Apportionment Procedures Dependant on Whether Flow-Through Entity is Unitary
Public Act 308 of 2011 (S.B. 673) and Public Act 310 of 2011 (S.B. 807), both effective January 1, 2012, significantly change the methodology for apportioning income from a flow-through entity.
When calculating the sales factor for the Michigan Corporate Income Tax (CIT), sales between a taxpayer and a flow-through entity unitary with the taxpayer must be eliminated. The sales factor numerator must include the proportionate share of total sales in Michigan of the flow-through entity that is unitary with the taxpayer, and the denominator must include the proportionate share of the total sales everywhere of the flow-through entity that is unitary with the taxpayer.
A flow-through entity is unitary with a taxpayer when the taxpayer owns or controls, directly or indirectly, more than 50% of the ownership interest with voting rights of the flow-through entity and that has business activities that result in the flow of value between the taxpayer and the flow-through entity (or between the flow-through entity and another flow-through entity unitary with the taxpayer) or has business activities that are integrated with, dependent upon or contribute to each other.
If a taxpayer has an ownership or beneficial interest in a flow-through entity, the taxpayer's business income attributable to business activities of the flow-through entity is apportioned to Michigan using the sales factor based on the business activities of the flow-through entity unless a flow-through entity is unitary with a taxpayer for apportionment purposes.