DEPARTMENT OF TREASURY

                            BUREAU OF REVENUE

                               INCOME TAX


(By authority conferred on the department of treasury by sections 3 and 13 of 
Act No. 122 of the Public Acts of 1941, as amended, and sections 9  and 83 of 
Act No. 380 of the Public  Acts  of  1965,  being  SS205.3,  205.13,  16.109, 
and 16.183 of the Michigan Compiled Laws)


R  206.1   "Business income" defined.
  Rule 1. "Business income" means that income which is  derived  during   the 
regular course of a taxpayer's trade or business. The  expenses  incurred  in 
deriving the income are allowed  as  a  deduction  from   gross   income   in 
determining the taxpayer's adjusted gross income.

  History:  1979 AC.


R  206.2   Employee.
  Rule 2. (1) The term "employee"  is  defined  in  section   8(2)   of   Act 
No. 281 of the Public Acts of 1967, as amended,  being   S206.8(2)   of   the 
Michigan Compiled Laws.
  (2) The term "employee" includes every individual  performing  services  if 
the relationship between him and the person  for  whom   he   performs   such 
services is the legal relationship of  employer  and   employee.   The   term 
includes officers and employees, whether  elected  or   appointed,   of   the 
United  States,  a  state,  territory,  Puerto  Rico,   or   any    political 
subdivision thereof, or  the  District  of  Columbia,  or   any   agency   or 
instrumentality of any 1 or more of the foregoing.
  (3) Generally, the relationship of employer and employee  exists  when  the 
person for whom services are performed has the right to  control  and  direct 
the individual who performs the services, not only as to the  result  to   be 
accomplished by the work, but also as to the details and   means   by   which 
that result is accomplished; that is, an employee is subject  to   the   will 
and control of the employer, not only as to what shall be done,  but  also as 
to how it shall be done. However, it  is  not  necessary  that  the  employer 
actually direct or control the manner in which the services are performed; it 
is sufficient if he has the right to do so. The right to  discharge  is  also 
an important factor indicating that the person possessing that  right  is  an 
employer.  Other  factors   characteristic   of   an   employer,   but    not 
necessarily present in every case, are the furnishing  of   tools   and   the 
furnishing of a place to work to the individual who performs the services.
In general, if an individual is subject to the  control   or   direction   of 
another merely as to the result to be accomplished by the work but not  as to 
the means and methods for  accomplishing   the   result,   he   is   not   an 
employee.
  (4)   Generally,   physicians,    lawyers,     dentists,     veterinarians, 
contractors, subcontractors, public stenographers,  auctioneers,  and  others 
who follow an independent trade, business, or profession,   in   which   they 
offer their services to the public, are not employees.
  (5) Whether the relationship of employer and employee  exists   shall,   in 
doubtful cases, be determined upon an examination of the particular  facts of 
each case.
  (6) If the relationship of employer and employee exists, the designation or 
description of the relationship by the parties as anything  other  than  that 
of employer and employee  in  immaterial.  For   example,   it   is   of   no 
consequence that the employee is designated as   a   partner,   coadventurer, 
agent, independent contractor, or the like.
  (7)  All  classes  or  grades  of  employees  are   included   within   the 
relationship of employer and employee.   Thus,   superintendents,   managers, 
and other supervisory personnel are employees. Generally, an  officer  of   a 
corporation is an employee of the corporation. However, an   officer   of   a 
corporation who as such does not perform any services,   or   performs   only 
minor services, and who neither  receives  nor  is   entitled   to   receive, 
directly or indirectly, any remuneration,  is  not  considered   to   be   an 
employee of the corporation. A director of a corporation in  his  capacity as 
a director is not an employee of the corporation.
  (8) The  term  "employee"  includes  every  individual   who   receives   a 
supplemental unemployment compensation benefit, which is treated as wages.

  History:  1979 AC.


R  206.3   Employer.
  Rule 3. (1) The term "employer"  is  defined  in  section   8(3)   of   Act 
No. 281 of the Public Acts of 1967, as amended,  being   S206.8(3)   of   the 
Michigan Compiled Laws.
  (2) The term "employer" means any person for whom an individual performs or 
performed any service, of whatever  nature,   as   the   employee   of   such 
person.
  (3) It is not necessary that the services be continuing at  the  time   the 
wages are paid in order that the  status  of  employer   exist.   Thus,   for 
purposes of withholding, a person for whom  an   individual   has   performed 
past services for which he is still receiving wages from such  person  is  an 
employer.
  (4) An employer may be an individual, a corporation,   a   partnership,   a 
trust, an estate, a joint-stock company, an association,  or   a   syndicate, 
group, pool, joint venture, or other unincorporated  organization,  group, or 
entity. A trust or estate, rather than  the  fiduciary  acting  for,  or   on 
behalf of, the trust or estate, is generally the employer.
  (5) The term "employer" embraces not only  individuals  and   organizations 
engaged in a trade or business, but also organizations  exempt  from   income 
tax,  such  as  religious  and    charitable    organizations,    educational 
institutions, clubs, social organizations and societies, as   well   as   the 
governments of the United States, the states,   territories,   Puerto   Rico, 
and the District of Columbia, including  their  agencies,  instrumentalities, 
and political subdivisions.
  (6) The term "employer" also means any person paying wages on behalf  of a  
nonresident   alien   individual,    foreign    partnership,    or    foreign 
corporation, not engaged in trade or business within   the   United   States, 
including Puerto Rico as if a part of the United States.
  (7) If the person for whom the services are or were  performed   does   not 
have legal control of the payment of the wages for such  services,  the  term 
"employer" means, except for the purpose of the definition  of  "wages,"  the 
person having such control. For example,  where  wages,   such   as   certain 
types of pensions or retirement pay, are paid by a trust   and   the   person 
for whom the services were performed has no legal control over the payment of 
such wages, the trust is the employer.
  (8) The term "employer" also means  a  person  making  a   payment   of   a 
supplemental unemployment compensation benefit when it is treated  as  if  it 
were wages under the internal revenue code, 26 U.S.C. S3401. For  example, if 
supplemental unemployment compensation benefits are paid from  a  trust which 
was created under the terms of  a   collective   bargaining   agreement,  the 
trust shall generally be deemed to be the employer.  However,  if  the person 
making such payment is  acting  solely  as  an  agent  for   another  person, 
the term "employer" shall means such  other  person   and   not   the  person 
actually making the payment.
  (9)  It  is  a  basic  purpose  to  centralize  in   the    employer    the 
responsibility for withholding, returning, and paying  the   tax,   and   for 
furnishing the statements required under chapter 7 of  the  Michigan   income 
tax act of 1967.

  History:  1979 AC.


