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Business Income Tax
The tax is imposed on the business income of all taxpayers (not just corporations) with business activity in Michigan, subject to the limitations of federal law.
"Business income" is defined as "that part of federal taxable income derived from business activity." For a tax exempt person, business income means only that part of federal taxable income derived from unrelated business activity. Business income is subject to a number of adjustments, including a deduction for net earnings from self-employment as defined in Internal Revenue Code (IRC) section 1402, and then apportioned using the sales factor. Any federal net operating loss carryback or carryover is added into the tax base before apportionment, and any apportioned negative business income taxable amount incurred after 2007 is deducted from the tax base after apportionment.
Modified Gross Receipts Tax
The modified gross receipts tax base is defined as gross receipts less purchases from other firms. Michigan Business Tax (MBT) uses the Single Business Tax (SBT) definition of gross receipts, with additional exclusions for a motor vehicle sales finance company, mortgage company, professional employer organization, and for invoiced items used to provide more favorable floor plan assistance.
"Purchases from other firms" is defined to mean inventory acquired; other materials and supplies; depreciable property acquired; for a staffing company, the compensation of personnel supplied to their customers; and for a construction contractor not eligible for the section 417 alternate tax credit, payments to a subcontractor. Inventory is defined to include the floor plan interest expenses of new motor vehicle dealers. For the 2008 tax year, a taxpayer may deduct 65% of an SBT business loss carryforward incurred in 2006 or 2007. The tax base is apportioned using the sales factor.
Insurance Company Premiums Tax
The MBT continues the SBT's separate tax on insurance companies.
The SBT's 1.0735% tax on adjusted receipts is replaced with a 1.25% tax on Michigan gross direct premiums written. The SBT insurance company credits are retained. The only other MBT credits insurance companies are eligible for are MEGA and brownfield credits, and insurers not paying certain assessments (i.e. life and health insurers) may claim the Michigan compensation credit. The disability insurance exclusion is increased. Insurance companies remain subject to the retaliatory tax. The insurance company tax is no longer in lieu of sales or use tax.
Financial Institutions Tax
In lieu of the income and gross receipts taxes, financial institutions, including their subsidiaries, are subject to a 0.235% franchise tax on their net capital.
The value of net capital is averaged over a five-year period. Michigan and U.S. obligations, goodwill for certain purchase account adjustments, are excluded when computing the value of net capital. "Financial institution" is defined to mean: 1) a bank, a bank holding company, certain thrift institutions, and certain savings and loan holding companies; and 2) a business, other than an insurance company, owned directly or indirectly by an entity listed in 1) and is a member of the unitary business group. Financial institutions subject to tax in another state apportion their tax base using a "gross business factor".