar year taxpayers, quarterly returns are due the last day of April, July, October and January. For fiscal year filers, quarterly returns are due the last day of the first month after each quarter.
How are quarterly estimates calculated?
Estimated payments must equal at least 85 percent of the liability for the tax year, and the amount of each estimated payment must reasonably approximate the tax liability for that quarter. A taxpayer whose preceding year's tax liability was $20,000 or less, may file four equal installments, the sum of which equals the previous year's tax liability. If the year's tax liability is $600 or less, quarterly returns are not required. See Form C-8020, SBT Penalty and Interest Computation for Underpaid Estimated Tax.
What form should be used to file my SBT quarterly estimates?
To file SBT estimated payments use Form C-8002, Single Business Tax Quarterly Return. If your return is prepared using computer software, the software program should create pre-identified SBT estimated payment vouchers for you to use. Using the pre-identified vouchers will speed processing and improve the accuracy of the payment posting.
How does the SBT apply to taxpayers doing business in more than one state?
Taxpayers doing business in Michigan and in other states apportion their tax base to Michigan using a formula based on their percentage of property, payroll and sales in Michigan. Financial organizations and transportation companies use a single factor formula based on gross business and revenue miles, respectively. See Form C-8000H, SBT Apportionment Formula.
Does the SBT recognize the unitary method of taxation?
No. Only firms actually engaged in business activity in Michigan are subject to the SBT. A foreign subsidiary or parent corporation with no Michigan business activity is not subject to the SBT.
How do I request the tax forms?
Current and prior year SBT forms may be obtained by downloading the desired form from our forms page. This service is available 24 hours a day, 7 days a week. To request information for new businesses, contact the Michigan Economic Development Corporation at (517) 373-9808.
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