Do you own a business in Michigan or want to start one? If so, it’s crucial to understand how Michigan’s business taxes work—including the state’s business tax incentives.
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Since replacing the Michigan Business Tax with Michigan’s Corporate Income Tax (CIT) in 2012, Michigan did away with most of its business tax incentives, tax credits, and tax exemptions. However, there are still a handful of programs remaining.
Keep reading to see what they are—and find out if you’re eligible to apply.
Business tax incentives, credits, and exemptions in Michigan
Industrial Facilities Exemption
The Industrial Facilities Exemption is a tax incentive available to Michigan manufacturers that renovate or expand aging facilities, build new facilities, or promote the establishment of high-tech facilities.
The following are eligible for tax exemption:
- Industrial plants that primarily manufacture or process goods or materials by physical or chemical change
- Other facilities the manufacturing company uses, including offices, engineering facilities, research and development labs, high-tech facilities, and warehousing or parts distribution places
- Buildings, building improvements, machinery, equipment, furniture and fixtures, owned or leased real and personal property
Tax abatements can be 50% up to 100%, depending on the property in question. Learn more about the exemption.
Transformational Brownfields Plan
Michigan’s Transformational Brownfields Plan (TBP) gives developer companies the opportunity to invest in large-scale brownfield rehabilitation projects—and take tax breaks. Companies have to apply to be part of the program and outline their plan for revitalizing a brownfield that will stimulate local economic development.
Approved projects can take advantage of the following tax benefits:
- Construction Period Income Tax Capture Revenues: Funds equal to the amount of income tax levied and imposed in a calendar year on wages paid to individuals physically present and working within the eligible property for the construction, renovation, or other improvement of eligible property that is an eligible activity within the TBP.
- Construction Period Sales Tax and Use Tax Exemptions: A sales tax exemption on the purchase of tangible personal property used in brownfield redevelopment activities and a use tax exemption on tangible personal property acquired by someone engaged in the business of altering, repairing, or improving real estate for others in a TBP project.
- Income Tax Capture Revenues: Funds equal to the amount of aggregate income tax from individuals domiciled within the eligible property subject to a TBP exceeds the initial income tax value.
- Withholding Tax Capture Revenues: The amount for each calendar year by which the income tax withheld from individuals employed within the eligible property subject to a TBP exceeds the initial withholding tax value.
- Sales and Use Tax Capture Revenues: Funds equal to the amount for each calendar year by which the sales tax and use tax collected from persons within the eligible property exceeds the initial sales and use tax value.
Learn more about the TBP and see the application checklist here.
State Historic Preservation Tax Credits
Michigan has its own State Historic Preservation Tax Credit program available to businesses that restore designated historic properties in the state. To qualify for the program, a business must:
- Take on a small commercial project (with expenses up to $2 million)
- Restore a property listed in the National Register of Historic Places, the State Register of Historic Sites, or be in a local historic district
- Complete work in line with proposed work must be in compliance with the Secretary of the Interior’s Standards for Rehabilitation
Get more information on the program here.
Compensation and Investment Tax Credits
The Compensation Credit gives Michigan businesses tax credits on their employee wages, while the Investment Tax Credit credits Michigan businesses for making capital investments in their operations.
The compensation credit amount is equal to 0.37% of an employee’s total compensation (including benefits) for work performed in Michigan. The investment credit amount is 2.9% of a business’s capital investment. Compensation and investment credits are limited to 65% of your business’s tax liability before credits.
See the tax form here for instructions on how to claim the credits.
Michigan Research and Development Tax Credit
The Michigan Research and Development (R&D) Tax Credit rewards Michigan companies for investing in qualified R&D activities in the state.
For businesses with 250 or more employees, the tax credit amount is equal to 10% of their qualified research expenditures (QRE), exceeding the base amount up to a $2 million cap. For businesses with fewer than 250 employees, the tax credit amount is equal to 15% of its qualified research expenditures (QRE), exceeding the base amount up to a $250,000 cap.
Businesses that collaborate with a research university in Michigan can get an additional 5% of the QRE exceeding a base amount up to a $200,000 cap.
As with the federal R&D tax credit, qualified R&D activities in Michigan must meet the following requirements:
- Be technological in nature;
- Used to improve the functionality, performance, reliability, or quality of a new or existing business component;
- Used to gather information that will help eliminate uncertainty around the development of a product; and
- Involve a process of experimentation, such as testing or modeling.
Search the Michigan Department of Treasury website for R&D tax forms.
Related: Tips on how to use the R&D credit
Financing resources for small businesses in Michigan
What Michigan lacks in business tax incentives, the state makes up for in business financing programs. Established and aspiring Michigander business owners can take advantage of a range of loan and grant opportunities.
For a full breakdown, read through Gusto’s guide to business grants and loans in the Great Lake state.
Want more resources? Here are three helpful blog posts to check out:
