In One's Travel Ltd. v. Department of Treasury, Michigan Court of Appeals, No. 287254, April 6, 2010, the Michigan Court of Appeals held that a taxpayer failed to meet the statutory requirements to qualify for the small business credit against the single business tax (SBT).
The taxpayer satisfied all the statutory requirements to qualify for the credit when considering their separate return. However, the single business tax act in section 36 requires that all members of an affiliated group must consolidate their business activities for purposes of the credit disqualifiers. The credit was disallowed because the taxpayer was required to consolidate its gross receipts with the other members in the affiliated group, including the parent company, which was a state chartered credit union exempt from the SBT.
To qualify for the credit, the statute required that a taxpayer's gross receipts not exceed $10 million per year and officer or shareholder compensation not exceed $115,000 per year. There was no dispute that the taxpayer met these requirements on its own. However, the law also required an affiliated group to consolidate the business activities of the entities. Looking at the SBT's definition of "affiliated group," the court determined that the parent credit union was a U.S. corporation, which can include associations, and therefore, the credit union formed part of an affiliated group. There is no requirement that the credit union be subject to the SBT in order to have its business activities consolidated with its subsidiaries for the credit calculation. Accordingly, with the consolidation, the taxpayer no longer qualified for the credit.