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| C31. My company intends to purchase a significant piece of business equipment in the near future. This equipment is the type of property that is or will become eligible for depreciation for federal tax purposes. Under the MBT, can my company ... |
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Yes. In calculating its modified gross receipts tax base, a taxpayer determines the amount of its gross receipts for the tax year and then subtracts any "purchases from other firms" before apportioning the result. MCL 208.1203(3). Pursuant to MCL 208.1113(6), "purchases from other firms" includes "[a]ssets, including the cost of fabrication and installation, acquired during the tax year of a type that are, or under the internal revenue code will become, eligible for depreciation, amortization, or accelerated capital cost recovery for federal income tax purposes." A purchase of depreciable business equipment as described above meets this definition and the total cost of the equipment, including the cost of fabrication and installation, would therefore be subtracted from the taxpayer's gross receipts as a "purchase from other firms."
The investment tax credit (ITC) set forth in MCL 208.1403(3) is a separately calculated credit that incentivizes capital investment in property. Subject to the combined credit limitation in MCL 208.1403(1), for the 2008 tax year, the ITC is equal to 2.32% of the net calculation of the cost, including fabrication and installation, paid or accrued in the taxable year of depreciable tangible assets that are physically located in Michigan, less any recapture of ITC on assets that have been disposed of. The credit rate increases to 2.9% of the net calculation for tax years 2009 and after. MCL 208.1403(3). The ITC is applied against a taxpayer's total MBT liability (which includes the modified gross receipts tax, the business income tax, and the surcharge), subject to the combined credit limitation in MCL 208.1403(1). Nothing in the MBTA prohibits a taxpayer from deducting the cost, in the year of purchase, of an asset that qualifies as a "purchase from other firms" when calculating its modified gross receipts tax base, and then subsequently utilizing the same asset purchase to qualify for the ITC, a credit that is applied against total MBT liability. However, taxpayers should be aware that the MBT requires recapture of ITC when a sale, exchange, or other disposition of a qualifying asset, including the removal of the asset from the state, occurs.
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