R  206.4   "Household income" defined.
  Rule 4. (1) "Income" means the sum of federal adjusted  gross   income   as 
defined in the internal revenue code, 26 U.S.C. S62 plus:
  (a)  Benefits  received  from   federal    social    security,    including 
supplemental security income (SSI), and railroad retirement benefits.
  (b) Cash public assistance payments paid by a governmental unit.
  (c) Unemployment insurance benefits.
  (d) Worker's compensation payments  whether   for   temporary   disability, 
permanent disability, or death.
  (e) Veteran's disability payments, pension benefits,   or   mustering   out 
payments.
  (f) Amounts received for loss of wages due to permanent disability.
  (g) Amounts received as damages for personal injury or sickness.
  (h) Amounts in excess of the claimant's contributions   received   from   a 
pension plan or annuity.
  (i) Life insurance proceeds, except benefits from insurance on a spouse.
  (j) Money received from a person not a member of the same household  who is 
legally obligated to support a member of the household.
  (k) An inheritance, bequest, or devise, excluding an  inheritance  from   a 
spouse.
  (l) Educational benefits received under  federal   or   state   legislation 
with respect to services in the military or naval  forces   of   the   United 
States.
  (m) A scholarship or other educational grant.
  (n) Income from an  obligation  issued  by  a  state   or   its   political 
subdivisions, including this state.
  (o) Gifts  in  cash  or  kind  from   nongovernmental   sources   exceeding 
$300.00.
  (p) The portion of capital gains and dividends excluded  or  deducted  from 
federal gross income.
  (q) Death benefits paid by, or on behalf of, an employer.
  (r) The portion of lump sum distributions  from   pension   deducted   from 
federal gross income.
  (s) Earned income from  foreign  sources  excluded   from   federal   gross 
income.
  (t) Accumulation distributions received  from  a   trust   not   previously 
included in the claimant's adjusted gross income.
  (2) "Household income" does not include:
  (a) Surplus foods.
  (b) Relief in kind by a governmental unit such as medicaid  payments  to  a 
nursing home or doctor, or rent paid, in whole or in part,  directly  to  the 
landlord. Chore service payments are income to the provider but  not  to  the 
person receiving the benefits.
  (c) Governmental grants which must be used by the claimant  to  improve   a 
homestead.
  (d) State and city income tax refunds, including  homestead  property   tax 
credits. Farmland preservation tax credits shall be   included   in   federal 
adjusted gross income and household income.
  (e)  Amounts  deducted  from  social  security   or   railroad   retirement 
benefits for medicare premiums.
  (f) Amounts paid by an employer for life, health, or accident insurance.
  (g) The first $300.00 in income from gambling, bingo,  lottery,  or  prizes 
and awards.
  (3) Effective with the  calendar  year  1977,  any   health   or   accident 
insurance premiums paid, in whole or in part, by the claimant, and not  by an 
employer, for himself and his family are deductible from   gross   income  to 
arrive at household income.

  History:  1979 AC.


R  206.5   Residency; determination guidelines.
  Rule 5. (1) A person who is domiciled in this state  is   a   resident   of 
this state. "Domicile" means the fixed, permanent, and  principal   home   to 
which a person, wherever temporarily located, always intends  to  return.   A 
person may have several residences or dwelling places but only  may  have   1 
domicile at a particular time. Domicile, once  established,   is   not   lost 
until there is a concurrence of all of the following:
  (a) The specific intent to abandon the old domicile.
  (b) The intent to acquire a specific new domicile.
  (c) Actual physical presence in the new state   of   domicile.   Generally, 
the domicile of the wife follows that of the husband.
  (2) To overcome the presumption of residency, as stated in subrule  (1),  a 
taxpayer shall present detailed factual data to the department.   Factors  to 
be considered in determining a taxpayer's residency or domicile include where 
he  keeps  his  most  important  possessions,  houses  his   family,   votes, 
maintains club and lodge memberships, buys automobile licenses,  maintains  a 
mailing address and banks, operates a business,  or  sues  for  divorce.
However, no one of these factors is controlling. The failure of  a  person to 
pay income taxes in the state to which he claims to  have  domicile  is  very 
significant.
  (3)  A  person  whose  residency  cannot  be  determined   by   the   above 
guidelines shall be deemed a resident of Michigan if he  lives   within   the 
state for not less than 183 days during the tax year or for  more  than   1/2 
the days during a taxable year of less than 12 months.

  History:  1979 AC.


R  206.6   Income from obligations and securities  of  states  other  than
  Michigan.
  Rule 6. (1) Gross interest and  dividend  income   from   obligations   and 
securities  of  states  other   than   Michigan,    and    their    political 
subdivisions, not subject to federal income taxes,  including  such  interest 
and dividends from qualifying mutual funds, shall  be   added   to   adjusted 
gross income.
  (2) The income may be  reduced  by  related  expenses   not   deducted   in 
computing federal adjusted gross income because of   the   internal   revenue 
code, 26 U.S.C. S265(1).
  (a) Example:
        Gross interest income from state of Ohio bonds          $600.00
        Expense (investment counseling fees, bank charges
          brokerage fees)                                         32.00
        Interest income to be added to adjusted gross income    $568.00
  (b) Interest on indebtedness incurred  in  carrying   the   obligation   or 
security is not deductible from the interest or dividend income.

  History:  1979 AC.


R  206.7   Add back of taxes on or measured by income.
  Rule 7. (1) Taxes on or measured by income deducted  in  computing  federal 
adjusted gross income shall be added back to federal adjusted gross income to 
determine the income subject to Michigan income tax.
  (2) An individual who receives distributive   income   from   partnerships, 
joint ventures, and subchapter S corporations  is  required   to   make   the 
adjustment in subrule (1) if the partnership, joint venture, or subchapter  S 
corporation paid city or state income tax on its distributive income and  did 
not add back such taxes to  the  amounts  distributed  to  the  partners   or 
shareholders.

  History:  1979 AC.


R  206.8   Losses on  sale  or  exchange  of  United  States  obligations;
  reporting.
  Rule 8. Losses on the sale or exchange of United  States  obligations,  the 
income of which the state is prohibited from taxing,  shall   be   subtracted 
from federal adjusted gross income. To do this,  file   form   MI-1040D   and 
enter a zero in column "Z" of the line on which the loss is reported.
  (a) Example:
        Mr. Smith is reporting a gain from the sale of stock in the amount
        of $2,100.00 and a loss from the sale of United States obligations
        in the amount of $900.00
  (b) These transactions are reported on form MI-1040D as follows:

                                                Federal         Michigan
                        Date            Date    Gain            Gain
                        Acquired        Sold    Col. Y          Co. Z

6. Stock                9-30-68         10-1-77 $2,100.00       $2,100.00
   U.S. Obligation      4-1-69          7-10-77   (900.00)          - 0 -  7. 
Capital gain distribution 8. Enter gain if applicable from form MI-4797  line 
4(a)(1) 9. Enter your share of net ling-term gain or (loss) from partnerships 
and fiduciaries 10. Enter  your  share  of  net  long-term  gain  from  small 
business corporations (subchapter S) 11. Net gain or (loss) combine  lines  6 
through 19                                    $1,200.00        $2,100.00  12. 
Long-term capital loss carryover attributable to yers beginning after 1969    
   (       )       (       ) 13. Net long term gain of (loss)  combine  lines 
11  and  12                                  $1,200.00        $2,100.00   14. 
Combine the amounts shown on line 5 and 13 and enter the net gain (loss) here 
          $1,200.00       $2,100.00 15. If line 14 shows a gain -
    (a) Enter 50% of line 13 or 50% of line
        14, whichever is smaller.  Enter zero
        if there is a loss or no entry on
        line 13                                    600.00        1,050.00
    (b) Subtract line 15(a) from line 14. Enter
        here and carry amount in column Y to
        MI-1040 line 39(a) carry amount in
        column Z to MI-1040 line 32(a)             600.00        1,050.00

  History:  1979 AC.


R  206.9   Interest income and gains  from  sale  or  disposal  of  United
  States obligations exempted from state taxation; treatment; interest  on
  federal income tax refunds.
  Rule 9. (1) Interest income and gains  from  the  sale   or   disposal   of 
United States obligations, which are exempted from state  taxation   by   the 
United States Constitution, treaties, and statutes,   are   deductible   from 
adjusted gross income. The deduction for such income shall  be   reduced   by 
any interest on  indebtedness  incurred  in  carrying   the   United   States 
obligation and by any other expense, including   amortized   bond   premiums, 
deducted from gross income to arrive at adjusted gross  income.  The   income 
from the following United States  obligations  is  not   subject   to   state 
income tax:
  (a) United States treasury bonds, notes, bills, and savings bonds.
  (b) Bonds, notes, debentures, and other obligations issued by:
  (i) Federal intermediate credit banks.
  (ii) Federal land banks.
  (iii) Federal home loan banks.
  (iv) Central banks for co-operatives.
  (v) Regional banks for co-operatives.
  (vi) Tennessee valley authority.
  (vii) United States postal service obligations.
  (2) Interest on federal income tax refunds is not   exempted   from   state 
taxation and shall not be claimed as a deduction.

