| 1 | 1 | | HOUSE BILL NO. 5187 A bill to create a research and development tax credit program; to provide for the administration of the research and development tax credit program; to encourage research and development in this state; to determine eligibility and enter into agreements for certain tax credits; to prescribe the powers and duties of certain state agencies, boards, and departments; to assess and collect certain fees. the people of the state of michigan enact: Sec. 1. This act may be cited as the "research and development tax credit program act". Sec. 3. As used in this act: (a) "Authorized business" means an eligible business that has met the requirements of this act and with which the department has entered into a written agreement for a research and development tax credit. (b) "Base amount" means the average annual amount of research and development expenses incurred by the eligible business in this state during the 3 tax years immediately preceding the first tax year for which the research and development credit is being claimed under the written agreement. An eligible business with no prior research and development spending in this state has a base amount of zero. The base amount remains the same for the duration of a written agreement. (c) "Certificate of tax credit" means the certificate issued to an authorized business by the department under section 9 to verify that the authorized business is eligible for a research and development tax credit. (d) "Department" means the department of treasury. (e) "Eligible business" means a business that proposes to increase research and development spending in this state through projects that have the potential for significant technological advancements, job creation, and positive economic impact as follows: (i) For a business with 250 or more employees, an increase of at least $500,000.00 per year above the base amount. (ii) For a business with less than 250 employees, an increase of at least $100,000.00 per year above the base amount. (f) "Qualified research" means that term as defined in 26 USC 41. (g) "Qualified research services" means qualified services as that term is defined in 26 USC 41. (h) "Qualified research supplies" means supplies as that term is defined in 26 USC 41 that are used in the conduct of qualified research. (i) "Research and development expenses" means qualified research expenses as that term is defined in 26 USC 41. (j) "Research and development spending" means spending for research and development expenses. (k) "Research and development tax credit" means a research and development tax credit allowed under section 277, 277a, 277b, 677, 677a, or 677b of the income tax act of 1967, 1967 PA 281, MCL 206.277, 206.277a, 206.277b, 206.677, 206.677a, and 206.677b. (l) "Research and development tax credit program" means the research and development tax credit program created under section 5. (m) "Written agreement" means a written agreement made between the eligible business and the department under this act. Sec. 5. (1) The department shall create and administer a research and development tax credit program to authorize the receipt of research and development tax credits by authorized businesses. The department shall develop and use a detailed application, approval, compliance, and certification process published and available on the department's website. (2) An eligible business may apply to the department, in the form and manner prescribed by the department, to enter into a written agreement under section 7 that authorizes the receipt of a research and development tax credit. (3) The department may request information, in addition to that contained in an application, if needed to permit the department to discharge its responsibilities under this act. Sec. 7. (1) After receipt of an application under section 5, the department may enter into a written agreement with an eligible business for research and development tax credits if the department determines that all of the following are met: (a) The eligible business proposes to invest in and maintain research and development spending in this state that is above the base amount as follows: (i) For a business with 250 or more employees, an increase of at least $500,000.00 per year above the base amount. (ii) For a business with less than 250 employees, an increase of at least $100,000.00 per year above the base amount. (b) The eligible business's plans for investment in research and development in this state are economically sound. (c) The investment in research and development by the eligible business will benefit the people of this state by increasing opportunities and strengthening the economy of the state. (2) If the department determines that the eligible business satisfies all of the requirements under subsection (1), subject to section 13, the department shall determine the amount and duration of the research and development tax credit to be authorized under this