B47. Can a taxpayer net the cost of purchased securities with the proceeds from those securities? For purposes of taxing the gain, is the cost the actual cost of the securities or the fair market value?Generally, securities, such as stocks, bonds and similar intangibles, will be capital assets under section 1221 of the IRC unless the securities are inventory to the taxpayer. Receipts from the sale of capital assets could be taxable in both the business income and modified gross receipts tax bases of the MBT.
Business income is generally defined as "that part of federal taxable income derived from business activity." MCL 208.1105(2). To the extent the capital gain from the sale of the securities is derived from the business activity of the taxpayer, the gain must be included in the business income tax base of the MBT. For this purpose, the capital gain will be computed the same as it is federally, which is amount realized minus basis. The result will flow to the MBT return if the gain is derived from the business activity of the taxpayer. The "cost" or basis is the acquisition cost of the asset just as it is for federal purposes and is not the fair market value as of January 1, 2008, the date that the MBT went into effect.
For purposes of the modified gross receipts tax base, if the securities are sold at a gain then the proceeds of the sale of the securities minus any gain from the sale, to the extent that the gain was included in federal taxable income, will be excluded from the tax base. MCL 208.1111(1)(p).
If the securities were held for investment purposes by an individual, estate or trust or family limited partnership that is organized exclusively for estate planning purposes, the gain is not included in the business income tax base. MCL 208.1105(2). There is a somewhat broader exclusion under the gross receipts tax base – the gain is excluded if sold by an individual, estate or other person organized for estate or gift planning purposes if the amounts were received from other than the taxpayer's regular trade or business. MCL 208.1111(1)(w). Additionally, the receipts may also be excluded from the modified gross receipts tax base if the securities were held for investment purposes and sold by a person organized exclusively for conducting such investment activity for one individual and/or persons related to that individual. MCL 208.1111(1)(x).