Non Michigan Business Income and Losses Are Not Attributable to Michigan
In Malpass v. Department of Treasury, Michigan Court of Appeals, No. 299057, December 6, 2011, the Michigan Court of Appeals has held that taxpayers were not permitted to combine business income from separate entities for personal income tax purposes. The taxpayers, through S corporations, operated a foundry in Michigan and another foundry and distribution center in Oklahoma. The Michigan business earned a profit, while the Oklahoma business had losses. There is no provision in the income tax law that allows individuals to combine business income from separate businesses and then use a combined apportionment formula on the total income.
Under Michigan law, if a resident earns business income derived from another state, it is allocated to that state. However, if business income is attributable to Michigan and one or more other states, it is apportioned. In this case, because the losses sustained by the Oklahoma business were not attributable to Michigan, the losses were not allocated or apportioned to Michigan and were added back to the taxpayers' adjusted gross income. The Court of Appeals determined that the two businesses were separate and not unitary, so that apportionment should be calculated at the entity level.