  History:  1979 AC.


R  206.10   Compensation for service in the armed  forces  of  the  United
  States; treatment.
  Rule 10. (1) Compensation paid from   federal   appropriations,   including 
retirement benefits, for military services in the armed  forces   is   exempt 
from Michigan income tax, and is deductible from adjusted  gross  income   by 
the recipient to the extent it  is  included  in   federal   adjusted   gross 
income.
  (a) Example 1. Active duty personnel
  All military compensation is exempt.
  (b) Exampe 2.  Reservist

    **** For Example 2 see attached file labeled "Figures"

  The guardsman was federalized during the 2 weeks  at  camp   and   at   the 
monthly  military  drills.  The  pay   for   these    came    from    federal 
appropriations.
  The $250.00 paid for riot duty came from state funds and  is   subject   to 
Michigan income tax.
  (d) Example 4. National guard technicians
  National guard  technicians,  although  paid  from   federal   funds,   are 
full-time civilian employees. Their civilian pay is   subject   to   Michigan 
income  tax.  They  are  members  of  the  national   guard,   however,   and 
compensation paid for the 2 weeks' encampment and the   monthly   drills   is 
military pay and is exempt from Michigan income tax as in example 3.
  (e) Example 5. Armory board of control
  Compensation for serving as a member of an armory board   of   control   is 
subject to Michigan income tax.
  (f) Example 6. Retirement benefits
  Retirement benefits paid to retirees of the armed   forces   for   services 
performed while a member of the armed  forces  are   exempt   from   Michigan 
income tax.
  (2) Employee business expenses attributable  to   military   income   shall 
reduce the subtraction for military income. If  the   expenses   exceed   the 
military income, there can be no subtraction for military income.

  History:  1979 AC.


R  206.11   Rescinded.

  History:  1979 AC; 1998 - 2000 AACS.


R  206.12   Allocation and apportionment of income; adjustments.
  Rule 12. (1) Salaries, wages, and other compensation received by a Michigan 
resident are allocated to Michigan. The credit provided in section 255 of Act 
No. 281 of the Public Acts of  1967,  being  §206.255  of  the  Michigan 
Compiled Laws, may be claimed if the compensation was earned in another state 
and taxed by that state.
  (2) Salaries and wages earned in Michigan by a nonresident are allocated to 
Michigan.
  (3) Income from a trade or business as defined in R 206.1 is  allocated  or 
apportioned to the state in which the activity takes place.
  (4) Business income that is attributable to Michigan and 1  or  more  other 
states shall be apportioned as provided in sections 115 to 195 of Act No. 281 
of the Public Acts of 1967, as amended, being §§206.115 to  206.195 
of the Michigan Compiled Laws.
  (5) Net rents and royalties from real property are allocated to  the  state 
in which the real property is located.
  (6) Net rents  and  royalties  from  tangible  property  are  allocated  to 
Michigan, if either of the following provisions applies:
  (a) The personal property is utilized in Michigan.
  (b) The rent is received by a Michigan resident  or  the  recipient  has  a 
commercial domicile in Michigan and is not organized under the  laws  of,  or 
subject to tax by, the state in which the property was utilized.
  (7) Capital gains and losses from the  disposition  of  real  property  are 
allocated to the state in which the real property is located.
  (8) Capital gains and losses from the disposition of personal property  are 
allocated to Michigan if any of the following provisions apply:
  (a) The property was located in Michigan at the time of sale.
  (b) The taxpayer is a Michigan resident.
  (c) The taxpayer has a commercial domicile in this state and is not taxable 
in the state in which the property had a situs.
  (9) Capital gains and losses from the disposition  of  intangible  personal 
property are allocated to Michigan if received by a Michigan resident.
  (10) Interest, dividends, and pension and annuity income are  allocated  to 
Michigan if received by a Michigan resident.
  (11) Patent and copyright royalties are allocated to Michigan if either  of 
the following provisions applies:
  (a) The patent or copyright is used in Michigan.
  (b) The owner is a Michigan  resident  or  has  a  commercial  domicile  in 
Michigan and is not taxable in the state in which the patent or copyright was 
used.
  (12) A patent is used in Michigan if the patented product  is  produced  in 
Michigan  or  the  patent  is  used  in  Michigan  production,   fabrication, 
manufacturing, or other processing.
  (13) A copyright is used in Michigan if the printing or publication of  the 
copyrighted item takes place in Michigan.
  (14) Income includable in federal adjusted gross  income  not  specifically 
allocated or apportioned by this rule is allocated to Michigan when  received 
by a Michigan resident. Credit for  tax  paid  to  another  state  on  income 
subject to tax in the other state may be claimed by the Michigan resident.
  (15) The following forms of income may be claimed  as  a  subtraction  from 
adjusted  gross  income  if  not  allocated  or  apportioned   to   Michigan; 
conversely, losses not allocated or apportioned to Michigan shall be added to 
adjusted gross income:
  (a) Trade or business, including farming.
  (b) Rents and royalties from real and personal property.
  (c) Capital gains from  the  disposition  of  real  and  tangible  personal 
property.
  (d) Capital gains from the disposition of intangible personal property.
  (e) Interest and dividends.
  (f) Pensions and annuities.
  (g) Patent and copyright royalties.
  (16) Distributive share items  received  by  a  partner  are  allocated  or 
apportioned as follows:
  (a)  Ordinary  income  is  apportioned  to  Michigan  by  the   partnership 
apportionment factors provided in sections 115 to 195 of Act No. 281  of  the 
Public Acts of 1967, as amended, being §§206.115 to 206.195 of  the 
Michigan Compiled Laws.
  (b) Salary allocated to Michigan when  received  by  a  Michigan  resident. 
Credit may be claimed for tax paid to another state if the salary was  earned 
in the other state. Salary earned in Michigan by  a  nonresident  partner  is 
allocated to Michigan.
  (c) Short-term capital gains (losses), long-term  capital  gains  (losses), 
involuntary conversion gains (losses), and other gains (losses) from real  or 
personal property that had a situs in  Michigan  at  the  time  of  sale  are 
allocated to Michigan.
Capital gains from the sale of intangible personal property are allocated  to 
Michigan when received by a Michigan resident.
  (d) Additional first-year depreciation on property located in  Michigan  is 
allocated to Michigan.
  (e) Distributive items from a partnership not allocated or  apportioned  to 
Michigan  may  be  claimed  as  a  deduction  from  adjusted  gross   income. 
Conversely, losses and deductions not allocated or  apportioned  to  Michigan 
shall be added to adjusted gross income.
  (17) All distributive income from a subchapter S corporation includable  in 
the shareholder's adjusted gross income is subject to  tax  if  allocated  or 
apportioned to Michigan.
  (18) Dividend distributions taxable as ordinary income, plus  undistributed 
income taxable as ordinary income, are apportioned to Michigan if all of  the 
corporation's  business  activities  are  confined  to   Michigan.   If   the 
corporation is taxable both within  and  without  Michigan,  such  income  is 
apportioned to Michigan as provided in sections 115 to 195 of Act No. 281  of 
the Public Acts of 1967, as amended, being §§206.115 to 206.195  of 
the Michigan Compiled Laws.
  (19)  Dividend  distributions  taxable  as  long-term  capital  gains   and 
undistributed long-term capital gains are allocated as follows:
  (a) Capital gains from the disposition of real property  are  allocated  to 
Michigan if the property is located in Michigan.
  (b) Capital gains from the disposition of tangible  personal  property  are 
allocated to Michigan if the property has a situs in Michigan at the time  of 
sale.
  (c) Capital gains  from  the  sale  of  intangible  personal  property  are 
allocated to Michigan when received by a Michigan resident.
  (20) Distributive income from a subchapter S corporation not  allocated  or 
apportioned to Michigan may be claimed as a subtraction from  adjusted  gross 
income. Conversely, losses not allocated or apportioned to Michigan shall  be 
added to adjusted gross income.

