Michigan passes tax reforms
Michigan has simplified its tax structure in an effort to improve the state’s economic competitiveness. A set of new laws eliminates the Michigan Business Tax, simplifies the tax code, and reforms the way the state taxes retired residents.
On Wednesday, Gov. Rick Snyder signed the eight-bill package. “The current tax system is riddled with inequities that are hostile to job growth,” Snyder said in a statement. “Eliminating these longstanding barriers will level the playing field for taxpayers, encourage entrepreneurship and spur more investment in Michigan. Working in conjunction with other reforms, such as a balanced state budget and refocused economic development strategies, the overhaul of our tax structure lets job providers nationwide know that Michigan is the place to be.”
• The Michigan Business Tax is replaced by a 6 percent Corporate Income Tax. The corporate tax applies only to companies that file as “C” corporations — typically, those that issue stock — and means that nearly 100,000 businesses no longer have to file returns.
• Numerous credits, deductions and exemptions are eliminated.
• The income tax rate is frozen at 4.35 percent until Jan. 1, 2013, when it is lowered to 4.25 percent.
• A three-tiered system determines whether retirement income is taxed. People born before 1946 will continue to receive the current retirement income exemptions, as well as the personal exemption, Social Security exemption and the exemption for dividends, interest and capital gains.
• Military pensions continue to be exempt.
• The Earned Income Tax Credit is retained at a rate of 6 percent of the federal credit.
• The Michigan Business Tax is repealed, but firms wishing to take advantage of previously issued certificated credits may choose to continue paying the tax until their credits are exhausted.
• Public pensions are subject to state taxes as of Jan. 1, 2012.
The new laws take effect Jan. 1, 2012. Read Snyder’s full press release on the tax reform laws.