TELECOMM COMPANY LLC CONVERSION S.B. 982 (S-1) - 984 & 1050:
SUMMARY OF BILL
REPORTED FROM COMMITTEE
Senate Bill 982 (Substitute S-1 as reported)
Senate Bills 983 and 984 (as reported without amendment)
Senate Bill 1050 (as reported without amendment)
Sponsor: Senator Sam Singh (S.B. 892 & 894)
Senator Sarah Dan Lauwers (S.B. 893)
Senator Sarah Anthony (S.B. 1050)
CONTENT
Senate Bills 982 (S-1) through 984 would amend Public Act 129 of 1883, which regulates telephone and messenger services, the Michigan Limited Liability Company Act, and the Business Corporation Act, to allow a telephone company to convert to a limited liability company (LLC). Senate Bill 1050 would amend the Income Tax Act to require that a person that converted to an LLC be treated as a corporation for purposes of the Act unless that converted entity was a disregarded entity for Federal income tax filing purposes under the and its regarded owner was treated as a corporation for State and Federal income tax purposes.
The bills are tie-barred.
MCL 484.7 et al (S.B. 982)
450.4705a (S.B. 983)
450.1123 (S.B. 984)
206.12 et al (S.B. 1050)
BRIEF RATIONALE
According to testimony, many telecommunication companies are moving to LLC status across the country but outdated laws in Michigan have prevented them from doing so. Some have argued that laws should be updated to streamline the State's corporate structure to improve operational consistency.
Legislative Analyst: Nathan Leaman
FISCAL IMPACT
The bills would have no fiscal impact on State or local revenue nor State or local expenditure. Taxpayers affected by the bills currently file as corporations under Michigan statute. Senate Bill 1050 would require that a taxpayer continue to file as a corporation even if the taxpayer reorganized into an LLC, which traditionally does not file as a corporation.
Without the tie-bar to Senate Bill 1050, Senate Bills 982 through 984 would reduce General Fund (GF) revenue by an unknown but potentially significant amount and increase School Aid Fund (SAF) revenue by a lesser magnitude than the decrease in GF revenue. Absent the tie-bar, Senate Bills 982-984 would reduce GF revenue under the Corporate Income Tax but replace a portion of that revenue with increased revenue under the Flow-Through Entity Tax (which is how LLCs traditionally file if they wish to avoid the Federal government s $10,000 cap on deducting state and local taxes), which is directed to the GF and the SAF.
The loss that would occur absent the tie-bar to Senate Bill 1050 would reflect the lower tax rate under the Flow-Through Entity Tax. Without the tie-bar, several data sources suggest the net GF loss could be close to $10.0 million per year if even one major taxpayer were affected by the bill; however, because business profits can swing substantially from year to year, any changes in revenue due to the bills could be greater than or less than the changes in previous years. Data from various sources indicate that historically these year-to-year swings in profits ranged from a 51.1% decline to a 234.6% increase (2003), with other years remaining relatively flat. Data from the 2017 Census indicate that the revenue impacts that would occur absent the tie-bar to Senate Bill 1050 would likely be concentrated across relatively few firms. Many firms in the sector are small and would questionably have any significant tax liabilities, if any liability at all, to be affected by the bills.
Date Completed: 10-29-24 Fiscal Analyst: David Zin
This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.