MS HB612

Defines "Captive REIT" as a real estate investment trust that distributes at least one-half of its federal taxable income to related entities on a consolidated return or consolidated financial statement, and requires captive REITs to add back any dividend deductions when computing taxable income.

Expands the definition of "intangible expenses and costs" to include rent and broadens "intangible property" to encompass franchises, know-how, formulas, designs, patterns, processes, formats, accounts receivable, and similar assets.

Adds "management and administrative fees" (expenses for services like payroll, accounting, legal, insurance, and financial services) to the list of expenses subject to add-back requirements when paid to related members.

Modifies restrictions on deducting interest expenses and management fees paid to related members by allowing exceptions when the related member paid the expense to unrelated parties or when the corresponding income was subject to state or federal net income tax in the same year.

Defines "Subchapter K entity" as partnerships, limited liability companies, and other entities subject to federal subchapter K taxation, excluding single-member limited liability companies, and clarifies sourcing of interest income from related members.

Effective January 1, 2012, with no retroactive application to prior tax assessments or claims.