act and shall enter into a written agreement as provided in this section. (3) A written agreement between an eligible business and the department must include, but is not limited to, all of the following: (a) A description of the business location that is the subject of the agreement. (b) Conditions on which the authorized business designation is made. (c) The duration of the agreement and the amount of the research and development tax credit that may be claimed each tax year for the duration of the agreement, including the calculation of the base amount. (d) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business or the loss or reduction of the research and development tax credit. (e) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and eligibility to claim the research and development tax credit. (4) On execution of a written agreement, an eligible business is an authorized business. On execution of the written agreement, the research and development tax credit as specified in this act and in the written agreement is binding on this state. (5) If there is a proposed reorganization, merger, or other change of ownership of the authorized business for which reimbursement will continue pursuant to a written agreement, the approval of the department is required before the assignment or transfer of the written agreement. Sec. 9. (1) An authorized business is eligible for a research and development tax credit as provided in the written agreement. (2) The department shall issue a certificate of tax credit each year to an authorized business that is eligible for a research and development tax credit. The certificate of tax credit must state all of the following: (a) That the eligible business is an authorized business. (b) The amount of the research and development tax credit for the designated tax year. (c) The authorized business's federal employer identification number or the Michigan department of treasury number assigned to the authorized business. Sec. 11. In determining whether qualified research and development expenses are incurred in this state, the department shall consider all of the following factors: (a) The place where the qualified research services are performed or the qualified research is conducted. (b) The residence or business location of the person or persons performing the qualified research services or conducting the qualified research. (c) The place where qualified research supplies are consumed. (d) Any other factors relevant to determining where qualified research occurred. Sec. 13. (1) The department shall not enter into written agreements that authorize more than $100,000,000.00 in total research and development credits under this act for a single calendar year. To the extent the department receives applications from eligible businesses with less than 250 employees, not less than $25,000,000.00 of the $100,000,000.00 each calendar year must be approved for those eligible businesses. (2) In determining the amount of the research and development credit to be authorized under the written agreement, the department shall comply with amounts and limitations established under section 277, 277a, 277b, 677, 677a, or 677b of the income tax act of 1967, 1967 PA 281, MCL 206.277, 206.277a, 206.277b, 206.677, 206.677a, and 206.677b, whichever is applicable. The department shall not enter into a written agreement under this act with a duration of more than 5 years. Sec. 15. (1) An authorized business shall file any returns and reports required under the written agreement, this act, or the income tax act of 1967, 1967 PA 281, MCL 206.1 to 206.847, and shall provide any other information reasonably requested by the department. (2) The department may charge an authorized business a reasonable fee for administrative expenses. The fee must not exceed 5% of the amount of the research and development tax credit received by the authorized business. Sec. 17. (1) After a written agreement expires, the eligible business that was party to the written agreement may reapply under section 5, but the base amount must be recalculated and a new written agreement executed. (2) As used in this section, "expires" means a written agreement terminates on its scheduled expiration date. Expires does not include the termination of a written agreement due to a breach of the written agreement by the authorized business. Sec. 19. By July 1 of each year, the department shall submit to each member of the legislature, the governor, the clerk of the house of representatives, the secretary of the senate, and the senate and house fiscal agencies an annual report concerning the operation and effectiveness of the research and development tax credits program. The report shall include all of the following: (a) A brief assessment of the overall effectiveness of the research and development tax credit program created under this act. (b) The number of eligible business applying to receive a research and development tax credit. (c) The number of eligible businesses that the department has entered into written agreements under this act. (d) The name of the authorized businesses and the amount and duration of the authorized research and development tax credits. (e) A description of the authorized business's investment in research and development in this state that is the basis for the research and development tax credit. (f) The value of all certificate of tax credits issued under this act for the immediately preceding calendar year. Enacting section 1. This act does not take effect unless all of the following bills of the 102nd Legislature are enacted into law: (a) House Bill No. 5100. (b) House Bill No. 5101. (c) House Bill No. 5102. |
