At the time our most recent edition of the Commentator went to print, there was great discussion regarding whether the Michigan sales tax on services would be repealed. In fact, only seventeen hours after it went into effect, the sales tax on services was repealed. However, the revenue lost by the repeal, was replaced with a surcharge on a taxpayer’s Michigan Business Tax (“MBT”) liability.

While there were a number of “tweaks” to the MBT to replace the revenue lost from the repeal of the sales tax on services, the one change effecting most taxpayers is that there will now be a surcharge tax equal to 21.99% of a taxpayer’s MBT tax liability. Special surcharge rules pertaining to financial institutions and insurance companies were also enacted. Assuming Michigan personal income grows in 2014, 2015 or 2016, the surcharge will be repealed.

In addition to the new surcharge, the various compensation and investment credits that were enacted as part of the new MBT, including the research and development credit, the motor vehicle dealer credit, bottle deposit expense credit, and the credit for retailers that establish a Michigan headquarters, were also modified. The effect of these changes will depend on the year in question and the taxpayer’s tax liability.

Significantly, the MBT, as originally enacted, could have affected trusts, estates, partnerships and other estate planning devices. Fortunately, the surcharge statute clarified that these estate planning techniques will not be subject to the MBT.

Please contact our team of tax experts to help you determine exactly how the MBT and the new surcharge will affect your company’s tax liability. More important, we can help you properly arrange your business operations and structure transactions to minimize these taxes.

For further information regarding these matters, please contact Mr. Goldberg at 248.740.5664 or click here to send an email.