Revenue Administrative Bulletin 1993-10
Approved: July 9, 1993
ENTERPRISE ZONE ACT -
SALES AND USE TAX EXEMPTIONS AND SINGLE BUSINESS TAX CREDIT
(Replaces Revenue Administrative Bulletin 1988-1)
RAB-93-10. The purpose of this bulletin is to provide additional clarification of the sales, use and single business tax treatment of a business that is qualified under the Enterprise Zone Act, hereafter called the "Act."
The Enterprise Zone Act, MCL 125.2101; MSA 3.540(301), et seq., was created to encourage businesses to locate and expand in areas which have high unemployment, low income, high property taxes and low property value. The General Sales and Use Tax Acts were amended by Act 225 of the Public Acts of 1985 and Act 13 of the Public Acts of 1986, being Sections MCL 205.54j; MSA 7.555(4j) and MCL 205.94h; MSA 7.555(4h), respectively, to allow a certain exemption from these taxes to a qualified business as certified under the Enterprise Zone Act. Additionally, the Single Business Tax Act was amended by Act 226 of the Public Acts of 1985, being Section MCL 208.37a; MSA 7.558(37a) to allow a qualifying business a credit against the tax.
Results of Qualification
Sales and Use Tax
Upon certification by the enterprise zone authority, a qualified business shall be exempt from sales and use taxes on tangible personal property purchased by or leased to the qualified business for its use in a qualified business activity and not for resale or resale leasing.
The Act defines "qualified business activity" and "enterprise zone" as follows:
"Qualified business activity means business activity in an enterprise zone of a qualified existing business attributable to a new facility or the business activity in an enterprise zone of a qualified new business." MCL 125.2103(g); MSA 3.540(303)(g).
"Enterprise zone means an area approved as an enterprise zone by the authority as provided in this act." MCL 205.2103(c); MSA 3.540(303)(c).
As used in this bulletin, "qualified business" means that term as defined in the Act.
Consistent with these definitions, sales and use tax exemptions will apply to tangible personal property only to the extent it is used within the prescribed boundaries of the enterprise zone. Usage of property outside the enterprise zone boundaries is taxable unless subject to another enumerated exemption. Where property is used both within and without the enterprise zone boundaries, such property may be taxed using an appropriate allocation (i.e., a vehicle used both within and without the enterprise zone may use a mileage allocation method to determine the taxable portion of both the vehicle and fuel consumed in it).
The exemption applies to persons who have been certified as a qualified business within the enterprise zone, acting as construction contractors who are directly engaged in the business of constructing, altering, repairing, or improving real estate for others. The exemption applies only to the extent that the qualified business construction contractor constructs, alters, repairs, or improves real estate within the enterprise zone. The exemption does not apply for qualified business construction contractors when they are constructing, altering, repairing, or improving real estate for others outside the enterprise zone. The exemption does not apply to construction contractors who are not themselves a qualified business, even when they construct, alter, repair, or improve the real estate of a qualified business within the enterprise zone.
The sales and use tax exemptions apply to electricity and natural gas, provided all other conditions of the Act are met.
The Use Tax Act imposes the use tax on services that include room accommodations and telecommunications services. The Act exempts tangible real and personal property. Because services are neither tangible real nor personal property, they are not exempt from taxation.
When making a purchase or lease exempt from sales or use tax, the qualified business shall present a copy of its approved certification as a qualified business. The Department of Treasury will not issue a separate certification of exemption.
Single Business Tax
Upon certification by the enterprise zone authority, the qualified business becomes eligible for a single business tax credit. The business may credit against the tax an amount equal to the tax liability attributable to a qualified business activity in an enterprise zone.
The tax liability attributable to a qualified activity is calculated by first determining the tax liability imposed after the calculation of the small business credit, S corporation credit, charitable contributions credit, and the credit for railroad, depot, telegraph, and telephone companies and others owning and operating railroad cars, and transporters of oil or gas by pipeline. This tax liability is then multiplied by one of the following:
For a new business, a fraction the numerator of which is the ratio of property located in the enterprise zone to all property located in this state plus the ratio of payroll in the enterprise zone to all payroll in this state and the denominator of which is 2.
For an existing business, a fraction the numerator of which is the ratio of the value of a new facility as defined in the Enterprise Zone Act to all property located in this state plus the ratio of payroll in the enterprise zone to all payroll in this state and the denominator of which is 2.
The terms "new business" and "existing business" are defined in sections 3(h) and (i) of the Enterprise Zone Act.
The credit allowed by this section shall not exceed the tax liability of the taxpayer for the tax year. There is no carryforward of any excess credit.