Legislation to Address Commercial Real Estate MBT Concerns Being Drafted

June 25, 2009

While some industries benefited from the passage of the Michigan Business Tax (MBT), others including commercial real estate realized significant tax increases. As you may recall, five key points of concern were raised by commercial REALTORS® upon passage of the MBT. Legislative bills to address these issues are currently being drafted and will be reintroduced this session.

At the top of the list of MBT concerns is the complete repeal of the 22% MBT surcharge. This was the first bill
introduced in the Senate this year. The other four issues are:

Reinstating the 10-year investment tax credit carry forward - Representative Richard LeBlanc (D - Westland). The legislation will eliminate the requirement that any investment tax credit that was granted under the SBT must be used in 2008 and 2009. Instead, it will reinstate the 10 year carry forward for all ITC. Under its current form, any ITC not fully utilized is lost, yet businesses must repay the ITC back in year of sale whether it has been utilized or not. Forcing the two year use of the credit, especially on newer projects, does not let investors realize the full benefit of the credit.

Including real estate in the definition of inventory for the purposes of "purchases from other firms" -
Representative Andrew Kandrevas (D - Southgate). This legislation would include real estate being held for
development purposes as inventory and counted against a property owner's gross receipts just as a manufacturer can reduce their liability through their inventory of parts or products.

Allowing common area maintenance to be deducted from gross receipts - Representative Roy Schmidt
(D - Grand Rapids). This legislation will allow common area maintenance receipts to be deducted from gross receipts when calculating one's taxable liability. Property owners should not be taxed on receipts that represent cost reimbursements rather than rental or fee income.

Offering a fresh start on depreciation on all commercial real estate beginning January 1, 2008 - Senator Tony Stamas (R - Midland). Under the SBT, commercial property did not receive the benefit of depreciation. When sold under the MBT, that property will be taxed on the difference between their federal adjusted basis and the sales price; taxed on a deduction that was never received. The basis of each property should be given a "fresh start" to all the property's MBT gain to be calculated based on depreciation deductions actually received for state tax purposes.

Expect to hear more about this legislation after the Fiscal Year 2010 budget is in place by October 1st. Please stay tuned and watch for any potential Call to Action messeges regarding the passage of this very important legislation.

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