  History:  1979 AC; 1998 - 2000 AACS.


R 206.13     Exemption allowance; proration for nonresident or part-year
  resident; death of taxpayer.
  Rule 13. (1) A person who is permanently leaving Michigan and is  filing  a 
final federal return covering less than  12  months  shall  file  a  Michigan 
return covering the same period and prorate the exemption  allowance  on  the 
basis of months in Michigan during the calendar year to 12 months.
  (2) A proration of the exemption allowance is not required because  of  the 
death of the taxpayer during the tax year.

  History:  1979 AC; 1998 - 2000 AACS.


R  206.14   Moving expenses.
  Rule 14. Persons moving into or out  of  the  state   of   Michigan   shall 
allocate all adjustments to gross income resulting from the   move   to   the 
state of destination as shown in the following examples:
  (a) Example 1. Wage earner moves to Michigan.

     **** For Example 1 see attached file labeled "Figures" ****

  Note: The Michigan income is reduced by the moving expenses.
  (b) Example 2. Taxpayer moves to Michigan and   his   reimbursed   expenses 
exceeded the amount that could be deducted on his federal return.

     **** For Example 2 see attached file labeled "Figures" ****

  Note: Reimbursed moving expenses include reimbursement for  the   cost   of 
selling a house in former state, as this is  a   separate   transaction   not 
included in the computation of the gain from the sale of the residence.

  Note:  Taxpayer's  excess  reimbursed  moving  expense   is   taxable    in 
Michigan.

  (c) Example 3. Wage earner moves from Michigan to another state.

     **** For Example 3 see attached file labeled "Figures" ****

  Note:  Taxpayer's  subtraction  of  income  attributable   to   state    of 
destination is reduced by the moving expense.

  (d) Example 4. Taxpayer moving out of Michigan  whose   reimbursed   moving 
expenses exceeded the amount that could be deducted on his federal return.

     **** For Example 4 see attached file labeled "Figures" ****

  Note:  Taxpayer's  subtraction  of  income  attributable   to   state    of 
destination includes the excess reimbursed moving expense.

  History:  1979 AC.


R  206.15   Credit for income tax withheld from compensation.
  Rule 15. (1) The income tax  deducted  and   withheld   from   compensation 
under chapter 7 of Act No. 281 of the Public Acts of 1967,  as  amended,   is 
allowed as a credit against the income tax of the person  from  whose   wages 
the tax was withheld. Credit shall be given to the   employee   even   though 
such tax has not been paid to the department by the employer.
  (a) Example 1. An employee received compensation of  $15,000.00  from   his 
employer for the year. The employer  withheld  tax  of   $500.00   from   the 
employee and furnished him with a  W-2  wage  and   tax   statement   showing 
$500.00 withheld. The department shall give the employee   credit   for   tax 
withheld of $500.00.
  (b) Example 2. The employer paid his employees by check  and  withheld  tax 
from each payment of wages. Each check contained a stub  which  itemized  all 
deductions. One of the deductions was headed "Michigan  Tax."  The  employees 
did not have W-2 wage and tax statements to  attach   to   their   individual 
income tax returns because the employer did not  give   the   employees   the 
statements. The employees shall receive credit against the tax established by 
their individual income tax returns for  all   tax   they   can   prove   was 
withheld. A copy of each check stub shall be accepted as  evidence   of   the 
tax withheld unless the department can prove otherwise.   If   the   employee 
cannot support his claim for tax withheld by W-2 wage and  tax  statements or 
check stubs, he shall file an employee complaint form with  his   income  tax 
return.
  (2) If a taxpayer files individual income tax returns on  any  basis  other 
than a calendar year basis, the  tax  deducted  and   withheld   during   any 
calendar year is allowed as a credit against the income tax  on  the   person 
from whose wages the tax was withheld for the taxable year  which  begins  in 
such calendar year. If the person from whose wages the   tax   was   withheld 
has more than 1 taxable year beginning in that calendar  year,   the   credit 
shall be allowed against the tax for the last taxable   year   beginning   in 
such calendar year.
  (a) Example 1. A man  and  his  wife  own  a  business   and   file   their 
individual income tax return, MI-1040, on a fiscal year  basis  ending   June 
30th. They made 4 estimated payments totaling  $700.00   toward   their   tax 
liability for their year ending June 30, 1976. The husband  also  worked  for 
another  business  and  the  employer  withheld  $325.00   tax    from    his 
compensation for calendar year 1975. The tax liability of  the  husband   and 
wife established by the MI-1040 for fiscal year ending June  30,  1976,   was 
$1,100.00. The taxpayer should  take  credit  for   the   $700.00   estimated 
payments made for the fiscal year ending June 30, 1976,  plus   the   $325.00 
tax the husband's employer withheld during calendar year  1975.   They   must 
pay $75.00 with the MI-1040 when they file.
  (b) Example 2. The situation in this example is the same as  in  example  1 
except the husband worked from January 15, 1976, to May 31,  1976,  for   the 
employer but did not work for him during calendar year 1975.
  The husband and wife cannot claim the $325.00 tax  the  employer   withheld 
from the husband's compensation in 1976 on their MI-1040  for   fiscal   year 
ending June 30, 1976, and must pay $400.00 at the  time   they   file   their 
annual return, MI-1040. They must take credit for the $325.00 tax withheld in 
1976 on their MI-1040 for the year ending June 30, 1977.
  (c) Example 3. After filing his 1976  tax  return  on   a   calendar   year 
basis, a taxpayer decides to change his filing  to  a   fiscal   year   basis 
using the fiscal period of July 1 to June 30. He must file   a   return   for 
the period of January 1, 1977, to June 30, 1977, and pay the  tax.  He  shall 
not receive credit for the tax withheld during that   period.   When   filing 
his full year return for the fiscal period July 1, 1977, to June 30, 1978, he 
shall report his income for the last 6 months  of  1977  and  the   first   6 
months of 1978 and shall  receive  credit  for  the  full   amount   of   tax 
withheld during calendar year 1977. The 1977 W-2 wage   and   tax   statement 
shall be attached to the return.

  History:  1979 AC.


R  206.16   Credit allowed resident for income tax paid to  other  states.
  Rule 16. (1) A resident taxpayer is allowed a credit for  tax  imposed   on 
income which is also subject to tax by another state of the United States, or 
political subdivision thereof, or the District of Columbia.  This  credit  is 
limited to the smaller of (a) the Michigan tax on such  income  or   (b)  the 
tax imposed by the other state.  The  credit   is   that   portion   of   the 
Michigan income tax that the income which is subject to tax  in  both  states 
bears to total taxable income. Example:
        Michigan wages                                          $ 8,000.00
        Wages earned in another state                             2,000.00
        United States government bond interest                    1,000.00
        Adjusted gross income                                    11,000.00
        United States government bond interest                    1,000.00
        Total taxable income                                     10,000.00

        Income subject to tax in both states $2,000.00 or 20%
        Taxpayer has 2 exemptions
        2 X $1,500.00                                             3,000.00
        Taxable balance                                           7,000.00
        Tax @ 4.6%                                                  322.00
        Tax paid to other state; $70.00
        Maximum credit allowed 20% of $322.00                   $    64.00

  In this example, the taxpayer cannot  claim  the  full   $70.00   paid   to 
another state as his credit is limited to 20% of $322.00   or   $64.40.   The 
credit cannot exceed the amount paid to another state.
  (2) Since Michigan allows a subtraction of income  attributable  to   other 
states the credit is ordinarily limited to  tax   imposed   on   compensation 
received for services rendered in another state.

