Single Business Tax Treatment Must be Consistent with Federal Treatment
In Lear Corporation v. Department of Treasury, Michigan Court of Appeals, No. 309445, February 21, 2013, the Michigan Court of Appeals held that a C Corporation taxpayer that elected under federal law to amortize research experimental expenses over 10 years was prohibited from deducting the entire amount for the year in which the expenses were incurred under the single business tax (SBT).
The taxpayer manufactured and sold systems for automotive seating, interior, and electrical power management and incurred research and experimental expenses related to this business. The taxpayer elected to amortize over 10 years the $205 million in expenses for its federal income tax return, and used the same calculation on its SBT return. However, after the SBT was repealed, the taxpayer tried to amend the SBT return and claim the entire deduction in the year in which the expenses were incurred. Under the SBT law, the tax base meant business income and business income meant federal taxable income. The taxpayer's tax base was required to reflect federal taxable income, including its election to amortize the expenses. Therefore, the court reasoned, the taxpayer should have used the amortized amount as the starting point to determine its SBT base. Also, the taxpayer was not guaranteed that it would realize the full deduction under the SBT. The applicable statute did not provide for an adjustment for this particular situation, so the taxpayer was not entitled to make such an adjustment.