Following President Obama’s speech on Sept. 9, 2011, Senate Majority Leader Harry Reid introduced Senate Bill 1549, the American Jobs Act of 2011 (AJA 2011), on Tuesday, Sept. 12, 2011. President Obama also released his Plan for Economic Growth and Deficit Reduction which, among other things, identifies proposed tax increases to reduce the deficit and pay for AJA 2011. This is the first post in a series of four describing the president’s proposed tax law changes.

As part of the AJA 2011, President Obama has proposed two significant payroll tax cuts for 2012. As I considered how these taxes would affect individuals and businesses, I realized there is some key information needed to assess exactly what these tax cuts could mean in 2012.

On May 25, 2011, Michigan Governor Rick Snyder signed two bills that repeal the Michigan Business Tax (MBT) and adopt a Corporate Income Tax (CIT).

Following are some highlights of the CIT legislation.

• The MBT, including the Modified Gross Receipts Tax, will be repealed effective Jan. 1, 2012, and replaced with the CIT.
• Unlike the MBT, the new tax will only be imposed on corporations. The federal tax classification of pass-through entities generally is followed under the CIT.
• The CIT will be imposed on a unitary basis with a tax rate of 6 percent.
• Net operating losses incurred under the MBT and the special MBT book-tax difference deduction will not carry over to the CIT.
• The MBT single-factor sales apportionment and nexus standards will be retained.
• The only credit available under the CIT will be the small-business credit.
• The agricultural exemptions available under the MBT will not be available under the CIT.
• Businesses with certain credits, such as Michigan Economic Growth Authority (MEGA) credits and some Renaissance Zone credits, will be able to use the credits only if the business elects to remain subject to the MBT. The election will be binding until all credits are used. Once the credits are used, the business will become subject to the CIT.
• Financial institutions remain subject to a capital-based tax, but they no longer will be entitled to a deduction for goodwill.

In this blog, Crowe Horwath LLP tax specialists explore important tax legislative issues and topics. We look forward to providing you with information to help you navigate safely and profitably throughout the year. If you have questions, please contact David Holets at david.holets@crowehorwath.com or 317.706.2683.