  History:  1979 AC.


R 206.17.    City income tax credit.
  Rule 17. (1) Each person subject to tax under Act No.  281  of  the  Public 
Acts of  1967,  being  §§206.1  through  206.532  of  the  Michigan 
Compiled Laws, may claim a credit for a portion of the income taxes levied by 
cities in Michigan that are deductible if that person  had  not  elected  the 
standard deduction. For purposes of computations of this credit, city  income 
taxes do not include penalties or interest paid.
  (2) The amount of city income taxes used as a basis for computation of this 
credit shall be the city income tax paid by the taxpayer in the tax year. The 
tax paid shall be reduced by any refund of overpaid taxes of a prior year.
  (3) If  a  person  is  assessed  and  pays  additional  city  income  taxes 
applicable to prior years, the additional taxes paid shall be  added  to  the 
city income tax  of  the  year  in  which  they  are  paid  for  purposes  of 
computation of this credit.

  History:  1979 AC; 1998 - 2000 AACS.


R  206.18   Rescinded.

  History:  1979 AC; 1998 - 2000 AACS.


R  206.19   Adjustment of pre-tax gains or losses.
  Rule 19. (1) A taxpayer, whose federal adjusted   gross   income   includes 
gains and losses realized in the tax year from the  disposition  of  property 
acquired prior to October 1, 1967, which are described in  and   subject   to 
the provisions of subchapter P of the internal  revenue  code,  26  U.S.C.
S1201 et seq., may reduce taxable income by the portion of   gain   or   loss 
attributable to the period before October 1, 1967. When  this   election   is 
made, it shall include all items of  gain  or  loss   realized   during   the 
taxable year.
  (2) To compute this adjustment a fraction is applied to   the   gain.   The 
denominator is the total months held and the numerator is   the   number   of 
months held after October 1, 1967. In making   this   calculation,   property 
acquired or disposed of from the first to the fifteenth of the month shall be 
counted from the first of the month and property acquired   or   disposed  of 
after the fifteenth of the month shall be counted from the last day   of  the 
month.
  (3) Losses resulting from the application of  this  rule   shall   not   be 
carried forward.

  History:  1979 AC.


R  206.20   Withholding generally.
  Rule 20. (1)  Every  employer,  over  whom   Michigan   has   jurisdiction, 
required  to  withhold  federal  income  tax  from   compensation   paid   an 
employee, shall also withhold Michigan income tax   from   (a)   compensation 
paid to the employee if the employee is a resident of   Michigan,   and   (b) 
from that portion of the compensation earned in Michigan if  the  employee is 
not a resident of Michigan, unless (i)  the  compensation  is  paid   to   an 
employee from whom the employer is prohibited   from   withholding   Michigan 
income tax because of a federal law, or (ii) the employer is not  required to 
withhold Michigan income tax  because  of  a  reciprocal  agreement   between 
Michigan and another state or between  Michigan  and   another   city.   (See 
employer's tax guide.)
  (2)   Churches,   schools,   governmental    agencies,    and     nonprofit 
organizations exempt from income tax shall withhold   Michigan   income   tax 
from compensation paid employees the same as any other employer.
  (a) Example 1. A church has a full-time secretary  and  withholds   federal 
income tax from her compensation. The church shall  also  withhold   Michigan 
income tax from her compensation.
  (b) Example 2. A machine shop  is  located  in  Michigan   close   to   the 
Indiana state line. It employs residents of both Michigan and Indiana  and is 
required to withhold federal income tax from all  employees.  The  firm shall 
withhold Michigan income tax from  Michigan  residents,  but   will   not  be 
required to withhold Michigan income  tax  from  residents  of  Indiana   who 
provide the employer with a  certificate  of   nonresidency.   Michigan   and 
Indiana have a reciprocal agreement.
  (c) Example 3. A contractor from Pennsylvania builds a  shopping  center in 
Michigan. He employs residents of Michigan from the local  labor   force  and 
brings 2 of his permanent employees from  Pennsylvania  to  Michigan   for  3 
months to supervise the construction.  The  contractor  shall  register   and 
withhold Michigan income tax from the compensation paid  to   all   employees 
engaged in the project including the compensation paid to the 2  residents of 
Pennsylvania for the  compensation   paid   for   the   work   performed   in 
Michigan. This contractor has the same obligation to  withhold  the  Michigan 
tax as a Michigan contractor who performs all of his business in Michigan.

  History:  1979 AC.


R  206.21   Failure to withhold; withholding  less  than  correct  amount;
  liability of employer.
  Rule 21. (1) If an  employer  erroneously  fails   to   withhold   Michigan 
income tax from compensation paid to an employee, or  withholds   less   than 
the correct amount, he is liable for payment of the   amount   which   should 
have been withheld, whether or not it is collected from   the   employee   by 
the employer. The employer  should  correct  the  error   within   the   same 
calendar year, if possible, by deducting the difference  between  the  amount 
withheld and the amount required to  be  withheld   from   any   compensation 
still owed the employee.
  (2) If the failure to withhold is in a year other than  the  current  year, 
the employer is still liable for the amount that should  have  been  withheld 
and shall pay it to the department. Any reimbursement by  the   employee   to 
the employer is a matter between the employer and the employee.
  (3) If  the  employer  fails  to  withhold  the  tax   as   required   and, 
thereafter, the income tax against which the tax may be  credited  is   paid, 
the tax required to be deducted and withheld shall not  be   collected   from 
the employer. Such payment does  not,  however,  operate   to   relieve   the 
employer from liability for penalties and interest on the  tax  that   should 
have been withheld.
  (a) Example 1. An individual started  a  business  on  March   1   of   the 
current year. He was an employer  and  the  people  on   his   payroll   were 
employees subject to collection of federal income tax at  source   on   wages 
under chapter 24 of the internal revenue code, 26 U.S.C. S4101  et  seq.  The 
employer did not register and start withholding Michigan  income  tax   until 
August 1. The employer is liable for withholding the correct  tax  from   the 
compensation he pays his employees. He should compute the   tax   he   should 
have withheld from each employee from March 1 to  August   1   and   withhold 
this from each employee during the remainder of the year   in   addition   to 
the correct tax that must be withheld from each payment  of  compensation.
This is according to subrule (1) above.
  (b) Example 2. An employer  was  withholding  federal   income   tax   from 
wages, but was not withholding Michigan income tax. The  department  made  an 
audit in June, 1976, and determined the following:

