Michigan appellate court rejects separate-company approach in calculating net capital

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January 2020

Overview

The Michigan Court of Appeals on December 12 held that related investments among members of a unitary business group should be fully eliminated when calculating a financial institution's Michigan Business Tax (MBT) net capital.  On audit, the Department of Revenue calculated the elimination on a separate-company basis, which served to dilute the elimination. The Court found that the Department’s separate-company approach was contrary to Michigan law, which requires a determination of the unitary business group’s net capital.

Although the decision involves the MBT as applied to financial institutions, the case may be instructive in evaluating whether calculations applicable to a Michigan ‘taxpayer’ refer to the unitary business group rather than to individual group members.

The takeaway

Although the decision involves the MBT as applied to financial institutions, the case may be instructive in evaluating whether calculations in Michigan that refer to a ‘taxpayer’ can mean a UBG rather than individual group members.  The definition and treatment of a UBG under the Corporate Income Tax (CIT) is substantially similar to the treatment as applied in the TCF and Flagstar decisions.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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