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HB 5925

Corporate income tax: deductions; federal deduction for certain outsourcing expenses; add back. Amends sec. 623 of 1967 PA 281 (MCL 206.623).

2025-2026 Regular Session Introduced by Kelly Breen and 10 co-sponsors

Michigan HB 5925 tightens the corporate tax base by adding back related-party outsourcing expenses and certain income while allowing targeted deductions.

bill electronically reproduced 04/30/2026
#businesses:businesscorporations #corporateincometax:businessincome #corporateincometax:deductions
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Bill Summary · HB 5925

Summary of HB 5925 (Michigan) — 2025-2026 Session

Authority: Michigan House of Representatives
Jurisdiction: Michigan
Bill: HB 5925
Introduced: April 30, 2026
Committee: Economic Competitiveness
Sponsors: Mentzer, Miller, Herzberg, Wegela, MacDonell, Brixie, Price, Weiss, Wooden, Breen, McFall; with co-sponsors Wegela, Brixie, Price, Miller, MacDonell, Breen, Mentzer, Herzberg, Wooden, Weiss, McFall

1) Main purpose and intent

  • The bill amends section 623 of the Michigan Corporate Income Tax Act (1967 PA 281, MCL 206.623) to modify how certain expenses and income are treated for Michigan corporate income tax purposes, particularly with respect to outsourcing and related party transactions.
  • Aimed at aligning Michigan’s tax base with federal tax rules in specific areas and adding back or excluding certain items to determine the tax base.

2) Key provisions and changes

  • Corporate income tax rate and base:

    • Maintains 6.0% corporate income tax rate on the Michigan tax base (subsection (1)).

  • Adjustments to the tax base (subsection (2) – expanded/modified items):

    • (a) AddBacks: Add back interest income and dividends from non-Michigan sources that were excluded from federal taxable income, net of related non-deducted expenses per IRC sections 265 and 291.
    • (b) AddBacks: Add taxes on net income (state and other) to the extent deducted for federal taxable income, including flow-through entity taxes.
    • (c) AddBacks: Add back any carryback/carryover of net operating losses to the extent deducted federally.
    • (d) Deductions: Deduct from tax base dividends/royalties received from non-U.S. persons or foreign operating entities to the extent included in federal taxable income (analogous to certain IRC sections 78 and 951–965 treatment).
    • (e) Related-Party Outsourcing Adjustments:
    • For taxpayers that are eligible, deduct royalty, interest, or other expenses paid to a related person for the use of intangible assets if the related person is not in the taxpayer’s unitary group.
    • Additions are not required if the taxpayer demonstrates one of several conditions to avoid double taxation or if pricing/terms are arm’s-length and meet specified criteria (e.g., nontax business purpose, comparable pricing, pass-through of another transaction, double taxation avoidance, or treaty considerations with a foreign country).
    • (f) Interest: Deduct interest income from U.S. obligations (state tax treatment consistent with federal inclusions).
    • (g) Oil and Gas: Eliminate income and expenses associated with producing oil and gas to the extent included/deducted federally (existing Michigan tax preference).
    • (h) Qualified Taxpayer Mineral Income: For qualified taxpayers, eliminate income and related expenses from minerals to the extent included/deducted federally.
    • (i) Outsourcing Expenses (Specified Outsourcing):
    • When deductible federally, add back specified outsourcing expenses.
    • Definitions:
      • Eligible expenses: Trade or business deductions allowed under IRC section 162, plus permit/license fees, lease brokerage fees, equipment installation, and similar costs.
      • Specified outsourcing expenses: Eligible expenses attributable to elimination of a state-located business or relocation of a state-located business that was relocated outside Michigan.

  • Unitary business group (UBG) treatment (subsection (3)):

    • The “business income” of a UBG is the sum of each member’s business income minus intercompany/dividend-related deductions within the group.

  • Net operating loss carryforward (subsection (4)):

    • Deducts business losses incurred after December 31, 2011.
    • Allows carryforward of business losses arising from asset acquisitions described under IRC 381(a) to offset future tax base for up to 10 years (start year immediately following the loss year), continuing to the year 9 taxable years after the loss year or until the loss is exhausted.

  • Definitions related to oil, gas, and mining (subsection (5)):

    • Oil and gas: As defined by severance tax law (1929 PA 48, MCL 205.301–205.317).

3) Who/what is affected

  • Michigan corporate taxpayers with:
    • Multinational or domestic corporations with activity in Michigan, including flow-through entities.
    • Unitery business groups with cross-border or intragroup transactions.
    • Taxpayers paying or receiving specified outsourcing expenses, especially those relocating Michigan-based operations or eliminating Michigan-based activities.
    • Industries affected by oil, gas, and mineral income/expense treatment adjustments.
  • Taxpayers with eligible outsourcing activity, related-party transactions, or relocations affecting the state tax base.

4) Procedural and timeline aspects

  • Status: Introduced 4/30/2026; referred to the Committee on Economic Competitiveness.
  • Action history indicates standard introductory steps; no further committee or floor actions are listed in the provided text.
  • Effective dates: The bill text does not specify an effective date; if enacted, provisions would typically apply to tax years following the statute’s effective date, subject to any transition rules adopted during further legislative drafting.

Potential impact (high level)

  • Shifts in Michigan corporate tax base through targeted add-backs and deductions, especially around outsourcing expenses, related-party transactions, and unitary reporting.
  • Potentially higher or lower tax liabilities for firms with outsourcing arrangements, intra-group licensing, or relocation/closure of Michigan-based operations.
  • Oil, gas, and mineral industry adjustments could alter the tax treatment for those sectors.
  • Applies to both corporations and eligible pass-throughs (via adjustments to the corporate tax base before apportionment).

Compiled from official sources — confirm details with the bill’s official record.

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