     **** For Example 2 see attached file labeled "Figures" ****

  The department assessed tax  of  $2,829.00  plus   penalty   and   interest 
against the employer. Subsequently, the employer  obtained  signed   employee 
wage statements from the employees and sent them to the department.
  Employee no. 2 claimed he filed MI-1040  returns  for   the   years   1973, 
1974, and 1975. The department checked its records and  found   returns   for 
all 3 years and that the employee did pay the tax on his own MI-1040.
  Since the assessment had not  been  paid,  the   department   reduced   the 
assessment by $1,164.00, which is the tax in  the  audit   for   the   years, 
1973, 1974, and 1975. If the assessment  had  been   paid,   the   department 
would have issued a refund to the employer. This is  according   to   subrule 
(3) above. Employee no. 1 also gave  his  employer   signed   employee   wage 
statements claiming he filed MI-1040 returns and paid his own  tax   on   the 
wages he received from the employer. The department   checked   its   records 
and could not find a return for 1973. They found a joint  return  for   1974, 
but the adjusted gross income on  the  return  was   $12,000.00.   This   was 
compensation the wife received as a  schoolteacher.  It   agreed   with   the 
compensation  shown  on  the  W-2  issued  by  the   school   district.   The 
department also found a joint return for 1975 and  the   employee   and   his 
wife reported the compensation from both their  employers.   The   department 
reduced the assessment  against  the  employer  by  $450.00   for   the   tax 
included in the audit for 1975 since the employee paid  the   tax   on   this 
compensation on his own MI-1040. This is according to subrule  (3)  above.
  The department cannot give the employer relief for  the   tax   he   should 
have withheld from employee no. 1 in 1973 and 1974 since  the  employee   did 
not report on any MI-1040 the compensation he received from the  employer.
  Employee no. 1 is delinquent for the year 1973 and filed  a  false  MI-1040 
for 1974. The department will give the employee credit as  tax  withheld   of 
$328.00 in 1973 and $438.00 in 1974 at the time it confronts  him  about  his 
individual income tax returns. The employer shall look to the employee  if he 
wishes to get reimbursed for these 2 amounts. This is a matter   between  the 
employer and the employee. See subrule (2) above.
  The employer may recover the $449.00 tax he did not withhold  in  1976   by 
deducting it  from  future  compensation  paid  the   employee   during   the 
remainder of the year according to subrule (1).  The   employees   shall   be 
given credit for these amounts on their 1976 W-2 plus any  additional  tax to 
be deducted for the remainder of 1976.

  History:  1979 AC.


R  206.22   Overwithholding or withholding in error.
  Rule 22. (1) If an employer overwithholds income tax  from  an   employee's 
wages, or if he withholds Michigan tax where he should  not   have   withheld 
Michigan tax, he may repay the amount withheld in error to  the  employee  at 
any time within the same calendar year. He shall obtain a  receipt  from  the 
employee for the amount refunded and keep it as a part of his own records.
The employer may adjust his  records  internally  and   deduct   the   amount 
refunded from the tax owing on his next return or he may ask   for   a   cash 
refund.
  (2) The fact that an employer is withholding more on  1   basis   than   he 
would if he were using another  method,  for  example,   the   wage   bracket 
method as compared to the percentage method, does not mean  that  there   has 
been an overcollection.  The  employer  may  choose   whichever   method   he 
prefers and  if  his  computation  is  correct  according   to   the   method 
selected, there is no overcollection. Similarly, if an  employee   does   not 
file an exemption certificate so that more is  withheld   than   would   have 
been if he had claimed his exemptions, there is no  overcollection  on   that 
account and no repayments to him by the employer would be authorized.
  (3) If the employer does not repay the employee  for  the   overcollection, 
the employee's remedy lies in claiming credit for the amount  withheld  on an 
individual income tax return.
  (a) Example 1. An employee was a resident  of  Michigan   and   lived   and 
worked in Michigan through June of  the  current  year.  On   July   1,   his 
employer reassigned the employee to New York state. The  employee  moved   to 
and became a legal resident of New York state on July 1.
  The employer  correctly  withheld  $600.00  Michigan   tax   from   January 
through June,  but  erroneously  withheld  another   $200.00   Michigan   tax 
instead of New York tax during July and August and  paid   Michigan   $800.00 
tax which was withheld from this 1 employee.
  The employer should refund $200.00 to the employee and  obtain  a   receipt 
for his records. The employer may either reduce his next  Michigan  return by 
$200.00 or ask for a refund. The  W-2  shall  show   $600.00   Michigan   tax 
withheld.
  (b) Example 2. A coding error resulted in Michigan   tax   being   withheld 
from an employee who is a resident of Minnesota. The employee never  lived or 
worked in Michigan. The employee found the error when he  received  his  W-2. 
If the employer can recover the W-2 and issue  a  corrected  W-2  showing  no 
Michigan tax withheld, he may refund the  tax  to  the  employee,  obtain   a 
receipt, and either deduct it from the amount withheld the following month or 
ask the department for a refund. If the employer cannot recover the W-2  from 
the employee, the  employee  shall  obtain  relief  by  filing   a   Michigan 
individual income tax return.

  History:  1979 AC.


R  206.23   Withholding tax returns.
  Rule 23. The income tax withheld from compensation paid to employees  is  a 
personal obligation of the employer (taxpayer) and is due and payable  on  or 
before the fifteenth day of the month  next  succeeding  the  month  in which 
the tax was withheld. The commissioner  of  revenue  may  require  filing  of 
returns on other than a monthly basis. The taxpayer shall  make  out   a  tax 
return for the preceding month  on  the  form  required  by  the  department, 
showing the amount of the tax for which he is liable and  mail  the   return, 
together with a remittance for the amount of the tax, payable to the state of 
Michigan, to the address as indicated on  the  return,  on  or   before   the 
fifteenth day of the month. The return shall be signed by  the  taxpayer   or 
the duly authorized agent of the taxpayer.

  History:  1979 AC.


R  206.24   Withholding exemption certificate.
  Rule 24. (1) Every employee shall  file  a   signed   employee's   Michigan 
withholding exemption certificate, form MI-W4, with his or  her  employer.
The number of personal and dependency  exemptions  claimed   on   the   MI-W4 
shall not exceed the number of  personal  and   dependency   exemptions   the 
employee is entitled to claim on his or her individual income tax  return.
If married, and the employee and his or her spouse are  both  employed,  they 
shall not claim the same personal and  dependency   exemptions   with   their 
employers at the same time. If a person is unmarried and holds  more  than  1 
job, the person shall not claim  the  same  exemption  with   more   than   1 
employer at the same time.
  (2)  An  employee  may  claim  exemption  from    Michigan    income    tax 
withholding, which shall be renewed annually,  if  all   of   the   following 
conditions exist:
  (a) He claimed exemption from federal income tax withholding.
  (b) He did not incur a Michigan income tax liability   for   the   previous 
year.
  (c) He does not anticipate a  Michigan  income  tax   liability   for   the 
current year because his employment is less than full time,  intermittent, or 
temporary, and his personal  and  dependency  exemptions  will   exceed   his 
annual compensation.
  (3) An employee shall file a new  certificate  within  10   days   if   the 
number of exemptions previously claimed decreases because:
  (a) The spouse for whom the employee  has  been   claiming   exemption   is 
divorced or legally separated, or claims her or his  own   exemption   on   a 
separate certificate.
  (b) The employee finds that a dependent claimed as an  exemption   on   the 
certificate must be dropped for federal purposes.
  (4) The death of a spouse or a dependent does not  affect  the   employee's 
withholding until the following year.
  (5) If an employee fails or refuses to furnish  an  exemption  certificate, 
the employer shall withhold tax from  the   employee's   total   compensation 
without allowance for any exemptions.

  History:  1979 AC.


