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.