Credits 16. How is liability calculated for a taxpayer with a qualifying certificated credit that elects to remain taxed under the MBT?
Section 500 of the MBT provides that a taxpayer with a certificated credit may elect to file and pay under the MBT in order to claim the certificated credit or any unused carryforward. The electing taxpayer must continue to file and pay the tax under the MBT until the credit and any carryforward from the credit are used up. MCL 208.1500(1). Subsection 500(4) of the MBT describes that the electing taxpayer’s liability under the MBT act is the greater of:
(1) the taxpayer’s MBT liability “after application of all credits, deductions, and exemptions and any carryforward of any unused credit as prescribed in this act,” or;
(2) the taxpayer’s liability computed under the CIT, after application of all credits, deductions, and exemptions under the CIT, “less the amount of the taxpayer’s certificated credits, including any unused carryforward of a certificated credit, that the taxpayer was allowed to claim for the tax year” under the MBT.
Subsection 500(4)(b)(ii) makes clear that the taxpayer, in calculating its alternative CIT liability amount, shall not include any nonrefundable credit to the extent that credit exceeds the taxpayer’s liability, and any nonrefundable credit remaining after liability is determined may be carried forward to the following tax years.
Example: Consider a taxpayer with MBT liability (before credit) of $500 and available nonrefundable credit of $1,000. For part (1) of the calculation the taxpayer will apply $500 of the certificated credit amount to the $500 liability, resulting in an MBT liability of zero. For part (2) of the calculation, assume that the taxpayer has CIT liability of $750 before credit. The taxpayer will apply $500 of credit (the amount the taxpayer was allowed to claim when calculating its MBT liability under subsection 500(4)(a)) to the pro forma CIT liability of $750, resulting in a pro forma CIT liability after credit of $250. Because the taxpayer must pay the higher of calculations (1) and (2), the taxpayer’s tax liability for the tax year is $250. The taxpayer then carries forward $500 in credit (the remaining amount of the certificated credit after determining liability).