Bill Summary – FastDemocracy

HOUSE BILL NO. 5941
     September 17, 2024, Introduced by Reps. Aragona, Bruck, Borton, DeBoyer, DeBoer, Johnsen,
        Rigas, Harris, Martin, Fox, Alexander, Beson, Smit, Kuhn, Wozniak and Schmaltz and referred
        to the Committee on Tax Policy.
          A bill to amend 1967 PA 281, entitled
    "Income tax act of 1967,"
    by amending section 30 (MCL 206.30), as amended by 2023 PA 4.
                      THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
       Sec. 30. (1) "Taxable income" means, for a person other than a
 corporation, estate, or trust, adjusted gross income as defined in
 the internal revenue code subject to the following adjustments
 under this section:
       (a) Add gross interest income and dividends derived from
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 obligations or securities of states other than Michigan, in the
 same amount that has been excluded from adjusted gross income less
 related expenses not deducted in computing adjusted gross income
 because of section 265(a)(1) of the internal revenue code.
       (b) Add taxes on or measured by income to the extent the taxes
 have been deducted in arriving at adjusted gross income including
 any direct or indirect allocated share of taxes paid by a flow-
 through entity under part 4.
       (c) Add losses on the sale or exchange of obligations of the
 United States government, the income of which this state is
 prohibited from subjecting to a net income tax, to the extent that
 the loss has been deducted in arriving at adjusted gross income.
       (d) Deduct, to the extent included in adjusted gross income,
 income derived from obligations, or the sale or exchange of
 obligations, of the United States government that this state is
 prohibited by law from subjecting to a net income tax, reduced by
 any interest on indebtedness incurred in carrying the obligations
 and by any expenses incurred in the production of that income to
 the extent that the expenses, including amortizable bond premiums,
 were deducted in arriving at adjusted gross income.
       (e) Deduct, to the extent included in adjusted gross income,
 the following:
       (i) Compensation, including retirement or pension benefits,
 received for services in the Armed Forces of the United States.
       (ii) Retirement or pension benefits under the railroad
 retirement act of 1974, 45 USC 231 to 231v.
       (iii) Beginning January 1, 2012, retirement Retirement or
 pension benefits received for services in the Michigan National
 Guard.
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       (f) Deduct the following to the extent included in adjusted
 gross income subject to the limitations and restrictions set forth
 in subsection (9), (10), or (11), as applicable:
       (i) Retirement or pension benefits received from a federal
 public retirement system or from a public retirement system of or
 created by this state or a political subdivision of this state.
       (ii) Retirement or pension benefits received from a public
 retirement system of or created by another state or any of its
 political subdivisions if the income tax laws of the other state
 permit a similar deduction or exemption or a reciprocal deduction
 or exemption of a retirement or pension benefit received from a
 public retirement system of or created by this state or any of the
 political subdivisions of this state.
       (iii) Social Security benefits as defined in section 86 of the
 internal revenue code.
       (iv) Beginning on and after January 1, 2007, retirement
 Retirement or pension benefits not deductible under subparagraph (i)
 or subdivision (e) from any other retirement or pension system or
 benefits from a retirement annuity policy in which payments are
 made for life to a senior citizen, to a maximum of $42,240.00 for a
 single return and $84,480.00 for a joint return. The maximum
 amounts allowed under this subparagraph shall be reduced by the
 amount of the deduction for retirement or pension benefits claimed
 under subparagraph (i) or subdivision (e) and by the amount of a
 deduction claimed under subdivision (p). For the 2008 tax year and
 each tax year after 2008, the maximum amounts allowed under this
 subparagraph shall be adjusted by the percentage increase in the
 United States Consumer Price Index for the immediately preceding
 calendar year. The department shall annualize the amounts provided
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 in this subparagraph as necessary.
       (v) The amount determined to be the section 22 amount eligible
 for the elderly and the permanently and totally disabled credit
 provided in section 22 of the internal revenue code.
       (g) Adjustments resulting from the application of section 271.
       (h) Adjustments with respect to estate and trust income as
 provided in section 36.
       (i) Adjustments resulting from the allocation and
 apportionment provisions of chapter 3.
       (j) Deduct the following payments made by the taxpayer in the
 tax year:
       (i) The amount of a charitable contribution made to the advance
 tuition payment fund created under section 9 of the Michigan
 education trust act, 1986 PA 316, MCL 390.1429.
