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With recently passed legislation, Michigan banks need to be reminded they may see changes to their tax base calculations for tax years beginning in 2019. On the docket since 2016, the amendment of Chapter 13 of the Income Tax Act was voted in favor by the State Senate, which imposes a franchise tax on financial institutions, including community banks.
Here are four changes the legislation amendments make:
1. Tax Base: A financial institution’s tax base is now the total equity of the financial institutions or the top-tiered parent entity, in the case of a unitary business group of financial institutions.
When dealing with a unitary business group of financial institutions, the tax base is subject to the following deductions before allocation or apportionment:
2. Definition Clarification: Two terms were clarified including top-tiered parent equity and total equity capital.
A “top-tiered parent entity” is the highest-level entity within a unitary business group that must file with a regulatory agency using Federal Financial Institutions Examination Council (FFIEC) standards.
“Total equity capital” means the amount reported on various forms designated by the FFIEC and filed with:
3. Change of Tax Base Determination Timing: The tax base for tax years beginning after 2020, will be required to be as of the close of the tax year, rather than the current method, still in place for tax years beginning before 2021, based on a five-year average.
4. Addition of Unitary Business Group Provision: A special provision is applied if a U.S. person included in a unitary business group of financial institutions or a financial institution combined return is subject to:
Any business income or equity capital attributable to that person must be eliminated from the group’s total equity capital. Also, any sales or business attributable to that person must be eliminated from the group’s apportionment formula.
Wondering how this will impact your bank? Contact Doeren Mayhew’s bank CPAs and advisors to perform an impact calculation for you.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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