Bill Text: MI SB1298 | 2011-2012 | 96th Legislature | Engrossed

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Bill Title: Income tax; collections; withholding requirement for certain members of a flow-through entity; clarify. Amends sec. 703 of 1967 PA 281 (MCL 206.703).

Spectrum: Partisan Bill (Republican 2-0)

Status: (Engrossed - Dead) 2012-12-13 - Referred To Second Reading [SB1298 Detail]

Download: Michigan-2011-SB1298-Engrossed.html

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SB-1298, As Passed Senate, November 29, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SENATE BILL No. 1298

 

 

September 20, 2012, Introduced by Senators BRANDENBURG and JANSEN and referred to the Committee on Finance.

 

 

 

     A bill to amend 1967 PA 281, entitled

 

"Income tax act of 1967,"

 

by amending section 703 (MCL 206.703), as amended by 2012 PA 217.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 703. (1) A person who disburses pension or annuity

 

payments, except as otherwise provided under this section, shall

 

withhold a tax in an amount computed by applying the rate

 

prescribed in section 51 on the taxable part of payments from an

 

employer pension, annuity, profit-sharing, stock bonus, or other

 

deferred compensation plan as well as from an individual retirement

 

arrangement, an annuity, an endowment, or a life insurance contract

 

issued by a life insurance company. Withholding shall be calculated

 

on the taxable disbursement after deducting from the taxable

 

portion the same proportion of the total amount of personal and

 

dependency exemptions of the individual allowed under this act.

 

Withholding is not required on any part of a distribution that is

 

not expected to be includable in the recipient's gross income or

 

that is deductible from adjusted gross income under section

 

30(1)(e) or (f).

 

     (2) Every employer in this state required under the provisions

 

of the internal revenue code to withhold a tax on the compensation

 

of an individual, except as otherwise provided, shall deduct and

 

withhold a tax in an amount computed by applying, except as

 

provided by subsection (14), the rate prescribed in section 51 to

 

the remainder of the compensation after deducting from compensation

 

the same proportion of the total amount of personal and dependency

 

exemptions of the individual allowed under this act that the period

 

of time covered by the compensation is of 1 year. The department

 

may prescribe withholding tables that may be used by employers to

 

compute the amount of tax required to be withheld.

 

     (3) Except as otherwise provided under this section, every

 

flow-through entity in this state shall withhold a tax in an amount

 

computed by applying the rate prescribed in section 51 to the

 

distributive share of taxable income reasonably expected to accrue

 

after allocation and apportionment under chapter 3 of each

 

nonresident member who is an individual after deducting from that

 

distributive income the same proportion of the total amount of

 

personal and dependency exemptions of the individual allowed under

 

this act. All of the taxes withheld under this section shall accrue

 

to the state on April 15, July 15, and October 15 of the flow-

 

through entity's tax year and January 15 of the following year,

 

except a flow-through entity that is not on a calendar year basis

 

shall substitute the appropriate due dates in the flow-through

 

entity's fiscal year that correspond to those in a calendar year.

 

Withholding for each period shall be equal to 1/4 of the total

 

withholding calculated on the distributive share that is reasonably

 

expected to accrue during the tax year of the flow-through entity.

 

     (4) Except as otherwise provided under this section, every

 

flow-through entity with business activity in this state that has

 

more than $200,000.00 of business income reasonably expected to

 

accrue in the tax year after allocation or apportionment shall

 

withhold a tax in an amount computed by applying the rate

 

prescribed in section 623 to the distributive share of the business

 

income of each member that is a corporation or that is a flow-

 

through entity. For purposes of calculating the $200,000.00

 

withholding threshold, the business income of a flow-through entity

 

shall be apportioned to this state by multiplying the business

 

income by the sales factor of the flow-through entity. The sales

 

factor of the flow-through entity is a fraction, the numerator of

 

which is the total sales of the flow-through entity in this state

 

during the tax year and the denominator of which is the total sales

 

of the flow-through entity everywhere during the tax year. As used

 

in this subsection, "business income" means that term as defined in

 

section 603(2). For a partnership or S corporation, business income

 

includes payments and items of income and expense that are

 

attributable to business activity of the partnership or S

 

corporation and separately reported to the members. As used in this

 

subsection, "sales" means that term as defined in section 609 and

 

sales in this state is determined as provided in sections 665 and

 

669. All of the taxes withheld under this section shall accrue to

 

the state on April 15, July 15, and October 15 of the flow-through

 

entity's tax year and January 15 of the following year, except a

 

flow-through entity that is not on a calendar year basis shall

 

substitute the appropriate due dates in the flow-through entity's

 

fiscal year that correspond to those in a calendar year.

