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TaxationIn the U.S., tax jurisdiction is divided among the federal government, the 50 states and the District of Columbia, and local countiesand municipalities that have varying degrees of tax authority. A company’s tax burden depends on the jurisdiction in which it operatesand earns taxable income.Michigan is one of the most tax-efficient states in the country for manufacturers. Michigan recently enacted a newbusiness tax that is effective Jan. 1, 2008, and provides generous tax breaks for manufacturers. The new tax has twocomponents: an income tax and a modified gross receipts tax. The income tax portion is imposed at a rate of 4.95%, oneof the lowest income tax rates imposed on corporations by any of the states in the country. The modified gross receiptsportion of the new business tax is imposed at a rate of 0.8% on all taxpayers physically present in Michigan.The new Michigan Business Tax provides significant tax incentives for manufacturers operating in Michigan, including atax credit of 0.37% for compensation paid to Michigan employees; an investment tax credit equal to 2.9% of the cost ofnew depreciable assets located in Michigan; and a tax credit of 1.9% of all research and development expenses incurredin Michigan during the tax year. These three credits can offset up to 75% of a taxpayer’s total tax liability. Michigan alsoprovides a special entrepreneurial tax credit for 2008 through 2010 equal to 100% of the increased tax liability attributable tothe increase in employment in Michigan for businesses that in the previous tax year had less than $25 million in gross receipts,created in Michigan, or transferred to Michigan, at least 20 new jobs, and made at least $1.25 million in capital investments.Michigan also provides other tax credits for brownfield developments and for investments in designated Renaissance Zones.Michigan taxes real estate, personal property and sales. Manufacturers can claim a refundable credit equal to 35% of thepersonal property taxes levied on industrial personal property. Generally, manufacturers are exempt from sales tax forpurchases of raw materials and equipment used in manufacturing. Michigan taxes personal income at 3.9%, which isone of the lowest personal income tax rates in the country.Under the income tax treaty between China and the United States, income attributable to a Michigan subsidiary will be subjectto U.S. federal income tax. The treaty also provides that taxation of dividends, interest and royalties paid by a wholly-ownedU.S. corporation to its Chinese parent is limited to 10%. Otherwise, the Chinese parent of a subsidiary will not be subject totax in the U.S. unless the Chinese parent conducts business in the U.S. through a permanent establishment. Typical transferpricing restrictions will apply to transactions between a wholly-owned subsidiary and its Chinese parent.Doing business in MichiganImport/Export RegulationsSince the terrorist attacks of Sept. 11, 2001, the federal government has instituted changes to import and export regulations.Increased surveillance and enforcement by federal agencies designed to protect trade routes with important trading partnerssuch as China do require companies to take special care to learn and adhere to U.S. import and export regulations.A number of Chinese companies invest in Michigan to promote the import of Chinese-made products. They are either sellingfinished products or jointly producing products with Michigan companies for sale in the U.S. or for re-exportation. Establishing sales,assembly, warehousing or R&D facilities in Michigan can help promote a Chinese company’s imports into the U.S.Imports must be properly declared to the U.S. Customs and Border Protection (CBP). CBP officers may detain and examine importsto ensure compliance with laws and regulations. When a formal “entry of merchandise” occurs, the “importer of record” must fileor electronically transmit all required documentation. The importer of record must use reasonable care to enter, classify, and valuethe goods to enable CBP to assess duties, collect accurate statistics, and determine whether all applicable legal requirements are met.25