Adjustments to Base:
Business Income Tax
Base begins with federal taxable income of business entity, adjusted to:

1. add back certain federal income tax deductions (e.g., interest income and dividends from other states' obligations; income taxes and Michigan Business Tax paid; net operating loss carryback/forward; royalty, interest, or other expense paid to a person related to the taxpayer by ownership or control for the use of an intangible asset;
2. deduct certain items included in federal taxable income (e.g., dividends and royalties from non-United States entities; interest income from U.S. obligations; net earnings from self-employment; the book-tax difference for qualifying assets;
3. add the loss or deduct the gain attributable to another taxable business, to the extent included in federal taxable income;
4. deduct any business loss incurred after December 31, 2007;
5. deduct any gain from the sale of qualified affordable housing.

Modified Gross Receipts Tax
The base of the tax is the modified gross receipts of a taxpayer, defined as gross receipts less purchases from other firms.

Gross receipts exclude the following:

1. proceeds from sales by a principal that are collected in an agency capacity solely on behalf of the principal and delivered to the principal;
2. amounts received as an agent solely on behalf of the principal that are expended by the taxpayer under certain circumstances;
3. amounts excluded from gross income of a foreign corporation engaged in the international operation of aircraft under IRC section 883(a);
4. amounts received by an advertising agency used to acquire advertising media time, space, production or talent on behalf of another person;
5. amounts received by a person that manages real property owned by a client that are deposited into a separate account kept in the name of the client and that are not reimbursed and are not indirect payments for management services provided to that client;
6. proceeds from the original issue of stock, equity instruments or debt instruments;
7. refunds from returned merchandise;
8. cash and in-kind discounts;
9. trade discounts;
10. federal, state or local tax refunds;
11. security deposits;
12. payment of the principal portion of loans;
13. value of property received in like-kind exchange;
14. proceeds from a sale or other disposition of property that is a capital asset as defined in IRC section 1221(a), or land that qualified as property used in trade or business as defined in IRC section 1231(a), less any gain from the disposition to the extent that gain is included in federal taxable income;
15. proceeds from an insurance policy, settlement of a claim or judgment in a civil action, less any proceeds that are included in federal taxable income;
16. proceeds from the taxpayer's transfer of an account receivable, if the sale that generated the account receivable was included in gross receipts for federal income tax purposes. This provision does not apply to a taxpayer who both buys and sells any receivables during the tax year.
17. for a sales finance company at least partly owned by a motor vehicle manufacturer, and for a securities broker or dealer, amounts realized from the repayment or sale of the principal of a loan, bond, or similar marketable instrument if not held as inventory, and the principal amount received under a repurchase agreement or other transaction properly characterized as a loan;
18. for a mortgage company, proceeds representing the principal balance of loans transferred or sold in the tax year;
19. for a professional employer organization (PEO), the actual cost of compensation paid to or on behalf of a covered employee by the PEO under a professional employer arrangement;
20. invoiced items used to provide more favorable floor plan assistance to a person subject to the MBT than to a person not subject to the MBT and paid by a manufacturer, distributor, or supplier;
21. for an individual, estate, or partnership or trust organized exclusively for estate or gift planning purposes, amounts received from personal investment activity and the disposition of property held for personal use and enjoyment;
22. proceeds from the sale of qualified affordable housing projects.

"Purchases from other firms" include:

1. inventory acquired during the tax year;
2. depreciable assets;
3. materials and supplies; and
4. for a staffing company, compensation of personnel supplied to its customers; for construction contractors, payments to subcontractors; and film rental and royalty payments paid by a theater owner.

Apportionment:
The tax base of both the income and modified gross receipts taxes is allocated entirely to Michigan if business activity is confined to the state. For businesses with multi-state activity, the apportionment is based entirely on the proportion of sales in Michigan, with exceptions for certain types of businesses.

After apportionment, for tax year 2008 only, taxpayers may reduce their modified gross receipts tax base by 65% of any remaining business loss carryforward incurred under the SBT in the 2006 or 2007 tax year to the extent not deducted in prior tax years.

