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FAQ
  Michigan Business Tax
B46. If a C corporation owns 56% of a flow-through entity, and the two meet the MBT definition of a unitary group, how does the corporation report all of the income of the flow-through entity when all it receives from the entity is a K-1? Also, do the other owners of the flow-through entity need to reduce their federal taxable income by their share of the flow-through entity income when computing their MBT liability?
 
Answer:
Assuming the C corporation and the flow-through entity constitute a unitary group as defined under MCL 208.1117(6), they are required to file one combined return pursuant to MCL 208.1511. The business income tax base of the unitary group is determined by adding the business income tax bases of the C corporation and the flow through entity as computed under MCL 208.1201 and then eliminating any inter-group transactions. The modified gross receipts ("MGR") tax base is determined in a similar manner by computing the MGR tax base of each member under MCL 208.1203 and then eliminating inter-group transactions. If either or both members of the unitary group have nexus in states other than Michigan, the apportionment percentage is determined on a combined basis and then applied to the total business income tax and MGR tax bases of the unitary group. How or in what manner the members of a unitary group share information necessary to prepare a combined return is not determined by the Department.

Owners of the flow-through entity that are not included in the unitary group must adjust their MBT income tax and modified gross receipts bases to remove their share of income or losses from the flow through entity pursuant to MCL 208.1202(2)(e) and 208.1111(1)(bb), respectively.


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