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Michigan Business Tax

C23. How were the rates of the Compensation Credit, the Investment Tax Credit, and the Research and Development Credit impacted by the passage of PA 145, which added the surcharge to the MBT?

Although the primary purpose of PA 145, which became effective on December 1, 2007, was to institute a surcharge to replace the revenue from the repealed service tax, PA 145 made a number of additional changes to the MBT, including changes to the Compensation Credit, the Investment Tax Credit, and the Research and Development Credit.

The rate of the Compensation Credit was reduced from 0.370% to 0.296% for the 2008 tax year. The rate will return to 0.370% for the 2009 tax year and beyond. MCL 208.1403(2). The rate of the Investment Tax Credit was reduced from 2.90% to 2.32% for the 2008 tax year. The rate will return to 2.90% for the 2009 tax year and beyond. MCL 208.1403(3). Finally, PA 145 reduced the rate of the Research and Development Credit from 1.90% to 1.52% for the 2008 tax year. The rate will return to 1.90% for the 2009 tax year and beyond. MCL 208.1405.

PA 145 also reduced the cap on the combined Compensation Credit and Investment Tax Credit for taxpayers other than insurance companies from 65% of the taxpayer's MBT liability to 50% of the taxpayer's MBT liability before the imposition of the surcharge for the 2008 tax year, and to 52% for the 2009 tax year and beyond. MCL 208.1403(1). For insurance companies, the Compensation Credit remains capped at 65% of the taxpayer's liability for all tax years. MCL 208.1239(2).

Finally, the cap on the combined Compensation Credit, Investment Tax Credit, and Research and Development Credit was reduced from 75% of the taxpayer's MBT liability to 65% of the taxpayer's MBT liability before the imposition of the surcharge. MCL 208.1405.