Michigan Tax Law

The Michigan Business Tax is applied to all businesses having even a very modest contact with Michigan. (See the topic “Nexus”.) The tax base is then allocated to Michigan and other states according to the sources of the company’s revenue.

I. Apportionment

A taxpayer whose activities are subject to tax both within and outside of Michigan apportions its tax base using the single factor of sales within or outside of Michigan. A taxpayer is subject to tax in another state if either (1) The taxpayer is subject in the other state to a business privilege tax, a net income tax, a corporate stock tax, or a tax of the type imposed by the Michigan Business Tax, or (2) The other state has jurisdiction to subject the taxpayer to one or more of these taxes, whether or not the state does impose such a tax.

II. Sourcing Revenue

Sales involving Property are sourced as follows for purposes of allocating the entity’s activities:
1. Sales of Personal Property are sourced at their final destination, regardless of the “FOB” point or other conditions of the sales.
2. Receipts from the sale, lease, rental or licensing of real property are in Michigan if the real property is located in Michigan.
3. Tangible personal property leases including leases for mobile equipment are related to Michigan based on the number of days of physical presence of the property in Michigan during the tax year, compared to the total number of days of the lease or rental period during tax year.
4. Intangibles (patents, know-how, designs, processes, copyrights and similar items) are sourced where they are used.
Sales involving Services are sourced as follows in allocating the entity’s activities:

1. Service receipts are sourced according to where the recipient receives the service. If the recipient of the service receives all of the benefit of the services in Michigan, the services are sourced to Michigan. If only a part of the service is delivered in Michigan, the receipts are sourced to Michigan to the extent that the benefits are received in Michigan.
2. Credit related services, loan servicing fees and interest from loans on real property are sourced to Michigan if the real property (or more than half of the property) is located in Michigan.
3. Loan origination and servicing fees on unsecured loans are sourced according to the address of the borrower.
4. Receipts from credit card activities are allocated to Michigan if the cardholder’s billing address is in Michigan.
5. Securities brokerage services are sourced according to the sales commissions earned in Michigan or elsewhere.

These rules regarding “Sourcing” are used either to source sales in Michigan for out-of-state taxpayers, or to source sales to other states for taxpayers located in Michigan.

References:

Michigan Compiled Laws:

Section 208.1101 et. seq.—Michigan Business Tax Act

Michigan Department of Treasury Revenue Administrative Bulletins:

Bulletin 2007-6—Michigan Business Tax—“Actively Solicits” Defined
Bulletin 2008-4—Michigan Business Tax—Nexus Standards

Michigan Business Tax Forms:

Form 4600—Michigan Department of Treasury, Michigan Business Tax Instruction Booklet for Standard Taxpayers

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