|---|
| 2 | 2 | | |
|---|
| 3 | 3 | | |
|---|
| 4 | 4 | | |
|---|
| 5 | 5 | | |
|---|
| 6 | 6 | | |
|---|
| 7 | 7 | | |
|---|
| 8 | 8 | | |
|---|
| 9 | 9 | | |
|---|
| 10 | 10 | | |
|---|
| 11 | 11 | | |
|---|
| 12 | 12 | | |
|---|
| 13 | 13 | | |
|---|
| 14 | 14 | | |
|---|
| 15 | 15 | | |
|---|
| 16 | 16 | | |
|---|
| 17 | 17 | | |
|---|
| 18 | 18 | | |
|---|
| 19 | 19 | | |
|---|
| 20 | 20 | | |
|---|
| 21 | 21 | | |
|---|
| 22 | 22 | | |
|---|
| 23 | 23 | | |
|---|
| 24 | 24 | | |
|---|
| 25 | 25 | | |
|---|
| 26 | 26 | | |
|---|
| 27 | 27 | | HOUSE BILL NO. 5187 |
|---|
| 28 | 28 | | |
|---|
| 29 | 29 | | |
|---|
| 30 | 30 | | |
|---|
| 31 | 31 | | A bill to create a research and development tax credit program; to provide for the administration of the research and development tax credit program; to encourage research and development in this state; to determine eligibility and enter into agreements for certain tax credits; to prescribe the powers and duties of certain state agencies, boards, and departments; to assess and collect certain fees. |
|---|
| 32 | 32 | | |
|---|
| 33 | 33 | | the people of the state of michigan enact: |
|---|
| 34 | 34 | | |
|---|
| 35 | 35 | | Sec. 1. This act may be cited as the "research and development tax credit program act". |
|---|
| 36 | 36 | | |
|---|
| 37 | 37 | | Sec. 3. As used in this act: |
|---|
| 38 | 38 | | |
|---|
| 39 | 39 | | (a) "Authorized business" means an eligible business that has met the requirements of this act and with which the department has entered into a written agreement for a research and development tax credit. |
|---|
| 40 | 40 | | |
|---|
| 41 | 41 | | (b) "Base amount" means the average annual amount of research and development expenses incurred by the eligible business in this state during the 3 tax years immediately preceding the first tax year for which the research and development credit is being claimed under the written agreement. An eligible business with no prior research and development spending in this state has a base amount of zero. The base amount remains the same for the duration of a written agreement. |
|---|
| 42 | 42 | | |
|---|
| 43 | 43 | | (c) "Certificate of tax credit" means the certificate issued to an authorized business by the department under section 9 to verify that the authorized business is eligible for a research and development tax credit. |
|---|
| 44 | 44 | | |
|---|
| 45 | 45 | | (d) "Department" means the department of treasury. |
|---|
| 46 | 46 | | |
|---|
| 47 | 47 | | (e) "Eligible business" means a business that proposes to increase research and development spending in this state through projects that have the potential for significant technological advancements, job creation, and positive economic impact as follows: |
|---|
| 48 | 48 | | |
|---|
| 49 | 49 | | (i) For a business with 250 or more employees, an increase of at least $500,000.00 per year above the base amount. |
|---|
| 50 | 50 | | |
|---|
| 51 | 51 | | (ii) For a business with less than 250 employees, an increase of at least $100,000.00 per year above the base amount. |
|---|
| 52 | 52 | | |
|---|
| 53 | 53 | | (f) "Qualified research" means that term as defined in 26 USC 41. |
|---|
| 54 | 54 | | |
|---|
| 55 | 55 | | (g) "Qualified research services" means qualified services as that term is defined in 26 USC 41. |
|---|
| 56 | 56 | | |
|---|
| 57 | 57 | | (h) "Qualified research supplies" means supplies as that term is defined in 26 USC 41 that are used in the conduct of qualified research. |
|---|
| 58 | 58 | | |
|---|
| 59 | 59 | | (i) "Research and development expenses" means qualified research expenses as that term is defined in 26 USC 41. |
|---|
| 60 | 60 | | |
|---|
| 61 | 61 | | (j) "Research and development spending" means spending for research and development expenses. |
|---|
| 62 | 62 | | |
|---|
| 63 | 63 | | (k) "Research and development tax credit" means a research and development tax credit allowed under section 277, 277a, 277b, 677, 677a, or 677b of the income tax act of 1967, 1967 PA 281, MCL 206.277, 206.277a, 206.277b, 206.677, 206.677a, and 206.677b. |
|---|
| 64 | 64 | | |
|---|
| 65 | 65 | | (l) "Research and development tax credit program" means the research and development tax credit program created under section 5. |