R  206.25   "Homestead" defined.
  Rule 25. (1) "Homestead" means a dwelling, or a unit in  a  multiple   unit 
dwelling, which is subject to property tax or a service charge  in  lieu   of 
taxes pursuant to section 15a of Act No. 346 of the Public  Acts   of   1968, 
and is occupied as a home by the owner or renter. Real property classified as 
agricultural land for property tax   purposes   is   part   of   a   person's 
homestead under any of the following conditions:
  (a)  If  the  gross  receipts  from  the   taxpayer's    agricultural    or 
horticultural operations are greater than his household income, all  taxes on 
farmland may be claimed for credit.
  (b) If gross receipts from the taxpayer's  agricultural  or   horticultural 
operations are less than his household income,  the   credit   for   property 
taxes is limited to the property taxes on land that he has lived  on  for  10 
years or more and which is adjacent or contiguous to his home.
  (c) If the taxpayer has not lived on the land for 10 years  and  the  gross 
receipts from agricultural or horticultural operations do  not   exceed   the 
taxpayer's household income, only the taxes on the home  and   5   acres   of 
land may be claimed for credit.
  (2) The taxes on a homestead, which is an integral part of a larger unit of 
assessment, shall be the proportion of the total property tax that  the value 
of the homestead is to the total value of the assessed property.
  (a) Example 1. The taxpayer is an insurance agent and is  using  the  first 
floor of his 2-story house as a business office. He and his  wife   live   on 
the second floor. Assuming  the  value  of  the  real   property   used   for 
business is equal to the value of the real property used as   a   home,   the 
taxpayer may claim for credit one-half of the property taxes.
  (b) Example 2. The taxpayer has converted the second floor of  his  home to 
an apartment which he rents for  $175.00  per   month.   To   determine   the 
property taxes applicable to the apartment, the annual  rent   of   $2,100.00 
(12 x $175.00 = $2,100.00) is multiplied by 17%. This  amounts   to   $357.00 
which is subtracted from the total property taxes assessed   to   arrive   at 
the homestead property tax the taxpayer may claim for credit.
  This example is used when the homestead is a part of a   larger   unit   of 
assessment and that portion  of  the  assessed  property  not   used   as   a 
homestead by the taxpayer is  rented  or  leased  to   another   person   who 
occupies it as his home.
  (3) A mobile home or trailer coach in a trailer park is a homestead. See  R 
206.28 for the property taxes that may be  claimed  for  credit  by   persons 
residing in a mobile home in a trailer park.
  (4) A nursing home or foster care home or  home  for  the   aged   is   the 
homestead of a permanent resident. A homestead maintained  elsewhere  by  the 
spouse is considered a part of the same homestead.
  (5) A single person who is a  permanent  resident  of   a   nursing   home, 
foster care home, or home for the aged and also owns the  house  he  formerly 
occupied may claim for credit either the taxes on the house or  his  share of 
the taxes paid by a nursing home, foster care home,  or  home  for  the aged, 
but not both.
  (6) See R 206.28 for the property taxes that may be claimed  for  credit by 
a person residing in a nursing home, foster care home, or home for  the aged.

  History:  1979 AC.



R  206.26   Property taxes claimable for homestead  property  tax  credit;
  sale of property; apportionment of taxes; computation of credit.
  Rule 26. (1) Property taxes which may be  claimed  for   a   property   tax 
credit are:
  (a) Taxes based on the state equalized value of  the  homestead,  including 
collection fees. Special assessments based on state   equalized   value   may 
also be claimed.
  (b) The property must be  located  in  Michigan  and   be   the   principal 
residence of the claimant.
  (c) The taxes shall be the taxes billed  for  the  year   the   credit   is 
claimed. For example, a property tax credit  claimed  for   1976   shall   be 
based on taxes billed to the owner for 1976, usually in July and December.
  (2) If the property  is  sold  during  the  year,  the   taxes   shall   be 
apportioned between the buyer and seller according to the number  of  days in 
the calendar year that each occupied the house.
  Example 1. The taxpayer sold his home in April, 1976,  which  he   occupied 
until May 31, 1976. The  property  taxes  for  1976   amounted   to   $600.00 
(summer taxes $200.00, winter taxes $400.00) billed to the   new   owner   in 
July and December of 1976. On August 1, 1976,  he  purchased   a   new   home 
which he first occupied on October 1, 1976. The 1976 taxes on  the  new  home 
totaled $800.00 (summer taxes $300.00, winter taxes   $500.00).   The   taxes 
that may be claimed for credit are computed as follows:

                                        Homestead       Homestead Computation 
Steps                       Sold            Bought

1. Number of days occupied              152             92 2. Divide  line  1 
by 366 days            41.5%           25.1% 3. 1976 property taxes           
       $600.00         $800.00 4. Prorated  taxes  line  3  X  line  2        
$249.00         $200.80 5. Total taxes for credit                             
          $449.80

  The taxpayer rented a home for the period June 1 to  September  30,   1976, 
and may also claim the 17% of tax in rent.

  History:  1979 AC.


R  206.27   Homestead property tax credit; "owner" defined.
  Rule 27. (1) The term "owner," for the purpose of  claiming   a   homestead 
property tax credit, means a natural person who owns his home or is:
  (a) Purchasing a homestead under a mortgage or land contract.
  (b) Purchasing a dwelling on leased land.
  (c) A tenant stockholder of a cooperative housing corporation.
  (d) Holding a life lease in a homestead previously sold.
  (e) The sole occupant of a homestead in which he is a joint owner.
  (2) Claimants not related as husband  and  wife,  who   jointly   own   and 
occupy the same dwelling, shall file separate  claims   on   their   prorated 
share of the taxes.

  History:  1979 AC.


R  206.28   Homestead property tax credit; renter.
  Rule 28. (1) A person renting a homestead that is subject  to  a   property 
tax is entitled to a homestead property tax credit similar  to   the   credit 
allowed the homeowner.
  (2) The renter, in his computation of the credit, shall use  17%  of  gross 
rent for taxes on his homestead.
  (3) Gross rent is the contracted rental amount the renter or lessee pays to 
the landlord. If the department has  reason  to  believe  that   the   amount 
charged is excessive, the department may adjust the rent   to   fair   market 
value for purposes of computing the credit.
  (4) Persons living in a mobile home park may claim credit  on   the   $3.00 
per month specific tax and 17% of the remaining charges as rent.
  Example 1. Monthly charges for the lot are $65.00,  including   the   $3.00 
per month specific tax. Rent paid for the  entire  year,  $62.00   x   12   = 
$744.00.
        Property tax in rent, 17% X 744.00                      $126.48
        Specific tax at $3.00 per month                           36.00

        Homestead property taxes for credit computation         $162.48

  (5) A person renting a homestead which is subject to a   service   fee   as 
provided by section 15a of Act No. 346 of the Public Acts  of   1966,   being 
S125.1415a of the Michigan  Compiled  Laws,  in  lieu  of   an   ad   valorem 
property tax, shall base his  property  tax  credit  on   the   service   fee 
included in the rent he pays. He does  not  use  17%  of   rent   paid.   For 
example, John Doe rents a home for $160.00  per  month   or   $1,920.00   per 
year. The home is tax exempt but a service fee of 7% of rent   is   paid   to 
the city by the owner. In the computation of the credit, John Doe uses  7% of 
$1,920.00 or $134.40 for property taxes. The service fees can vary from 1% to 
10% of the rent paid depending on the  city  and  type  of  housing.
Therefore, occupants of service fee housing should   ask   their   management 
agent for the percentage that applies to their homestead.
  (6) Persons residing permanently in homes for the aged,  nursing  homes, or 
foster care homes that  issue  a   lump   sum   billing   for   rent,   food, 
nursing, and other  services  shall  use  their  allocated   share   of   the 
property taxes levied on the facility in the computation of their  credit.
For example, Mary Doe is a permanent resident of a nursing  home  licensed by 
the department of public health as  a  40-bed  facility  which  was  assessed 
property taxes of $4,840.00 for the tax year. Mary Doe's  allocated  share of 
the taxes  is  $121.00  ($4,840.00 :   40   =   $121.00).   The   number   of 
occupants designated by the license or permit issued by  the  department   of 
public health or department of  social  services  shall  be   used   in   the 
allocation of the taxes.
  (7) Other renters of homesteads that have their meals  furnished   by   the 
landlord and received a lump sum billing shall compute their  credit  on  the 
property taxes levied on the homestead. If the homestead is  located   in   a 
multi-dwelling complex, the property  taxes  on  the   entire   complex   are 
allocated to each apartment in the complex. The allocation is to be  based on 
the square feet of each apartment to   the   total   square   feet   of   all 
apartments. For example, Mr. and Mrs. Doe rent a 600-square-foot apartment in 
a 100-unit apartment complex. They are billed  $750.00  per  month  for  rent 
and meals. The rent is not stated separately. The total  square  feet of  all 
of the apartments is 62,000. The taxes on  the  complex,  including carports, 
swimming pool, and common  laundering  facilities,  amounted  to  $54,000.00. 
The taxes that Mr. and  Mrs. Doe  may  claim  for  credit  are $523.80 (600 : 
62,000 = 0.97% x $54,000 = $523.80).
  (8) This rule to become effective for the tax year  starting   January   1, 
1978.

