- B25. I am a 100% shareholder of a corporation that does business in Michigan. I am a nonresident of Michigan. The corporation is organized as a C corporation. I sell 100% of the stock of the corporation which results in a capital gain...

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Michigan Business Tax

B25. I am a 100% shareholder of a corporation that does business in Michigan. I am a nonresident of Michigan. The corporation is organized as a C corporation. I sell 100% of the stock of the corporation which results in a capital gain. Is the capital gain from the sale of the stock subject to the new MBT?

Answer:

Generally, no. The MBT act was amended on December 1, 2007 by Public Act 145 of 2007 to exclude personal investment activity from both the business income and gross receipts tax components of the MBT. MCL 208.1105(2) and MCL 208.111(1) respectively. For an individual, the sale of an ownership interest in a corporation, partnership, or limited liability company will generally not constitute business income or gross receipts to that individual unless he or she is in the business of buying and selling ownership interests in these types of business entities. This answer does not change if the individual shareholder, partner, or member is an active rather than passive investor or is a resident rather than a nonresident of Michigan.

In this case, the C corporation is the taxpayer and would be subject to MBT if the nexus standards and gross receipts thresholds are met. A 100% individual shareholder who sells all of some of the ownership interest in the C corporation will not be subject to MBT on any gain recognized from the sale of the stock except as otherwise provided above.

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