 

Withholding for each period shall be equal to 1/4 of the total

 

withholding calculated on the distributive share of business income

 

that is reasonably expected to accrue during the tax year of the

 

flow-through entity.

 

     (5) If a flow-through entity is subject to the withholding

 

requirements of subsection (4), then a member of that flow-through

 

entity that is itself a flow-through entity shall withhold a tax on

 

the distributive share of business income as described in

 

subsection (4) of each of its members. The department shall apply

 

tax withheld by a flow-through entity on the distributive share of

 

business income of a member flow-through entity to the withholding

 

required of that member flow-through entity. All of the taxes

 

withheld under this section shall accrue to the state on April 15,

 

July 15, and October 15 of the flow-through entity's tax year and

 

January 15 of the following year, except a flow-through entity that

 

is not on a calendar year basis shall substitute the appropriate

 

due dates in the flow-through entity's fiscal year that correspond

 

to those in a calendar year. Withholding for each period shall be

 

equal to 1/4 of the total withholding calculated on the

 

distributive share of business income that is reasonably expected

 

to accrue during the tax year of the flow-through entity.

 

     (6) Every casino licensee shall withhold a tax in an amount

 

computed by applying the rate prescribed in section 51 to the

 

winnings of a nonresident reportable by the casino licensee under

 

the internal revenue code.

 

     (7) Every race meeting licensee or track licensee shall

 

withhold a tax in an amount computed by applying the rate

 

prescribed in section 51 to a payoff price on a winning ticket of a

 

nonresident reportable by the race meeting licensee or track

 

licensee under the internal revenue code that is the result of

 

pari-mutuel wagering at a licensed race meeting.

 

     (8) Every casino licensee or race meeting licensee or track

 

licensee shall report winnings of a resident reportable by the

 

casino licensee or race meeting licensee or track licensee under

 

the internal revenue code to the department in the same manner and

 

format as required under the internal revenue code.

 

     (9) Every eligible production company shall, to the extent not

 

withheld by a professional services corporation or professional

 

employer organization, deduct and withhold a tax in an amount

 

computed by applying the rate prescribed in section 51 to the

 

remainder of the payments made to the professional services

 

corporation or professional employer organization for the services

 

of a performing artist or crew member after deducting from those

 

payments the same proportion of the total amount of personal and

 

dependency exemptions of the individuals allowed under this

 

part.act.

 

     (10) Every publicly traded partnership that has equity

 

securities registered with the securities and exchange commission

 

under section 12 of title I of the securities and exchange act of

 

1934, 15 USC 78l, shall not be subject to withholding.

 

     (11) Except as otherwise provided under this subsection, all

 

of the taxes withheld under this section shall accrue to the state

 

on the last day of the month in which the taxes are withheld but

 

shall be returned and paid to the department by the employer,

 

eligible production company, casino licensee, or race meeting

 

licensee or track licensee within 15 days after the end of any

 

month or as provided in section 705. For an employer or flow-

 

through entity that has entered into an agreement with a community

 

college pursuant to chapter 13 of the community college act of

 

1966, 1966 PA 331, MCL 389.161 to 389.166, a portion of the taxes

 

withheld under this section that are attributable to each employee

 

in a new job created pursuant to the agreement shall accrue to the

 

community college on the last day of the month in which the taxes

 

are withheld but shall be returned and paid to the community

 

college by the employer or flow-through entity within 15 days after

 

the end of any month or as provided in section 705 for as long as

 

the agreement remains in effect. For purposes of this act and 1941

 

PA 122, MCL 205.1 to 205.31, payments made by an employer or flow-

 

through entity to a community college under this subsection shall

 

be considered income taxes paid to this state.

 

     (12) A person required by this section to deduct and withhold

 

taxes on compensation, a share of income available for distribution

 

on which withholding is required under subsection (3), (4), or (5),

 

winnings on which withholding is required under subsection (6), or

 

a payoff price on which withholding is required under subsection

 

(7) holds the amount of tax withheld as a trustee for this state

 

and is liable for the payment of the tax to this state or, if

 

applicable, to the community college and is not liable to any

 

individual for the amount of the payment.

 

     (13) An employer in this state is not required to deduct and

 

withhold a tax on the compensation paid to a nonresident individual

 

employee, who, under section 256, may claim a tax credit equal to

 

or in excess of the tax estimated to be due for the tax year or is

 

exempted from liability for the tax imposed by this act. In each

 

tax year, the nonresident individual shall furnish to the employer,

 

on a form approved by the department, a verified statement of

 

nonresidence.

 

     (14) A person required to withhold a tax under this act, by

 

the fifteenth day of the following month, shall provide the

 

department with a copy of any exemption certificate on which the

 

employee, member, or person subject to withholding under subsection

 

(6) or (7) claims more than 9 personal or dependency exemptions,

 

claims a status that exempts the employee, member, or person

 

subject to withholding under subsection (6) or (7) from withholding

 

under this section.

 

     (15) A person who disburses annuity payments pursuant to the

 

terms of a qualified charitable gift annuity is not required to

 

deduct and withhold a tax on those payments as prescribed under

 

subsection (1). As used in this subsection, "qualified charitable

 

gift annuity" means an annuity described under section 501(m)(5) of

 

the internal revenue code and issued by an organization exempt

 

under section 501(c)(3) of the internal revenue code.

 

     (16) Notwithstanding the requirements of subsections (4) and

 

(5), if a flow-through entity receives an exemption certificate

 

from a corporation, member other than a nonresident individual, the

 

flow-through entity shall not withhold a tax on the distributive

 

share of the business income of that corporation member if all of

 

the following conditions are met:

 

     (a) The exemption certificate is completed by the corporation

 

member in the form and manner prescribed by the department and

 

certifies that the corporation member will do all of the following:

 

     (i) File the returns required under part 2.this act.

 

     (ii) Pay or withhold the tax required under part 2 this act on

 

the distributive share of the business income received from any

 

flow-through entity in which the corporation is a member or in

 

which the corporation member has an ownership or beneficial

 

interest, directly or indirectly through 1 or more other flow-

 

through entities.

 

     (iii) Submit to the taxing jurisdiction of this state for

 

purposes of collection of the tax under part 2 this act together

 

with related interest and penalties under 1941 PA 122, MCL 205.1 to

 

205.31, imposed on the corporation member with respect to the

 

distributive share of the business income of that

 

corporation.member.

 

     (b) The corporation member shall file the exemption

 

certificate with the department and provide a copy to the flow-

 

through entity.

 

     (c) A The department may require a flow-through entity that

 

receives an exemption certificate shall to attach a copy of the

 

exemption certificate to the annual reconciliation return as

 

required by section 711. A flow-through entity that is entirely

 

exempt from the withholding requirements of subsection (4) or (5)

 

by this subsection shall may be required to furnish a copy of the

 

exemption certificate in a another manner prescribed by the

 

department.

 

     (d) A copy of the exemption certificate shall be retained by

 

the corporation member and flow-through entity and made available

 

to the department upon request. Any copy of the exemption

 

certificate shall be maintained in a format and for the period

 

required by 1941 PA 122, MCL 205.1 to 205.31.

 

     (17) The department may revoke the election provided for in

 

subsection (16) if it determines that the corporation member or a

 

flow-through entity is not abiding by the terms of the exemption

 

certificate or the requirements of subsection (16). If the

 

department does revoke the election option under subsection (16),

 

the department shall notify the affected flow-through entities

 

entity that withholding is required on the corporation member under

 

subsection (4) or (5), beginning 60 days after notice of revocation

 

is received.

 

     (18) Notwithstanding the requirements of subsections (4) and

 

(5), a flow-through entity is not required to withhold in

 

accordance with this section for a member that voluntarily elects

 

to file a return and pay the tax imposed by the Michigan business

 

tax act under section 680 or section 500 of the Michigan business

 

tax act, 2007 PA 36, MCL 208.1500.

 

     Enacting section 1. This amendatory act takes effect January

 

1, 2013 and applies to all business activity occurring after

 

December 31, 2012.