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SB 1050

Corporate income tax: flow-through entities; treatment of certain limited liability companies as a corporation; provide for. Amends secs. 12, 607, 699, 701, 805 & 845 of 1967 PA 281 (MCL 206.12 et seq.) & adds sec. 339.

2023-2024 Regular Session Introduced by Sarah Anthony

SB 1050 preserves corporate income tax treatment for telephone firms converting to LLCs under the 1883 act, preventing revenue shifts to flow-through taxation.

ASSIGNED PA 0177'24 WITH IMMEDIATE EFFECT
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Bill Summary · SB 1050

Summary — SB 1050 (Income Tax Act amendments; treatment of certain LLCs as corporations)

Status: Enacted as Public Act 177 of 2024 (effective December 23, 2024)
Primary sponsor: Senator Sarah Anthony (Senate version); companion bills SB 982–984 are tied to SB 1050

Purpose / intent

SB 1050 addresses the tax treatment of certain limited liability companies formed when long‑standing telephone corporations (organized under 1883 PA 129, MCL 484.7) convert to LLC form. The bill ensures that, for Michigan income‑tax purposes, such converted entities continue to be treated as corporations unless a narrow federal tax exception applies. This preserves corporate income tax treatment if telephone companies reorganize as LLCs.

Key provisions

  • Adds a new section (Sec. 339) to the Income Tax Act (MCL 206.339):
    • A person that converts into a limited liability company under section 7 of 1883 PA 129 (MCL 484.7) is to be treated as a corporation for purposes of the Income Tax Act, unless:
    • the converted entity is a “disregarded entity” for federal income tax purposes under the Internal Revenue Code, and
    • the regarded owner of that disregarded entity is treated as a corporation for both state and federal income tax purposes.
  • Amends definitional and related provisions in sections 12, 607, 699, 701, 805, and 845 of the Income Tax Act to reflect and reference the new treatment.
  • The bill is tie‑barred to SBs 982–984, which (collectively) permit telephone corporations formed under the 1883 statute to convert into domestic LLCs and make related statutory adjustments (Limited Liability Company Act, Business Corporation Act, and Public Act 129 of 1883).

Who is affected

  • Telephone corporations organized under 1883 PA 129 (for example, incumbents that seek to convert corporate form to LLCs).
  • Large telecommunications firms with Michigan operations (analyses cited AT&T and Verizon as examples of entities whose conversion could otherwise affect state revenues).
  • Michigan Department of Treasury (administration and enforcement of corporate income tax rules).
  • Local and state fiscal stakeholders (General Fund / School Aid Fund revenue flows).

Fiscal impact and rationale

  • SB 1050 itself was analyzed as having no direct fiscal impact because it preserves corporate tax treatment for converting entities.
  • Context: without this provision (i.e., if telephone corporations converted to LLC form and instead were subject to Michigan’s flow‑through entity tax regime), revenue could shift from the Corporate Income Tax (CIT) to the Flow‑Through Entity Tax (lower rates, different allocation to funds). Nonpartisan analyses noted that, if conversions occurred without SB 1050’s rule, the state’s General Fund could experience a net revenue loss (estimates varied and were sensitive to which taxpayers converted; some scenario estimates for large taxpayers suggested net General Fund losses that could be material). SB 1050 mitigates that risk by retaining corporate treatment in-state.

Procedural / timeline notes

  • Tied to SBs 982–984 (statutory changes enabling conversions).
  • Enacted as PA 177 of 2024 and given immediate effect (December 23, 2024).
  • Implementing agencies: Department of Treasury for tax administration; Department of Licensing and Regulatory Affairs (LARA) and others for corporate/filing changes under the companion bills.

Bottom line

SB 1050 preserves Michigan’s corporate income‑tax treatment for telephone corporations that reorganize into LLCs under the narrow 1883 statute, limiting potential revenue shifts that could otherwise arise if such firms were taxed as flow‑through entities.

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

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