Nonrefundable Business Activity Tax Credit

Note: Public Act 38 of 2011 repealed the Michigan Business Tax (MBT) and implemented the Corporate Income Tax (CIT). Public Act 39 was passed in conjunction with the CIT and allows for certain credits awarded under the MBT to be retained for the duration of the agreements. Businesses receiving certain credits, including Renaissance Zone credits, may choose to either continue to file under the MBT to continue claiming their credits, or file under the CIT. Certain Renaissance Zone credits will not be awarded after 2011; Michigan can still award Renewable Energy Renaissance Zone Credits.

Businesses engaged in alternative energy research, development, and manufacturing may claim a nonrefundable credit from the Michigan business tax. In order to be eligible for this tax credit, the taxpayer and its qualified business activity must be certified by the Michigan Next Energy Authority. The credit is equal to the lesser of (1) the amount by which a business's "tax liability attributable to qualified business activity" for the tax year exceeds the business's "baseline tax liability attributable to qualified business activity," or (2) 10% of the amount by which the business's "adjusted qualified business activity" performed in Michigan, outside of a "Renaissance Zone," for a tax year exceeds such activity for the 2001 tax year under former MCL § 208.39e.

Under either formula, a business may not claim the credit for any tax year in which its "tax liability attributable to qualified business activity" did not exceed the "baseline tax liability attributable to qualified business activity" in 2001. These credits initially took effect beginning in 2003 and were scheduled to expire at the end of 2007 with the repeal of MCL § 208.39e. In 2007 however, they were renewed without substantive alteration as part of a larger reworking of state business taxing policy. Qualified business activity is defined broadly to include research, development, or manufacturing of an alternative energy marine propulsion system, an alternative energy system, an alternative energy vehicle, alternative energy technology, or renewable fuel.

The NextEnergy Authority legislation was amended in 2006 by SB 583, which expanded the definitions relating to alternative energy technologies. Eligible alternative energy technologies include: fuel cells, PV, biomass, solar thermal heating and cooling, wind energy, CHP, microturbines, miniturbines, Stirling engines, electricity storage systems, and clean fuel energy systems powered by methane, natural gas, methanol, ethanol, or hydrogen. See MCL § 207.822 for a complete listing of eligible technologies.

Separately, the Michigan Strategic Fund designated the Michigan NextEnergy Zone as a Renaissance Zone in 2002. The Renaissance Zone designation means that businesses within the NextEnergy Zone may be eligible for other tax benefits. The NextEnergy Zone is located in Detroit at Wayne State University Research and Technology Park. It is home to the NextEnergy Center, which includes laboratory facilities, business incubator space, and other facilities to support Michigan’s alternative energy industry.

NextEnergy is a comprehensive economic-development plan to position Michigan as a world leader in the research, development, commercialization and manufacture of alternative-energy technologies. NextEnergy was created to address the risks of continued dependence on foreign energy resources, to mitigate increasing environmental concerns, and to prepare for the possibility of technologies that may replace the internal combustion engine. Please contact the NextEnergy Center for more information on these activities.