United States: Michigan Enacts Corporate Income Tax And MBT Legislation Concerning Unitary Business Groups

Michigan has enacted two separate corporate income tax (CIT) and Michigan Business Tax (MBT) legislative provisions that could have significant impact on corporate structures with significant Michigan presence. For tax years beginning after December 31, 2012, affiliated groups are allowed to make an election to be treated as a unitary business group that may file a combined return for purposes of the CIT.1 In addition, for tax years beginning after December 31, 2011, each member of a flow-through entity that makes an election to continue to file MBT returns to receive "certificated credits" and does not file as a member of a unitary business group must disregard all items attributable to that member's ownership interest in the flow-through entity for purposes of the CIT.2

Affiliated Group Unitary Election

For tax years beginning after December 31, 2012, the CIT has been amended to provide an affiliated group with the option of making an election to file combined returns and be treated as a unitary business group.

Affiliated Group

"Affiliated group" means the federal definition of the term from Internal Revenue Code (IRC) Section 1504,3 with substantial modifications. A Michigan "affiliated group" includes all U.S. persons that are corporations, insurance companies, or financial institutions, other than a foreign operating entity, that are commonly owned, directly or indirectly, by any member of the affiliated group and other members of which more than 50 percent of the ownership interests with voting rights or ownership interests that confer comparable rights to voting rights of the member is directly or indirectly owned by a common owner or owners.4 The definition of "unitary business group" is amended to include an affiliated group that makes the election to be treated, and to file, as a unitary business group.5

Unitary Election

A person that is part of an affiliated group may elect to have all of the persons that are included in the affiliated group to be treated as a unitary business group.6 The election must be filed in a timely manner with the taxpayer's annual return and on a form or in a format as prescribed by the Department of Treasury. Each person included in the affiliated group or that subsequently joins the group is bound by the election. The election is irrevocable and binding for the tax year during which the election was made and the following nine tax years.7 The election remains in effect for the time period in which the ownership requirements under the Michigan definition of "affiliated group" are met even if a federal consolidated group to which the unitary business group belongs discontinues the filing of a federal consolidated return or the common parent changes due to a reverse acquisition or acquisition by a related person.

Following the expiration of the initial election period, an election may be renewed for ten additional tax years without the Department's consent.8 However, if the election is not renewed, a new election is not permitted in any of the immediately following three tax years. The renewal must be made on a form or in a format as prescribed by the Department and filed in a timely manner with the taxpayer's annual return after the completion of a ten-year period for which the election was in place.

Flow-Through Entities Making MBT Election

Under existing law, for tax years beginning after December 31, 2011, taxpayers may elect to continue filing MBT returns rather than CIT returns so that they may claim "certificated credits" until the credits are exhausted.9 In general, if a taxpayer that elects to file an MBT return in order to claim a certificated credit or any unused carryforward for that tax year is a unitary business group, the return filed by the unitary business group includes all persons in the unitary business group, including corporate and noncorporate entities.10

The statute is retroactively amended for tax years beginning after December 31, 2011 to provide that in the case of a flow-through entity that has made the election to file an MBT return, each member of the entity that does not file as a member of the unitary business group must disregard all items attributable to that member's ownership in the flow-through entity for all purposes of the CIT.11 Also, the flow-through entity is not subject to the income tax withholding provisions for its members that are corporations.12


The CIT legislation expands unitary tax filings to a broader range of taxpayers. Under existing law, the definition of "unitary business group" provides a "control test" and a "relationship test."13 The "control test" requires that one member of the group owns or controls, directly or indirectly, more than 50 percent of the ownership interest and corresponding voting rights of the other members. The "relationship test" requires that the group must have "business activities or operations which result in a flow of value between or among members included in the unitary business group or has business activities or operations that are integrated with, are dependent upon, or contribute to each other."14 By expanding the unitary group definition to include affiliated groups that make the requisite election, groups no longer need to meet the "relationship test" in order to file as a unitary group.15 In some situations, it is difficult to apply the "relationship test" to specific taxpayers. Also, the Michigan definition of "affiliated group" is more expansive than the corresponding federal definition because the ownership threshold is 50 percent rather than 80 percent. Taxpayers that satisfy the "affiliated group" definition should consider whether it would be advantageous to make a unitary group election, noting that once the election is made, there is no way to terminate the election for ten years, even if future developments result in substantially more CIT liability than originally envisioned. The MBT legislation may result in reduced tax liability for some owners of flow-through entities that have chosen to remain within the MBT regime and are not subject to the CIT. As explained in the legislative summary of the law, the tax reduction could be significant in some cases, but the amount "depend[s] on the specific characteristics of the affected taxpayers."16


1. Act 266 (S.B. 367), Laws 2013. Note that the CIT replaced the MBT for tax years beginning on or after January 1, 2012. The MBT was in effect for tax years beginning between January 1, 2008 and December 31, 2011.

2. Act 233 (H.B. 5041), Laws 2013.

3. Under IRC § 1504, "affiliated group" means one or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation, but only if: (i) the common parent directly owns stock meeting 80 percent voting and value tests in at least one of the other includible corporations; and (ii) stock meeting the 80 percent voting and value tests in each of the includible corporations (except the common parent) is owned directly by one or more of the other includible corporations.

4. MICH. COMP. LAWS § 206.603(1).

5. MICH. COMP. LAWS § 206.611(6).

6. MICH. COMP. LAWS § 206.691(2). The election may be made without the consent of the Department of Treasury.

7. Id.

8. Id.

9. MICH. COMP. LAWS § 208.1500. A "certificated credit" is a specified credit for which a taxpayer has received approval from the state but the credit has not been fully claimed or paid prior to January 1, 2012. MICH. COMP. LAWS § 208.1107(1).

10. MICH. COMP. LAWS § 208.1500(1).

11. Id.

12. Id. Under Michigan law, every flow-through entity with business activity in Michigan that has more than $200,000 of business income reasonably expected to accrue in the tax year after allocation or apportionment must withhold tax in an amount computed by applying the CIT rate to the distributive share of the business income of each member that is a corporation or flow-through entity. MICH. COMP. LAWS § 206.703(4).

13. MICH. COMP. LAWS § 206.611(6); Summary of S.B. 367 as Reported from Committee 12-11-13, Michigan House Fiscal Agency, Dec. 11, 2013.

14. MICH. COMP. LAWS § 206.611(6).

15. Note that Massachusetts (MASS. GEN. LAWS ch. 63, § 32B(g)(ii)) and Wisconsin (WIS. STAT. § 71.255(2m)) allow similar combined reporting elections.

16. Floor Summary for H.B. 5041, Michigan Senate, Dec. 10, 2013.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions