Recently, the Michigan Economic Development Association partnered with the Pure Michigan campaign in order to advertise that Michigan was a business friendly state. While this commercial paints a nice picture of our state and it is true that starting in January our business tax structure will be much more simplified, Michigan could take a few queues from our neighboring states.. Under the new Snyder plan, the MBT is replaced with a six percent corporate income tax applied to all C-Corps(1). Most C corporations are larger businesses which for federal tax purposes are taxed as a separate taxed entity. Corporations have their own tax form 1120 and their own tax rates. For other types of corporate structures such as s-corporations, LLC's, partnerships, the business profits are taxed at individual tax rates on each shareholder's 1040(1). The pass through nature of the income means that the corporation's profits are only taxed once-at the shareholders level. The Snyder plan would base business taxation on the federal treatment of these entities. C Corporations would take their tax liability from their federal return and apply a 6% rate to it. Other business entities would not pay a business tax; their taxes will be paid through the income taxes they pay(1). Under the current tax structure 136,000 tax payers currently file an MBT return. Under the new plan only 41,000 would file. Over 95,000 businesses will not need to file a state business tax return form (1).
Compare this to the tax structure in Wisconsin. Wisconsin has an easy to understand tax structure that applies to any and all companies and a different personal property tax structure that emphasizes growth. All businesses are taxed at a rate of 7.9%. In the near future, those businesses who conduct business in more than one state will be taxed solely on sakes as opposed to the current property / payroll / sales formula (2). Machinery equipment used in manufacturing, manufacturing and agricultural inventory and computer hardware and software are all exempt from taxation. Wisconsin has enterprise zones, which may have led to modernizations in healthcare record keeping, dairy manufacturing and biodiesel production (3).
Ohio also tries to attract businesses with its tax structure. With a corporate income tax rate of 3.9 percent, Ohio has the 5th lowest corporate income tax rate in the country. Instead of a Personal Property Tax, Ohio has a Commercial Activities Tax which is described as a "tax for the privilege of doing business in Ohio" Those business which make less than $150,000 pay no personal property tax. Business making between 150,000 and one million dollars pay a minimum of $150 in personal property tax. All tangible personal property is not taxed at all in the state of Ohio (4).
When it comes to do business in the Midwest, there are advantages to setting up shop in different states. If you are looking to start or relocate a large business(c corps), Michigan is a viable option. Starting in January of 2011, C Corporations will have an easy to understand 6% across the board tax (1). Other business entities would not pay a business tax; their taxes will be paid through the income taxes they pay. Over 95,000 businesses will not need to file a business tax return form. If given enough time to take effect this tax structure should help Michigan become more business friendly. The Personal Property Tax may still be a disadvantage to businesses in Michigan(1). Michigan is also removing many tax credits that help some categories of business.
1. Information obtained from intern House Fiscal and Legislative Affairs office.