|---|
| 66 | 66 | | |
|---|
| 67 | 67 | | (m) "Written agreement" means a written agreement made between the eligible business and the department under this act. |
|---|
| 68 | 68 | | |
|---|
| 69 | 69 | | Sec. 5. (1) The department shall create and administer a research and development tax credit program to authorize the receipt of research and development tax credits by authorized businesses. The department shall develop and use a detailed application, approval, compliance, and certification process published and available on the department's website. |
|---|
| 70 | 70 | | |
|---|
| 71 | 71 | | (2) An eligible business may apply to the department, in the form and manner prescribed by the department, to enter into a written agreement under section 7 that authorizes the receipt of a research and development tax credit. |
|---|
| 72 | 72 | | |
|---|
| 73 | 73 | | (3) The department may request information, in addition to that contained in an application, if needed to permit the department to discharge its responsibilities under this act. |
|---|
| 74 | 74 | | |
|---|
| 75 | 75 | | Sec. 7. (1) After receipt of an application under section 5, the department may enter into a written agreement with an eligible business for research and development tax credits if the department determines that all of the following are met: |
|---|
| 76 | 76 | | |
|---|
| 77 | 77 | | (a) The eligible business proposes to invest in and maintain research and development spending in this state that is above the base amount as follows: |
|---|
| 78 | 78 | | |
|---|
| 79 | 79 | | (i) For a business with 250 or more employees, an increase of at least $500,000.00 per year above the base amount. |
|---|
| 80 | 80 | | |
|---|
| 81 | 81 | | (ii) For a business with less than 250 employees, an increase of at least $100,000.00 per year above the base amount. |
|---|
| 82 | 82 | | |
|---|
| 83 | 83 | | (b) The eligible business's plans for investment in research and development in this state are economically sound. |
|---|
| 84 | 84 | | |
|---|
| 85 | 85 | | (c) The investment in research and development by the eligible business will benefit the people of this state by increasing opportunities and strengthening the economy of the state. |
|---|
| 86 | 86 | | |
|---|
| 87 | 87 | | (2) If the department determines that the eligible business satisfies all of the requirements under subsection (1), subject to section 13, the department shall determine the amount and duration of the research and development tax credit to be authorized under this act and shall enter into a written agreement as provided in this section. |
|---|
| 88 | 88 | | |
|---|
| 89 | 89 | | (3) A written agreement between an eligible business and the department must include, but is not limited to, all of the following: |
|---|
| 90 | 90 | | |
|---|
| 91 | 91 | | (a) A description of the business location that is the subject of the agreement. |
|---|
| 92 | 92 | | |
|---|
| 93 | 93 | | (b) Conditions on which the authorized business designation is made. |
|---|
| 94 | 94 | | |
|---|
| 95 | 95 | | (c) The duration of the agreement and the amount of the research and development tax credit that may be claimed each tax year for the duration of the agreement, including the calculation of the base amount. |
|---|
| 96 | 96 | | |
|---|
| 97 | 97 | | (d) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business or the loss or reduction of the research and development tax credit. |
|---|
| 98 | 98 | | |
|---|
| 99 | 99 | | (e) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and eligibility to claim the research and development tax credit. |
|---|
| 100 | 100 | | |
|---|
| 101 | 101 | | (4) On execution of a written agreement, an eligible business is an authorized business. On execution of the written agreement, the research and development tax credit as specified in this act and in the written agreement is binding on this state. |
|---|
| 102 | 102 | | |
|---|
| 103 | 103 | | (5) If there is a proposed reorganization, merger, or other change of ownership of the authorized business for which reimbursement will continue pursuant to a written agreement, the approval of the department is required before the assignment or transfer of the written agreement. |
|---|
| 104 | 104 | | |
|---|
| 105 | 105 | | Sec. 9. (1) An authorized business is eligible for a research and development tax credit as provided in the written agreement. |
|---|
| 106 | 106 | | |
|---|
| 107 | 107 | | (2) The department shall issue a certificate of tax credit each year to an authorized business that is eligible for a research and development tax credit. The certificate of tax credit must state all of the following: |
|---|
| 108 | 108 | | |
|---|
| 109 | 109 | | (a) That the eligible business is an authorized business. |
|---|
| 110 | 110 | | |
|---|
| 111 | 111 | | (b) The amount of the research and development tax credit for the designated tax year. |
