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Commercial Realtors Eye MBT Relief
GRAND RAPIDS — Some players in the commercial real estate business are said to be facing an increase of 300 to 600 percent in the amount paid in Michigan business tax, but relief is reportedly on the way.
It's just that amending the new Michigan Business Tax is a long and "onerous" process, according to one real estate professional.
The Wisinski Group held an informational lunch for some of its clients and prospective clients last week where vice president Stu Kingma and chairman/CEO Stanley J. Wisinski III went over the latest information they had on the ramifications of the MBT, which took effect Jan. 1.
Also invited to speak were Ronald J. Kaley and Edward S. Kisscorni from the accounting firm of Echelbarger, Himebaugh, Tamm & Co.
Kisscorni jokingly referred to the MBT as the "$3 billion gorilla" because there is speculation that it will bring in more than $3 billion to the state treasury, although it purportedly was not supposed to raise more than the $1.8 billion brought in during the last year of the much-reviled Single Business Tax, which the MBT replaced.
Kingma said that under some circumstances, a commercial real estate company may be expected to pay 300 to 600 percent more in state business tax under the MBT, mainly because of peculiarities in the lengthy and complicated text of the law.
Kisscorni said many businesses that pay their state business taxes on an annual basis won't fully comprehend the impact until the tax is due next April 30.
Part of the MBT is a modified gross receipts tax, which brings up a lot of issues for a real estate broker, according to Kisscorni. For example, payment received for sale of a parcel of real estate will be taxed in its entirety, not just the portion of the payment that is actual profit. Another would be common area maintenance payments received by the property owner from a tenant, which would be taxed even though the property owner cannot keep that money.
According to Kingma, several state legislators, including Rep. Michael Sak, D-Grand Rapids, are working on five amendments that would provide relief to the commercial real estate industry. Those would: reinstate the investment tax credit on a 10-year carry forward; exclude common area maintenance from gross receipts; include real estate in the definition of inventory; allow a loss to be carried forward to a following year; and allow depreciation and Section 179 expense as calculated for federal tax purposes.
Kingma said it is an "onerous process" to get amendments to the MBT introduced to the Legislature, but "if $3 billion really does come rolling in, versus $1.8 billion, you're going to hear a louder outcry from the business community."
A question was raised about whether or not it was more advantageous for a business to be organized as a limited liability corporation or an S corporation. Kaler said it was not certain yet which method would be more beneficial, although both he and Kisscorni agreed that an S corporation will pay more under the MBT.
Another attendee at the meeting asked if a lot of leases were being rewritten so that common area maintenance payments would not flow through the landlord's books, but Wisinski said they had not been seeing that, probably because the impact of the MBT really isn't known yet to many companies.
"I think there's a surprise coming," added Kingma, who heads the Wisinski Group's Industrial Services division. He is also the current president of the Commercial Alliance of Realtors of West Michigan.
He said he was aware of two situations where the MBT had a negative influence on major business decisions. One was a retail company that became aware of the unitary tax provision of the MBT and decided not to build any more new stores in Michigan at this time. The other was a major property owner in Grand Rapids who had an offer on a parcel earlier this year but, due to the potential tax liability under the MBT, "that transaction did not take place."
Kisscorni said about 27 amendments to the MBT have been submitted since it was signed into law in July 2007, and new credits under the MBT keep popping up. A number of them have been added to apparently benefit specific companies, including Meijer Inc., Spartan Stores and Michigan International Speedway near Jackson. Another MBT credit that has received a lot of publicity lately is the film industry production credit. Kisscorni said the latest one he learned about is a credit for industrial use of polycrystalline silicone, which is used in the manufacture of solar panels.
Kisscorni said he expects more amendments to the law will crop up after the November election, and perhaps still more after the 2009 tax season ends. He said there ultimately may be reconsideration of the Michigan business tax law by the Legislature in 2010.