On Jan. 13, 2025, Michigan Gov. Gretchen Whitmer (D-MI) signed several bills into law to stimulate economic growth, boost research and development (R&D) initiatives, and foster a more innovation-driven economy. These initiatives reflect a shift in policy aimed at incentivizing local businesses and promoting collaboration with universities for R&D.
These bills illustrate Michigan's commitment to creating a conducive environment for businesses, particularly in the fields of research, development, and innovation. The goal is to incentivize businesses to invest more in R&D and to strengthen collaborations with research universities, thus fostering a culture of innovation that can drive economic growth in the state.
"Our brand-new, bipartisan Innovation Fund and R&D Tax credit will empower Michigan entrepreneurs, lower costs for Michigan businesses, and create good-paying Michigan jobs," said Governor Whitmer. "I'm proud that we worked across the aisle on these commonsense bills to grow our economy and ensure more people can make it in Michigan. We still have more work to do to make Michigan the best state to build your big idea, and I'll have more to say later this week during my Road Ahead Address."1
The Michigan R&D Tax Credit
Michigan's new R&D tax credit program, comprised of Michigan House Bills 5100 and 5101, aims to boost innovation by offering significant tax incentives to businesses conducting R&D within the state. By enacting this R&D tax credit program, Michigan joins the ranks of other states such as Texas, New York, Arizona, California, and Illinois, who all offer similar R&D tax credit programs for businesses looking to locate facilities in their respective states.
- Michigan House Bill 5100 (Income Tax Credits): A bill introduced by Rep. Jasper Martus (D) and nine co-sponsors including Jason Hoskins (D), Julie Rogers (D), and Laurie Pohutsky (D), establishes a new income tax incentive program for research and development activities conducted within the state. The legislation, which amends the 1967 Michigan Income Tax Act, was approved by Whitmer on Jan. 13, 2025, and took effect April 2, 2025. House Bill 5100 creates a tiered tax credit system against state income tax that provides different benefits based on company size. Large businesses (over 250 employees) can receive up to $2 million in annual credits through a combination of 3% credit on base R&D expenses and 10% on expenses exceeding the base amount. Smaller businesses, with fewer than 250 employees, are eligible for up to $250,000 annually, with a more generous 15% credit rate on expenses above their base amount. The legislation includes an additional 5% credit worth up to $200,000 for businesses collaborating with Michigan research universities. Importantly, the total program is capped at $100 million in tax credits per calendar year, with $25 million specifically reserved for smaller businesses and the remaining $75 million allocated to larger companies.
- Michigan House Bill 5101 (Employer Withholding Tax Credits): Introduced by Rep. Julie Rogers and supported by 13 co-sponsors including Jason Hoskins (D), Rachel Hood (D), and Christine Morse (D), this legislation creates a groundbreaking employer withholding tax credit program by adding Section 717 to the 1967 Michigan Income Tax Act. While working in tandem with HB 5100, this separate bill specifically targets payroll tax obligations, allowing qualifying employers to reduce their withholding tax burden based on their R&D investments. Signed into law on Jan. 13, 2025, with an April 2, 2025 effective date, the program enables large employers, with over 250 employees, to claim withholding tax credits of up to $2 million annually. These credits are calculated using a dual-rate structure: 3% of baseline R&D spending plus 10% of incremental R&D investments. For smaller employers (under 250 employees), the program offers enhanced benefits with credits up to $250,000 per year and a more favorable 15% rate on incremental R&D spending. To promote academic collaboration, employers can earn an additional 5% credit (maximum $200,000) for R&D partnerships with Michigan universities. The program operates under a shared annual cap with HB 5100, maintaining the $100 million limit divided between small ($25 million) and large ($75 million) employers.
The Michigan Innovation Fund
The Michigan Innovation Fund, comprised of Michigan House Bills 5651, 5652, and 5653, represents a major investment in the state's startup ecosystem and venture capital landscape. The program allocates funds across multiple channels with 80% directed to established venture funds, 8% to emerging venture funds, and 7% to nonprofit startup support services. The initiative requires recipients to invest in early-stage Michigan companies involved in competitive edge technologies, with specific provisions to ensure investment in geographically disadvantaged areas.
- Michigan House Bill 5651: Introduced by Rep. Greg VanWoerkom (R) and co-sponsors Alabas Farhat (D), Jason Hoskins (D), and Reggie Miller (D), amends the 21st Century Jobs Trust Fund Act (2000 PA 489). The legislation, effective April 2, 2025, updates regulations for the state's trust fund, primarily focusing on investment management and fund disbursement rules. House Bill 5651 maintains the annual deposit of $75 million in tobacco settlement revenue into the 21st Century Jobs Trust Fund through fiscal year 2026, while continuing to allocate $17.5 million annually to the state's budget stabilization fund through 2035. The fund's earnings must be deposited into the general fund, and disbursements are restricted to specific economic development programs under the Michigan Strategic Fund Act, particularly for innovation fund initiatives.
