In First Industrial (First Industrial, L.P. v. Department of Treasury, Michigan Court of Appeals, No. 282742, August 18, 2009) a Michigan taxpayer was entitled to use the business loss deduction under the single business tax (SBT) that was carried over from an asset transfer, but could not claim the capital acquisition deduction (CAD).
The taxpayer was a 99% limited partner and the partnership transferred all of its Michigan assets to the taxpayer. Under the former SBT, taxpayers could deduct available business losses from the tax base. Departmental guidance provided that the transferee was entitled to the loss when the transferor "completely discontinued operations" and was no longer an SBT taxpayer.
Examining the statutory language, the court determined that the transferee/taxpayer was entitled to the loss when the Michigan operations were terminated. In other words, the transferor was not required to end operations everywhere for the transferee to use the loss. However, the taxpayer was not entitled to claim a CAD, because the taxpayer did not prove that it expended any money during the tax year to acquire the assets. Although the asset transfer from the partnership was a non-liquidating distribution for federal income tax purposes, it is not one of the tax-free events that received special SBT treatment. This particular distribution was a return of the taxpayer's capital investment in the partnership, so the taxpayer could not claim a CAD.