Calculation of Single Business Tax

The Single Business Tax is a modified value added tax. The tax base is value added in the process of business activity; the rate is 1.9 percent. As a practical matter the Single Business Tax equals .036% of gross receipts. Recently signed legislation begins the gradual phase out of this tax over the next 23 years– without substitution – beginning in 1999. Revenues of less than $250,000 are not required to file.

Sum of:

Compensation (wages, salaries, benefits [not including unemployment insurance, workers’ compensation insurance, and social security taxes])
Federal Adjusted Gross Income
Net Interest Paid (interest paid less interest received)
Depreciation (as claimed on federal income tax return)

Equals: Tax Base

Multiply by:

Apportionment Factor (the weighting of the sales [90%], property [5%], and payroll [5%] factors)
Payroll Factor: Proportion of total payroll in Michigan
Property Factor: Proportion of total property in Michigan
Sales Factor: Proportion of total sales in Michigan

Equals: Apportioned Tax Base

Minus:

Capital Acquisition Deduction (The apportioned value of real and personal property acquired in Michigan during the year. Apportionment of property acquisition uses the weighted apportionment factors described above.)
Statutory Exemption (An exemption of $45,000, which is reduced for firms with modified business income exceeding $45,000, declining to $0 when modified business income exceeds $67,500.)

Equals: Adjusted Tax Base

Minus:

Excess Compensation Reduction (The amount by which total compensation exceeds 63 percent of the tax base prior to apportionment. The reduction cannot be less than zero or exceed 37 percent of the adjusted tax base.)
Gross Receipts Reduction (The amount by which the adjusted tax base exceeds 50 percent of gross receipts. This ensures that the tax base does not exceed 50 percent of gross receipts.)

Multiplied by: 1.9 percent tax rate

Equals: Tax Before Credits

Minus:

Small Business/Low Profit Credit (For firms with adjusted business income below $475,000, gross receipts below $10 million, and adjusted business income to any business owner below $95,000. The credit may be up to 100 percent of liability at this point and declines as business income increases. Eligible businesses claiming this credit have the option of paying an alternative 2 percent tax on adjusted business income.)
Educational Contributions Credits (Contributions to Michigan public colleges, universities, and libraries. It is limited to the lesser of 5 percent of SBT liability, half the contribution, or $5,000.)
Unincorporated Business Credit (Unincorporated businesses may claim a credit of 10 percent if net income exceeds $40,000; 15 percent if net income is between $20,000 and $40,000; and 20 percent if net income is below $20,000.)
Brownfield Redevelopment Credit (A credit equal to 10 percent of qualified investments, including cleanup, construction, improvements, and demolition of property, in designated Brownfield Redevelopment Zones. The credit is not refundable, but may be carried forward for up to 10 years. The maximum allowable credit is $1 million.)
Registered Apprenticeship Tax Credit (Businesses may claim a credit for expenses related to qualified youth apprenticeship training. A $2,000 maximum credit is allowed for each qualified apprentice.)

Equals: Single Business Tax Liability

Alternative Tax:
Businesses eligible for the Small Business/Low Profit Credit have the option of paying an alternative tax of 2 percent on adjusted business income.

Note:
This is meant as a detailed guide to the calculation of the Single Business Tax. However, in the interest of brevity and clarity, some details were omitted. The instructions for completing the SBT return should be consulted for precise calculations of SBT liability.

Source: What is the Single Business Tax, January 1999, Michigan Department of Treasury