Refundable Payroll 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Note: Public Act 38 of 2011 repealed the Michigan Business Tax (MBT) and implemented the Corporate Income Tax (CIT).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. No additional Renaissance Zone credits will be awarded after 2011.

Businesses certified by the NextEnergy Authority that locate in the NextEnergy Zone to research, develop, or manufacture “alternative energy technologies,” as defined by the Michigan Next Energy Authority Act, may claim a credit equal to their qualified payroll amount multiplied by their income tax rate for that year. In order for an employee’s compensation to qualify for this treatment, the employee must work on alternative energy-related research, development or manufacturing and have a regular place of employment within the NextEnergy Zone. If the credit exceeds the tax liability of the business for the tax year, the portion of the credit exceeding the tax liability will be refunded. This credit initially took effect beginning in 2003 and was scheduled to expire at the end of 2007 with the repeal of MCL § 208.39e. In 2007 however, it was renewed as part of a larger reworking of state business taxing policy.

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.

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.

The Michigan Strategic Fund designated the NextEnergy Zone a Renaissance Zone in 2002. Businesses located within this zone may also be eligible for additional tax benefits. Contact the NextEnergy Center for more information. The NextEnergy Zone, located in Detroit at Wayne State University Research and Technology Park, is home of the 40,000-square-foot NextEnergy Center. The center includes laboratory facilities, business incubator space, collaborative meeting space and other facilities that will support Michigan’s alternative-energy industry.