LANSING, Mich. — The Senate Finance Committee on Wednesday approved a bill sponsored by Sen. Jim Runestad that would enable business partnerships in the state to comply with recently updated federal tax laws.
Senate Bill 1035 would allow partnerships to file an amended tax return should they get a federal audit that determines they owe additional dollars.
“My measure will provide an avenue for partnerships to rectify with the state any difference as the result of a federal audit at the partnership level,” said Runestad, R-White Lake. “The bill is needed as a result of the federal changes to the way the IRS audits partnerships.”
Partnerships are a form of a business set up between two or more entities (individuals, other partnerships, corporations, etc.) that share in the management and the profits of the business venture.
In Michigan, partnerships themselves are not taxed. All profits and losses are “passed through” to the individuals of the partnership. Each individual then pays through their individual income tax or corporate income tax.
In 2015, Congress passed the Bipartisan Budget Act that changed the way the federal government audits partnerships to enable tax assessments to happen at the actual partnership level, not just at the individual level.
“Because partnerships are taxed at the individual partner level in Michigan, there currently is no way to allow for tax adjustments to be reported to the state at the partnership level as a result of a federal partnership audit,” Runestad said. “This creates a loss of revenue for Michigan and any other state that does not change its structure to allow for the federal change.”
Michigan Chamber of Commerce Director of Tax Policy and Regulatory Affairs Dan Papineau praised the legislation.
“Businesses all across Michigan appreciate Sen. Runestad’s leadership in introducing updates to Michigan’s tax laws that coincide with changes at the federal level,” Papineau said. “The updates will streamline tax compliance for businesses while ensuring tax owed is tax paid — no more and no less.”
Runestad said the bill is expected to have a positive impact on state revenue due to the additional taxes that could be collected.
“Not only will the bill keep the process for reporting tax adjustments for partnerships to the state as simple as possible, but it also will help the state recoup taxes that were due to be paid,” Runestad said.
SB 1035 now heads to the full Senate for consideration.