On June 13, 2019, Michigan introduced Senate Bill 378 that would create a refundable research tax credit (RTC) for specific Automotive Industry taxpayers for tax years beginning after December 31, 2019. The current research tax credit equals 1.9% of Qualified Research Expenses (QREs – following the federal definitions for Michigan only). The proposed credit provides up to 12% of expenses over a base amount as outlined below. Companies and facilities along with QREs are treated differently depending on geographical location in Qualified Opportunity Zones (OZ). The base period is defined as the three prior taxable years.
Taxpayers compute and add each of the following:
- For QREs in an OZ for the taxable year and the base period, the RTC is 12% of the excess QREs over 50% of the base period average in the OZ.
- For QREs in an OZ that were not in an OZ for each of the 3 prior years, the RTC is 6.4% of the excess credits over 50% of the OZ base.
- For QREs that are outside an OZ during a taxable year and the base period, the RTC is 5% of the excess credit over 50% of the base period average.
- If the company did not have Michigan QREs in any of the 3 prior years, the RTC is 2.14% of the excess credit over 50% of the base period average.
Based on the current draft legislation the proposed credit may be substantially higher than the current Michigan credit for companies paying Michigan Business Tax.