@072 CHAP 11

@CODE: MI
@CODE:NF
           ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿
           ³   THE MICHIGAN "SINGLE BUSINESS TAX"  ³
           ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ

Businesses are taxed in Michigan under a relatively uniform
tax system, applicable to all forms of business organiza-
tions.  There is no income tax, as such, on business in-
come, although the "Single Business Tax" is very much like
an income tax, albeit with some major differences.  To some
extent, it also substitutes for the Michigan property tax
on intangibles as well, since intangible assets of a busi-
ness that is subject to the Single Business Tax are exempt
from the ad valorem tax on intangible property.

Because your firm does business in the state of Michigan, the
Single Business Tax applies to @NAME.

The tax base for the Single Business Tax, for sole propri-
etorships, partnerships, corporations, joint ventures, es-
tates, trusts, financial institutions, joint ventures and
associations having business activity in Michigan is essen-
tially federal taxable income with the following adjust-
ments:

    . Add back employee compensation;

    . Eliminate any interest income received or interest
      expense incurred;

    . Deduct the entire cost of capital assets acquired
      during the taxable year ("capital acquisition
      deduction"), but add back the depreciation
      deductions claimed for federal income tax purposes;

    . Upon sale of capital assets, the capital acquisi-
      tion deduction is recaptured to the extent of the
      sales proceeds; and

    . Exclude 100% of any dividends or oil and gas roy-
      alties received by corporations subject to the
      Single Business Tax.

Thus, in effect, the Single Business Tax is not an income
tax but a tax based on value-added or economic size (that
is, selling price of produced goods less the cost the raw
material used in production).  The tax base and the 2.35%
tax rate are generally the same for all entities, although
there are exceptions.  Unincorporated businesses and S
corporations are eligible for a credit against the Single
Business Tax and, where certain requirements are met,
partnerships, S corporations and professional corporations
are eligible for substantial additional statutory exemp-
tions.  Taxpayers with gross receipts of less than $45,000
in 1993 are not required to file.

(The Michigan Legislature passed a bill to amend this exemp-
tion, which was scheduled to increase to $45,000 in 1993,
and no higher after that.  Under the bill, a $100,000 exemp-
tion for small businesses from the Single Business Tax would
replace the $45,000 exemption formerly scheduled to go into
effect.  Check with your tax adviser regarding the status of
this proposed increase in the exemption.)

Note that the Single Business Tax taxes all businesses as
though they are corporations, imposing the tax at the en-
tity level, even though the business may be conducted as a
sole proprietorship or partnership.  If the business is un-
incorporated, or is an S corporation, its TAXABLE income
passes through to the individual owners and is subject to
Michigan personal income tax at the individual's level,
just as for federal income tax purposes.  The amount tax-
able to the partners, etc.  is determined under income tax
principles, without regard to the Single Business Tax base,
which is determined at the entity level.

The Single Business Tax return for a business entity is due
at the end of the fourth month following its taxable year-
end.

The Michigan Single Business Tax law allows a substantial
tax credit to a person whose gross receipts do not exceed
$10 million for the current tax year, subject to certain
limitations, based on maximum levels of "adjusted business
income."

@IF101MI]-------------------------------------------------------------
@IF101MI]Applicability to @NAME:
@IF101MI]Since your firm has averaged over $10 million a year in gross
@IF101MI]receipts for the last 3 years, it appears unlikely that it
@IF101MI]would be able to qualify for this credit.
@IF101MI]-------------------------------------------------------------
@IF104MI]-------------------------------------------------------------
@IF104MI]Applicability to @NAME:
@IF104MI]Since your firm has averaged less than $10 million a year in
@IF104MI]gross receipts for the last 3 years, it appears that it may
@IF104MI]able to qualify for this credit.
@IF104MI]-------------------------------------------------------------