- Michigan House Bill 5652: Michigan House Bill 5652, introduced by Rep. Jason Hoskins and co-sponsored by Alabas Farhat (D), Greg VanWoerkom (R), and Reggie Miller (D), amends the Michigan Early Stage Venture Investment Act of 2003. The legislation establishes new requirements for early-stage venture investment corporations in Michigan, with a focus on promoting economic development through venture capital investments in seed and early-stage businesses. The bipartisan bill mandates that if a Michigan early-stage venture investment corporation has realized investment returns as of June 30, 2024, it must distribute $60 million to the 21st Century Jobs Trust Fund, with the remaining returns going to the state's general fund. For subsequent years after Dec. 31, 2024, all realized returns must be deposited in the general fund. The legislation also requires that any remaining assets upon dissolution of these corporations be transferred to the state's general fund, and sets a minimum expiration date of Jan. 1, 2030, for funds created under the act.
- Michigan House Bill 5653: A bipartisan bill introduced by Rep. Alabas Farhat (D) and co-sponsors Jason Hoskins (D), Greg VanWoerkom (R), and Reggie Miller (D), amends the Michigan Strategic Fund Act of 1984. The bill establishes the Michigan Innovation Fund program to support investments in early-stage startups, venture capital firms, and startup support services in the state. The bill creates a detailed funding allocation framework through fiscal year 2054, distributing funds as follows: 5% for general investments, 80% for qualified evergreen venture funds, 8% for emerging evergreen funds, and 7% for nonprofit startup support services. The program includes specific requirements for fund recipients, including mandatory investment of at least 5% in geographically disadvantaged business enterprises, and limits administrative costs to 15% of grant awards. Any investment returns exceeding $8 million within 15 years must contribute 10% back to the state's general fund. The legislation includes strong oversight provisions, requiring annual reporting and performance reviews of fund recipients.
"Throughout our history, Michigan minds and muscle have
pushed boundaries, made a difference, and driven our state
forward," said Lt. Gov. Garlin Gilchrist II. "These new
tools will make it easier for countless innovators and
entrepreneurs across Michigan to grow our economy, pioneer exciting
tech, and make their next big idea a reality. Let us continue to
stand tall, tell Michigan's story, and show the world that
Michigan is the best place to build the future."
"I'm thrilled to start 2025 off strong by celebrating this
historic new investment in Michigan's innovation economy,"
said Ben Marchionna, chief innovation ecosystem officer at the
MEDC. "By establishing the Michigan Innovation Fund alongside
the new R&D Tax Credit, we're declaring the grit,
creativity, and enduring prowess of our entrepreneurs and
innovators deserve to be supported and showcased. Equitable,
accessible funding and an R&D-friendly tax environment is how
we'll transform today's big ideas into tomorrow's
growth industries. I'm grateful to the legislature, Governor
Whitmer and Lt. Governor Gilchrist for supporting this as the
largest state appropriation for entrepreneurship and innovation in
nearly two decades. This bold move shows the world that Michigan is
serious about building a thriving innovation ecosystem – one
where founders can truly 'Make it' in Michigan."
How Ankura Can Help
Ankura's team of experts specializes in helping businesses across the U.S. navigate and secure state incentives to support growth, innovation, and development. Whether you are seeking tax credits, grants, or funding for your projects, our team provides tailored support to maximize the value of available programs. Our services include:
- Incentive Eligibility Assessment: Identifying the programs and opportunities best suited to your organization's needs and goals.
- Strategic Application Support: Guiding you through the application process, ensuring compliance with program requirements, and developing compelling submissions.
- Financial Modeling and Impact Analysis: Creating detailed financial models to highlight the value of incentives and their impact on your projects.
- Stakeholder Advocacy: Engaging with local, state, and federal officials to build support for your projects and secure necessary approvals.
With over $300 million in state incentives secured for our clients in the past year, Ankura is your trusted partner in leveraging incentive programs to achieve your strategic objectives.
Footnote
- Michigan Economic Development Corporation: Press Release
- Office of Governor of Michigan Gretchen Whitmer: Press Release
- Office of Governor of Michigan Gretchen Whitmer: Make it in Michigan one-pager
- House Bill 5100: Bill Text
- House Bill 5101: Bill Text
- House Bill 5651: Bill Text
- House Bill 5652: Bill Text
- House Bill 5653: Bill Text
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
