Michigan lawmakers in both the House and the Senate overwhelmingly approved a measure that aims to ease the tax burden on small businesses in the state.
When filing federal taxes, large corporations are allowed unlimited state and local tax (SALT) deductions. However, for small businesses, considered flow-through entities, deductions are capped at $10,000.
According to the Michigan Chamber of Commerce, this provision results in tax rates that are often 1.3 to 1.6 percent higher for the owner of the small business.
Therefore, House Bill 5376, sponsored by State Representative Mark Tisdel (R-Rochester Hills) would create an income exemption, so that owners of businesses making the election are not subject to double taxation.
“Small businesses are so crucial within our local communities — selling goods, providing services and employing workers in good local jobs,” said Tisdel. “This new tax option will provide balance between small and large businesses on a federal tax deduction. Local businesses will be able to expand their savings, which can be used to benefit the Michigan economy.”
The bill would also establish an optional entity-level tax, which flow-through entities could pay instead of the individual state income tax.
Tisdel previously introduced a similar measure that also received overwhelming bipartisan support. However, the legislation was vetoed by Governor Gretchen Whitmer. Whitmer requested additional funding for the Department of Treasury to cover the costs associated with implementing the measure.
With the added funds, Whitmer is likely to approve the potential law.
“Please support HB 5376 (formerly HB 4288), legislation that will restore tax parity between large C-corporations and smaller ‘pass-through’ businesses. HB 5376 is a re-introduction of HB 4288 which was vetoed by Governor Whitmer. Governor Whitmer requested a $5 million appropriation for implementation costs, which was subsequently included in the most recent budget negotiation and signed into law,” the Michigan Chamber of Commerce said in a memo.
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