On May 25, 2011, Gov. Rick Snyder signed bills that, according to Mr. Snyder, “bring greater fairness and simplicity” to Michigan’s tax structure. As of January 1, 2012 the Michigan Business Tax (MBT) will be eliminated; replaced by the Michigan Corporate Income Tax (CIT). It is estimated that the new tax will save Michigan businesses $1.1 billion of tax in the first year and $1.7 billion in the second year.
It is projected that 100,000 businesses will no longer have to file returns. Let’s look at the types of business and the impact of the two types of tax:
Business Entity Type |
Subject to MBT 2011 |
Subject to CIT 2012 |
C-corporation |
YES |
YES |
S-corporation |
YES |
NO |
Partnership |
YES |
NO |
LLC |
YES |
NO |
Sole proprietor |
YES |
NO |
Trust (based on activity) |
YES |
NO |
As you can see, only C-corporations are subject to the new tax. Most of companies are not set up as C-corporations; therefore you will no longer have to pay significant business taxes to Michigan. The CIT is a 6% tax on net income.
There is no Gross Receipts Tax which is another significant difference from MBT. Many of our C-corporation clients do not have significant net income as most of the profits are paid to the shareholders as wages to compensate them for their efforts. These clients will also see a reduction to their state tax liability.
These changes will take Michigan from 30th to 16th in terms of lowest state and local tax burden and the lowest in the Midwest.
Now is the time to strategize and plan for the future – how can we best utilize the MBT savings in your business to move it forward and grow in the new economy. What have you put on hold because the business did not have the funds? What new opportunity have you had to say no to?
Contact us [1] and let the planning begin!