Partnership Received Income from Lower Tiered Partnerships
In Preston v. Department of Treasury,Michigan Court of Appeals, No. 295055, May 26, 2011 the Michigan Court of Appeals has held that a limited partnership was unitary, so that the individual partner/taxpayer properly apportioned his income to Michigan under the personal income tax laws. A Tennessee resident, the taxpayer owned a limited partnership that had no business activities of its own, but, rather, received income or losses from lower-tier partnerships. The lower-tier partnerships owned nursing homes; one partnership had two nursing homes in Michigan. On his Michigan personal income tax return, the taxpayer treated all of the income and losses distributed from the limited partnership as business income and apportioned it among all the states in which the limited partnership had lower-tier partnerships. The court noted that to properly apply the apportionment factors there must be some sharing or value exchange beyond mere flow of funds from passive investment or a distinct business operation. The evidence showed that the limited partnership operated as a unitary business, using centralized management and centralized purchasing, which resulted in economies of scale. As such, the limited partnership was unitary and the taxpayer properly apportioned his income to Michigan.