       (ii) The amount of payment made under an advance tuition
 payment contract as provided in the Michigan education trust act,
 1986 PA 316, MCL 390.1421 to 390.1442.
       (iii) The amount of payment made under a contract with a private
 sector investment manager that meets all of the following criteria:
       (A) The contract is certified and approved by the board of
 directors of the Michigan education trust to provide equivalent
 benefits and rights to purchasers and beneficiaries as an advance
 tuition payment contract as described in subparagraph (ii).
       (B) The contract applies only for a state institution of
 higher education as defined in the Michigan education trust act,
 1986 PA 316, MCL 390.1421 to 390.1442, or a community or junior
 college in Michigan.
       (C) The contract provides for enrollment by the contract's
 qualified beneficiary in not less than 4 years after the date on
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 which the contract is entered into.
       (D) The contract is entered into after either of the
 following:
       (I) The purchaser has had the purchaser's offer to enter into
 an advance tuition payment contract rejected by the board of
 directors of the Michigan education trust, if the board determines
 that the trust cannot accept an unlimited number of enrollees upon
 an actuarially sound basis.
       (II) The board of directors of the Michigan education trust
 determines that the trust can accept an unlimited number of
 enrollees upon an actuarially sound basis.
       (k) If an advance tuition payment contract under the Michigan
 education trust act, 1986 PA 316, MCL 390.1421 to 390.1442, or
 another contract for which the payment was deductible under
 subdivision (j) is terminated and the qualified beneficiary under
 that contract does not attend a university, college, junior or
 community college, or other institution of higher education, add
 the amount of a refund received by the taxpayer as a result of that
 termination or the amount of the deduction taken under subdivision
 (j) for payment made under that contract, whichever is less.
       (l) Deduct from the taxable income of a purchaser the amount
 included as income to the purchaser under the internal revenue code
 after the advance tuition payment contract entered into under the
 Michigan education trust act, 1986 PA 316, MCL 390.1421 to
 390.1442, is terminated because the qualified beneficiary attends
 an institution of postsecondary education other than either a state
 institution of higher education or an institution of postsecondary
 education located outside this state with which a state institution
 of higher education has reciprocity.
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       (m) Add, to the extent deducted in determining adjusted gross
 income, the net operating loss deduction under section 172 of the
 internal revenue code.
       (n) Deduct a net operating loss deduction for the taxable year
 as determined under section 172 of the internal revenue code
 subject to the modifications under section 172(b)(2) of the
 internal revenue code and subject to the allocation and
 apportionment provisions of chapter 3 for the taxable year in which
 the loss was incurred.
       (o) Deduct, to the extent included in adjusted gross income,
 benefits from a discriminatory self-insurance medical expense
 reimbursement plan.
       (p) Beginning on and after January 1, 2007, subject Subject to
 any limitation provided in this subdivision, a taxpayer who is a
 senior citizen may deduct to the extent included in adjusted gross
 income, interest, dividends, and capital gains received in the tax
 year not to exceed $9,420.00 for a single return and $18,840.00 for
 a joint return. The maximum amounts allowed under this subdivision
 shall be reduced by the amount of a deduction claimed for
 retirement or pension benefits under subdivision (e) or a deduction
 claimed under subdivision (f)(i), (ii), (iv), or (v). For the 2008 tax
 year and each tax year after 2008, the maximum amounts allowed
 under this subdivision shall be adjusted by the percentage increase
 in the United States Consumer Price Index for the immediately
 preceding calendar year. The department shall annualize the amounts
 provided in this subdivision as necessary. Beginning January 1,
 2012, the deduction under this subdivision is not available to a
 senior citizen born after 1945.
       (q) Deduct, to the extent included in adjusted gross income,
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 all of the following:
       (i) The amount of a refund received in the tax year based on
 taxes paid under this part and any direct or indirect allocated
 share of a refund received by a flow-through entity under part 4.
       (ii) The amount of a refund received in the tax year based on
 taxes paid under the city income tax act, 1964 PA 284, MCL 141.501
 to 141.787.
       (iii) The amount of a credit received in the tax year based on a
 claim filed under sections 520 and 522 to the extent that the taxes
 used to calculate the credit were not used to reduce adjusted gross
 income for a prior year.
       (r) Add the amount paid by the state on behalf of the taxpayer
 in the tax year to repay the outstanding principal on a loan taken
 on which the taxpayer defaulted that was to fund an advance tuition
 payment contract entered into under the Michigan education trust
 act, 1986 PA 316, MCL 390.1421 to 390.1442, if the cost of the
 advance tuition payment contract was deducted under subdivision (j)
 and was financed with a Michigan education trust secured loan.
