Exemptions From Withholding Requirements for Flow-Through Entities Added
Public Act 217 of 2012, Senate Bill 1104, effective June 28, 2012 revises the Michigan personal income withholding tax requirements for flow-through entities adding exemptions from withholding and clarify filing requirements.
A corporation may give a flow-through entity an exemption certificate. In this case, the flow-through entity is not required to withhold tax on the distributive share of that corporation's business income, provided that these conditions are met:
the exemption certificate is completed and certifies that the corporation will file corporate income tax returns, pay the tax on the distributive share of business income received from any flow-through entity in which the corporation is a member or in which the corporation has an ownership or beneficial interest, and submit to Michigan's taxing jurisdiction;
the corporation must file the exemption certificate with the Department of Treasury and include a copy to the flow-through entity;
the flow-through entity must attach a copy of the exemption certificate to its annual reconciliation return; and
the corporation and the flow-through entity must keep a copy of the exemption certificate.
The department may revoke the election to use an exemption certificate if the corporation or flow-through entity is not abiding by the certificate's terms.
Other Withholding Exemptions
Flow-through entities are not required to withhold for a member that voluntarily elects to file a return and pay the tax. Also, there is no withholding required for a person who disburses annuity payments under the terms of a qualified charitable gift annuity.
The flow-through entity withholding quarterly payments are due April 15, July 15, October 15, and January 15. Previously, the quarterly payments were due April 15, June 15, September 15, and January 15. This change conforms the statute to the department's instructions for Form 4917, Flow-Through Withholding Quarterly Return.
Finally, to calculate the $200,000 withholding threshold for flow-through entities, taxpayers should apportion business income to Michigan with the flow-through entity's sales factor. The sales factor's numerator is total sales in Michigan during the tax year, and the sales factor's denominator is total sales everywhere during the tax year.