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Income/Franchise Tax: Elective Combination is an option under Michigan’s Corporate Income Tax (“CIT”) Regime

On December 26th, 2013 S.B. 367 was signed by Michigan governor, Rick Snyder.   Michigan law expands the CIT definition of “unitary business group” to include an affiliated group.  The new law allows members of an “affiliated group” to make an irrevocable election for a ten-year period to have all members of that group to be treated as a single unitary business group for CIT purposes.

Election specifics:

The taxpayer will be able to make the election under this subsection on a form or in a format as prescribed by the department that should be filed in a timely manner with the taxpayer’s annual return.

Anyone included in the affiliated group is deemed to have agreed to be bound by the election and any renewal of that election and to have waived any objection to their inclusion in the affiliated group and treatment as a unitary business group.

Anyone that subsequently enters the affiliated group after the tax year for which the election is made is deemed to have consented to the application of and is bound by the election and to have waived any objection to its inclusion in the affiliated group and treatment as a unitary business group. The election is irrevocable, binding and applicable to the tax year for which it is made and for the next 9 tax years.

The election shall remain in effect for the time period in which the ownership requirements under this section are met irrespective of whether a federal consolidated group to which the unitary business group belongs discontinues the filing of a federal consolidated return or whether the common parent changes due to a reverse acquisition or acquisition by a related person.

Upon the expiration of the election after it has been in effect for 10 tax years, an election may be renewed for another 10 tax years, without the consent of the department; provided however, that in the case of a nonrenewal a new election under this subsection is not permitted in any of the immediately following 3 tax years. The renewal shall be made on a form or in a format as prescribed by the department that is to be filed in a timely manner with the taxpayer’s annual return after the completion of a 10-year period for which an election under this subsection was in place.

Depending on a taxpayers’ fact pattern, this election may be beneficial for entities that can pull in additional members to expand their unitary business group, by including affiliates.  An analysis should be performed to determine if additional related entities may meet the definition of an affiliated group and whether or not it is beneficial to make the election to include these entities into the Michigan combined return.

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