|---|
| 112 | 112 | | |
|---|
| 113 | 113 | | (c) The authorized business's federal employer identification number or the Michigan department of treasury number assigned to the authorized business. |
|---|
| 114 | 114 | | |
|---|
| 115 | 115 | | Sec. 11. In determining whether qualified research and development expenses are incurred in this state, the department shall consider all of the following factors: |
|---|
| 116 | 116 | | |
|---|
| 117 | 117 | | (a) The place where the qualified research services are performed or the qualified research is conducted. |
|---|
| 118 | 118 | | |
|---|
| 119 | 119 | | (b) The residence or business location of the person or persons performing the qualified research services or conducting the qualified research. |
|---|
| 120 | 120 | | |
|---|
| 121 | 121 | | (c) The place where qualified research supplies are consumed. |
|---|
| 122 | 122 | | |
|---|
| 123 | 123 | | (d) Any other factors relevant to determining where qualified research occurred. |
|---|
| 124 | 124 | | |
|---|
| 125 | 125 | | Sec. 13. (1) The department shall not enter into written agreements that authorize more than $100,000,000.00 in total research and development credits under this act for a single calendar year. To the extent the department receives applications from eligible businesses with less than 250 employees, not less than $25,000,000.00 of the $100,000,000.00 each calendar year must be approved for those eligible businesses. |
|---|
| 126 | 126 | | |
|---|
| 127 | 127 | | (2) In determining the amount of the research and development credit to be authorized under the written agreement, the department shall comply with amounts and limitations established under section 277, 277a, 277b, 677, 677a, or 677b of the income tax act of 1967, 1967 PA 281, MCL 206.277, 206.277a, 206.277b, 206.677, 206.677a, and 206.677b, whichever is applicable. The department shall not enter into a written agreement under this act with a duration of more than 5 years. |
|---|
| 128 | 128 | | |
|---|
| 129 | 129 | | Sec. 15. (1) An authorized business shall file any returns and reports required under the written agreement, this act, or the income tax act of 1967, 1967 PA 281, MCL 206.1 to 206.847, and shall provide any other information reasonably requested by the department. |
|---|
| 130 | 130 | | |
|---|
| 131 | 131 | | (2) The department may charge an authorized business a reasonable fee for administrative expenses. The fee must not exceed 5% of the amount of the research and development tax credit received by the authorized business. |
|---|
| 132 | 132 | | |
|---|
| 133 | 133 | | Sec. 17. (1) After a written agreement expires, the eligible business that was party to the written agreement may reapply under section 5, but the base amount must be recalculated and a new written agreement executed. |
|---|
| 134 | 134 | | |
|---|
| 135 | 135 | | (2) As used in this section, "expires" means a written agreement terminates on its scheduled expiration date. Expires does not include the termination of a written agreement due to a breach of the written agreement by the authorized business. |
|---|
| 136 | 136 | | |
|---|
| 137 | 137 | | Sec. 19. By July 1 of each year, the department shall submit to each member of the legislature, the governor, the clerk of the house of representatives, the secretary of the senate, and the senate and house fiscal agencies an annual report concerning the operation and effectiveness of the research and development tax credits program. The report shall include all of the following: |
|---|
| 138 | 138 | | |
|---|
| 139 | 139 | | (a) A brief assessment of the overall effectiveness of the research and development tax credit program created under this act. |
|---|
| 140 | 140 | | |
|---|
| 141 | 141 | | (b) The number of eligible business applying to receive a research and development tax credit. |
|---|
| 142 | 142 | | |
|---|
| 143 | 143 | | (c) The number of eligible businesses that the department has entered into written agreements under this act. |
|---|
| 144 | 144 | | |
|---|
| 145 | 145 | | (d) The name of the authorized businesses and the amount and duration of the authorized research and development tax credits. |
|---|
| 146 | 146 | | |
|---|
| 147 | 147 | | (e) A description of the authorized business's investment in research and development in this state that is the basis for the research and development tax credit. |
|---|
| 148 | 148 | | |
|---|
| 149 | 149 | | (f) The value of all certificate of tax credits issued under this act for the immediately preceding calendar year. |
|---|
| 150 | 150 | | |
|---|
| 151 | 151 | | Enacting section 1. This act does not take effect unless all of the following bills of the 102nd Legislature are enacted into law: |
|---|
| 152 | 152 | | |
|---|
| 153 | 153 | | (a) House Bill No. 5100. |
|---|
| 154 | 154 | | |
|---|
| 155 | 155 | | (b) House Bill No. 5101. |
|---|
| 156 | 156 | | |
|---|
| 157 | 157 | | (c) House Bill No. 5102. |
|---|