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Michigan Business Tax
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B12. Under the MBT, will there be a depreciation deduction, or will Michigan conform to federal depreciation rules?
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Answer:
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To the extent applicable, federal depreciation rules are utilized for the purpose of calculating MBT liability. Although there is no specific deduction or credit for depreciation expenses under the MBT, a taxpayer receives the benefit of any depreciation deduction taken on its federal income tax return due to the inherent structure of the business income tax base. An MBT taxpayer's business income tax base is composed of the taxpayer's "business income," with certain adjustments. MCL 208.1201(2). "Business income" is defined under the statute as "that part of federal taxable income derived from business activity." MCL 208.1105(2) (emphasis added). Thus, calculation of the business income tax base begins with the taxpayer's federal taxable income, a figure that already includes any deductions taken by the taxpayer on account of depreciation expenses.
Under the former SBT, any amount taken for a depreciation deduction on the taxpayer's federal tax return was required to be added back into the taxpayer's tax base for purposes of calculating SBT liability. MCL 208.9(4)(c). There is no such add-back under the MBT. See MCL 208.1201(2). Because the business income tax base is based upon federal taxable income, and depreciation expenses are not added back in to that tax base, the MBT taxpayer effectively receives the benefit of its federal depreciation deduction.
With respect to the modified gross receipts tax component of the MBT, the entire cost of a depreciable asset may be subtracted from the taxpayer's modified gross receipts tax base in the year that the asset is acquired, since such an asset meets the definition of "purchases from other firms." MCL 208.1203(3); 208.1113(6)(b).
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