  History:  1979 AC.


R  206.29   Homestead  property  tax  credit;  separation  or  divorce  of
  claimants.
  Rule 29. (1) For the period prior to separation or divorce,  the  taxes  or 
rent paid shall be prorated on the basis of each spouse's  income  to   total 
income for the period. However, if 1 spouse's income does   not   equal   1/2 
the taxes or tax in rent for the period, the other spouse may  claim  all  of 
the taxes or tax in rent for that period. In the example   in   subrule   (5) 
Alice is not entitled to claim part  of  the  property   taxes   during   the 
period they lived together because for that period she did  not  have  income 
equal to 1/2 of the taxes.
  (2) During the period of separation or  divorce,  the   occupant   of   the 
homestead is entitled to the credit.
  (3) If 1 of the parties to  a  separation  or  divorce   is   required   to 
continue the house payments and taxes or the rent on the dwelling occupied by 
the other, the occupant shall include  these   payments   in   his   or   her 
household income.
  (4) Household income is that  income  received  during   the   period   the 
claimant is entitled to claim property taxes or tax in rent.
  (5) Example 1. Bob and Alice Jones separated June 1   and   were   divorced 
November 3. They owned a home  on  which  the  taxes  for   the   year   were 
$900.00. Alice continued to occupy the home  and  received   title   to   the 
property upon their divorce. Bob moved into an apartment June  1   and   paid 
$225.00 per month rent for the balance of the year. Bob's  income   for   the 
year was $15,000.00 and, at the time they separated, he was  ordered  to  pay 
Alice $200.00 per month plus the payments on the house  ($240.00  per  month, 
including taxes and insurance). The divorce decree called  for   alimony   to 
Alice of $200.00 per month. Alice earned $30.00 per month  on   a   part-time 
job through July but quit to go to work full time on August 1 for a salary of 
$500.00 per month. Their homestead  property  tax  credits  are  computed  as 
follows:

     **** For Example see attached file labeled "Figures" ****

  History:  1979 AC.


R  206.30   Homestead property tax credit; part-year resident.
  Rule 30. A person who moved into or out of the state during  the  tax  year 
and was a resident for at least 6 months may compute a property tax credit on 
his or her Michigan household  income.  For   purposes   of   computing   the 
credit, the taxes on the Michigan home bought or sold shall  be  reduced   to 
the ratio of days occupied to total days in the tax year.
  (a) Example 1. Mr. Jones came to Michigan on May 1,   purchased   a   home, 
and moved into it with his family on June 1. The taxes on the  home  for  the 
full year were $720.00. Mr. Jones received the following income:

     **** For Example see attached file labeled "Figures" ****

  History:  1979 AC.


R  206.31   Homestead property tax credit; death of taxpayer.
  Rule  31.  The  6-month  residency  rule  does  not   apply   to   deceased 
taxpayers. The taxes on which a credit may be based are  those  taxes  billed 
to, and paid by, the claimant for the current tax year.  For   renters,   the 
tax is 17% of the rent paid up to the date of death.

  History:  1979 AC.


R  206.32   Veteran's homestead property tax credit.
  Rule 32. (1) The credit allowed servicemen, veterans,   or   their   widows 
under the requirements of section 506 of Act No. 281 of the  Public  Acts  of 
1967, being S206.506 of the Michigan Compiled Laws, shall be   known   as   a 
veteran's homestead property tax credit.
  (2) A person eligible for the veteran's credit may file a  claim  for   the 
year in which he first became eligible and all years thereafter for  which he 
remains eligible, including  the   year   in   which   his   eligibility   is 
terminated. Eligible claimants  of  a  veteran's   homestead   property   tax 
credit who buy or sell and rent a home during the tax  year   shall   compute 
their credit as shown in the following example:
  John  Brown  is  an  eligible  veteran  with   a   30%    service-connected 
disability which entitles him to a  state  equalized   value   allowance   of 
$3,500.00. He sold his home in March and moved out on April  30.  Its   state 
equalized value was $10,500.00. The taxes for the entire  year  amounted   to 
$546.00. He rented a home for the next 5 months for $275.00  per  month.   He 
purchased a new which he moved into on  October  1.   The   state   equalized 
value is $15,000.00. Taxes of $780.00 were assessed for the  entire  year.
Mr. and Mrs. John Brown's household income for the tax   year   amounted   to 
$12,000.00.

     **** For Example see attached file labeled "Figures" ****

  Note: Veterans renting a homestead subject to a service fee  in   lieu   of 
property taxes should enter their share of the  service  fee   on   line   47 
instead of 17% of rent paid. See your management agent for  your   share   of 
the service fee.

  History:  1979 AC.


R  206.33   Income tax return preparers.
  Rule 33. (1) An income tax return preparer  shall   furnish   a   completed 
copy of any return or refund claim he prepares to the taxpayer  before  or at 
the time he presents it to him for signing.
  (2) The preparer shall retain a completed copy of the  return   or   refund 
claim, or retain on a list the name, taxpayer's social  security  number  and 
taxable year of the taxpayer for whom such return or claim  for  refund   was 
prepared.
  (3) The preparer shall make such copy or list  available   for   inspection 
upon request by the commissioner of revenue  or   his   representative.   The 
return copy or list shall be retained for the 3-year  period  following   the 
close of the return period during which such return or   claim   for   refund 
was presented to the taxpayer for filing. However, in the case  of  a  return 
which becomes due during a return period (including   extensions,   if   any) 
following the return period during which the return was  presented   to   the 
taxpayer for filing, then such materials as described   in   this   paragraph 
shall be retained and kept available for inspection upon  request   for   the 
3-year period following the close of such later return period  in  which  the 
return became due. For the definition of "return period"  see  the   internal 
revenue code, 26 U.S.C. S6060(c).
  (4) For the purpose of this rule, the term "income  tax  return   preparer" 
means any person who prepares for compensation, or who employs  1   or   more 
persons to prepare for compensation, any return  of  tax   imposed   by   Act 
No. 281 of the Public Acts of 1967, or any claim for refund  under  the  same 
act. For the purpose of the  preceding  sentence,  the   preparation   of   a 
substantial portion of a return or claim for refund shall be treated as if it 
were the preparation of such return or claim for refund.
  (5) In the case of an employment between 2 or  more   income   tax   return 
preparers, the person who employs 1 or more other preparers  to  prepare  for 
compensation any claim for refund other than for such person  (and  not   the 
other preparer) shall be considered to be the income tax return  preparer.
  (6) In the case of a partnership  arrangement  for   the   preparation   of 
returns and claims, the partnership shall be considered to  be   the   income 
tax return preparer.

  History:  1979 AC.