       (s) Deduct, to the extent included in adjusted gross income,
 any amount, and any interest earned on that amount, received in the
 tax year by a taxpayer who is a Holocaust victim as a result of a
 settlement of claims against any entity or individual for any
 recovered asset pursuant to the German act regulating unresolved
 property claims, also known as Gesetz zur Regelung offener
 Vermogensfragen, as a result of the settlement of the action
 entitled In re: Holocaust victim assets litigation, CV-96-4849, CV-
 96-5161, and CV-97-0461 (E.D. NY), or as a result of any similar
 action if the income and interest are not commingled in any way
 with and are kept separate from all other funds and assets of the
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 taxpayer. As used in this subdivision:
       (i) "Holocaust victim" means a person, or the heir or
 beneficiary of that person, who was persecuted by Nazi Germany or
 any Axis regime during any period from 1933 to 1945.
       (ii) "Recovered asset" means any asset of any type and any
 interest earned on that asset, including, but not limited to, bank
 deposits, insurance proceeds, or artwork owned by a Holocaust
 victim during the period from 1920 to 1945, withheld from that
 Holocaust victim from and after 1945, and not recovered, returned,
 or otherwise compensated to the Holocaust victim until after 1993.
       (t) Deduct all of the following:
       (i) To the extent not deducted in determining adjusted gross
 income, contributions made by the taxpayer in the tax year less
 qualified withdrawals made in the tax year from education savings
 accounts, calculated on a per education savings account basis,
 pursuant to the Michigan education savings program act, 2000 PA
 161, MCL 390.1471 to 390.1486, not to exceed a total deduction of
 $5,000.00 for a single return or $10,000.00 for a joint return per
 tax year. The amount calculated under this subparagraph for each
 education savings account shall not be less than zero.
       (ii) To the extent included in adjusted gross income, interest
 earned in the tax year on the contributions to the taxpayer's
 education savings accounts if the contributions were deductible
 under subparagraph (i).
       (iii) To the extent included in adjusted gross income,
 distributions that are qualified withdrawals from an education
 savings account to the designated beneficiary of that education
 savings account.
       (u) Add, to the extent not included in adjusted gross income,
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 the amount of money withdrawn by the taxpayer in the tax year from
 education savings accounts, not to exceed the total amount deducted
 under subdivision (t) in the tax year and all previous tax years,
 if the withdrawal was not a qualified withdrawal as provided in the
 Michigan education savings program act, 2000 PA 161, MCL 390.1471
 to 390.1486. This subdivision does not apply to withdrawals that
 are less than the sum of all contributions made to an education
 savings account in all previous tax years for which no deduction
 was claimed under subdivision (t), less any contributions for which
 no deduction was claimed under subdivision (t) that were withdrawn
 in all previous tax years.
       (v) A taxpayer who is a resident tribal member may deduct, to
 the extent included in adjusted gross income, all nonbusiness
 income earned or received in the tax year and during the period in
 which an agreement entered into between the taxpayer's tribe and
 this state pursuant to section 30c of 1941 PA 122, MCL 205.30c, is
 in full force and effect. As used in this subdivision:
       (i) "Business income" means business income as defined in
 section 4 and apportioned under chapter 3.
       (ii) "Nonbusiness income" means nonbusiness income as defined
 in section 14 and, to the extent not included in business income,
 all of the following:
       (A) All income derived from wages whether the wages are earned
 within the agreement area or outside of the agreement area.
       (B) All interest and passive dividends.
       (C) All rents and royalties derived from real property located
 within the agreement area.
       (D) All rents and royalties derived from tangible personal
 property, to the extent the personal property is utilized within
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 the agreement area.
         (E) Capital gains from the sale or exchange of real property
 located within the agreement area.
         (F) Capital gains from the sale or exchange of tangible
 personal property located within the agreement area at the time of
 sale.
         (G) Capital gains from the sale or exchange of intangible
 personal property.
         (H) All pension income and benefits, including, but not
 limited to, distributions from a 401(k) plan, individual retirement
 accounts under section 408 of the internal revenue code, or a
 defined contribution plan, or payments from a defined benefit plan.
         (I) All per capita payments by the tribe to resident tribal
 members, without regard to the source of payment.
         (J) All gaming winnings.
         (iii) "Resident tribal member" means an individual who meets all
 of the following criteria:
         (A) Is an enrolled member of a federally recognized tribe.
         (B) The individual's tribe has an agreement with this state
 pursuant to section 30c of 1941 PA 122, MCL 205.30c, that is in
 full force and effect.
         (C) The individual's principal place of residence is located
 within the agreement area as designated in the agreement under sub-
 subparagraph (B).
         (w) Eliminate all of the following:
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