Michigan Compensation to Be Based on Formula of Michigan Compensation to Total Compensation
The Michigan Business Tax Act provides a credit for employing people in Michigan, the compensation credit. A business which operates in and out of Michigan would receive a credit for its Michigan payroll, but not for payroll in other states. The law appears to be clear an unambiguous. However, the Department of Treasury has taken the position that the compensation of an employee who works both in and out of Michigan is not eligible for any credit at all.
Taxpayers have argued that it would seem logical that if 80% of the employee’s work/earnings is in Michigan, then 80% of that employee’s compensation should be eligible for the credit. Treasury’s position is that none of the compensation is eligible, that essentially the employee has been somehow tainted by stepping outside of Michigan.
This issue is currently being appealed by two taxpayers at Informal Conference. In those cases, both hearing referees found for the taxpayer. Both hearing referees concluded that the statute was unambiguous. The files are now in Tax Policy Division for a rebuttal review. The Tax Policy Division will be concurring with the referees’ results. The Department of Treasury will be issuing a revised FAQ that states that the credit will be calculated based on the proportionate number of days compensated in Michigan versus compensated outside of Michigan.
Taxpayers who followed the Treasury FAQ will be entitled to possible refunds for taxes paid on returns within the four year statute of limitations.