Hallelujah - Mbt Being Repealed

Topics: Value added tax, Tax, Corporate tax Pages: 9 (2656 words) Published: April 22, 2013
May 2011, Vol. 26 No. 101

Editor: George Kallas, C.P.A.

In This Issue...
Checklist For How To Review Your Monthly Financial Statements Here Is A Simple Solution To The Social Security Problem Restaurant Promotion Obtain Required Labor Law Posters At Kallas Thank You For Another Great Tax Season Rules And Tax Benefits For New Start-Up Restaurants Onerous 1099 Law Repealed One Time Amnesty Program Available Now And More...



he absolute bane of the businessman in Michigan has been the MBT (Michigan Business Tax) and before that, the SBT (Single Business Tax).

Both the MBT and the SBT are/were “value added taxes”. Meaning they are not based on profits and losses like the federal tax but on specially defined tax bases, credits, exemptions and just about anything else a politician could throw in to make it more complicated. Michigan is the only state to employ such a tax and I can tell you from experience that tax accountants from other states would tell their clients to avoid doing business in Michigan just because of the MBT. Depending on how your credits, compensation, new equipment or your other factors entered into the calculations you could have a tax of 2% of profits all the way up to 40% of profits. And one of the worst aspects of the MBT was there was no easy way to plan ahead on what the tax would be. Preparers would have to pre-calculate the tax prior to year end and if the numbers changed, the tax could change drastically. Add on top of it all a surcharge and the concept of unitary group which required you to combine businesses under one ownership and you had a tax nightmare which Michigan businesses have endured for years. But we can now see the light at the end of the tax tunnel. Governor Snyder, the Michigan Senate and the Michigan House have all agreed in principle to eliminate the MBT forever. There will be no more state tax for small businesses like restaurants and bars starting January 1, 2012. The legislation still has to go through the House and Senate processes but most all terms of the repeal have been agreed upon. (continued, page 2...)

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The repeal of this onerous law will be a boon to small business in Michigan. The law does create a new 6% tax on C corporations but that will affect very few restaurants and bars. Even this C corp tax though, can be avoided with minimal tax planning. In addition to the repeal of the MBT, the legislation also makes changes to personal income tax dropping the rate from 4.35% to 4.25% and eliminating some pension exemptions, dividend and interest exclusions, the earned income credit and some other miscellaneous deductions. Most of which in my opinion, could have been considered loopholes for some taxpayers that other taxpayers were paying for. Overall, I believe this new law will spur business growth because it eliminates a huge administrative burden and tax for small business. It will make Michigan more attractive to out of state businesses and it will make the personal income tax more broad based and fair.

Are food and labor costs within industry guidelines and consistent with prior periods? Are you showing a profit or are you losing money? Are any other costs unusual or out-of-line?

ur Senators and Congresspersons do not pay into Social Security, and, therefore do not collect from it. They have a special retirement plan – and of course, they make the rules so it is a very special plan. It works like this. When they retire, no matter how long they have been in office, they continue to draw their same pay until they die, except that it may be increased from time to time by cost of living adjustments. For example, former Senator Bradley and his wife may be expected to draw $7,900,000 over an average life span, with Mrs. Bradley drawing $275,000 during the last year of her life. The cost to them for this excellent plan is “0”....
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