Exemptions are allowed for:

1. governmental agencies;
2. most "persons" exempt from federal income taxes;
3. nonprofit cooperative housing corporations;
4. agricultural producers;
5. certain revenues and expenses of farmers' cooperatives;
6. that portion of the tax base attributable to the services provided by an attorney-in-fact to a reciprocal insurer;
7. expenses attributable to multiple employer arrangements to fund dental benefits;

Credits are allowed for:

1. .296% (2008) and .37% (2009 and after) of compensation paid in Michigan;
2. 2.32% (2008) and 2.9% (2009 and after) of the cost of new capital assets located in Michigan. Combined with the compensation credit, limited to 50% (2008) and 52% (2009 and after) of tax liability, before surcharge;
3. 1.52% (2008) and 1.9% (2009 and after) of research and development expenses. Combined with compensation credit and the investment credit, limited to 65% of tax liability, before surcharge;
4. 30% of contributions to a small business for research and development, not to exceed $300,000, for tax years 2008 through 2010 only;
5. Michigan International Speedway, 100% of expenditures for infield renovation, grandstand, and infrastructure upgrades (phased down from $1.7 million to $650,000), for tax years 2008 through 2012 only;
6. Michigan International Speedway, 50% (2009) and 100% (2010 and thereafter) of necessary expenditures to ensure pedestrian and traffic safety;
7. certain sports stadia, 65% of tax liability, not to exceed $1.7 million for 2008 through 2010 tax years; 45% of tax liability, not to exceed $1.2 million for 2011 tax year; 25% of tax liability, not to exceed $650,000 for 2012 tax year;
8. threshold credit, for firms with allocated or apportioned gross receipts between $350,000 and $700,000
9. 35% of taxes paid on industrial personal property;
10. 23% (2008) and 13.5% (2009 and after) of taxes paid on telephone personal property;
11. 10% of taxes paid on natural gas pipeline property;
12. alternative small business tax credit equal to the amount of tax liability above 1.8% of adjusted business income (subject to phase-in);
13. 50%, up to $100,000, of contributions of $50,000 or more to art, historical, or zoological institute;
14. entrepreneurial credit equal to 100% of increased tax liability associated with employment increase, for tax years 2008 through 2010 only;
15. motor vehicle dealer credit equal to 0.25% of the amount paid to acquire inventory in the tax year;
16. large retailer (operates at least 17 million square feet of retail space) credit equal to 1.0% of compensation paid in Michigan, not to exceed $8.5 million;
17. retailer (operates at least 2.5 million square feet of retail space) credit equal to 0.125% of compensation paid in Michigan, not to exceed $300,000;
18. 3.9% of the compensation paid to employees at a facility in Troy that is engaged in research and development of a two-mode hybrid car engine. The maximum credit in a single year is $2 million and is refundable. The credit is available for tax years 2008 through 2015;
19. bottle deposit compliance credit equal to 30.5% of expenses required to comply with Michigan's bottle deposit law;
20. private equity funds credit equal to remaining tax liability, after application of other credits, that is proportional to the total activity conduced by the private equity manager in Michigan:
21. SBT liability of the start up business in tax years that the qualified business has no business income;
22. difference between the negotiated rate of return on an original investment in the Michigan Early Stage Venture Capital Investment Fund and the actual repayment. This difference is issued in the form of a tax voucher that may be used to pay any tax liability. Any amount of a voucher not used in one year may be used in subsequent years to satisfy any tax liability;
23. 50% of charitable contributions;
24. amount paid for workers' disability compensation;
25. 50% of contributions to food bank and homeless shelter:
26. research, development, or manufacturing of an alternative energy system, alternative energy vehicle, alternative energy technology, or renewable fuel based. One credit based on qualified business activity; another credit based on qualified payroll amount;
27. amounts certified by the Michigan Economic Growth Authority (MEGA);
28. tax liability in the amount equal to the business activity conducted in a renaissance zone;
29. 25% of expenditures for historic preservation projects;
30. certain expenditures on brownfield projects;
31. $1.00 per long ton of hematite ore consumed;
32. For motion picture expenditures made after February 2008, and approved by the Michigan Film Office and the State Treasurer, up to a 42% direct production expenditures credit, a 30% qualified personnel expenditures credit, a 25% investment tax credit, and a 50% qualified job training expenditures credit.