|Michigan Business Tax|
|U44. An individual owns a controlling interest in multiple limited liability companies that hold rental property or manage real estate. There are no intercompany transactions between them, but each limited liability company shares an accountant and each has the same managing member responsible for managing the daily operations of the entities and for making operational decisions. Due to the controlling interests of the individual in each of the limited liability companies, the limited liability companies are brother-sister entities that satisfy the unitary business group control test under MCL 208.1117(6). Do the limited liability companies satisfy the relationship test and comprise a unitary business group?|
Generally, a unitary business group is a group of related persons whose
business activities or operations are interdependent. More specifically, a
unitary business group is two or more persons that satisfy both a control test
and one of two relationship tests.
The relationship test is met if a group of persons have business activities or operations that (1) result in a flow of value between or among persons in the group, or (2) are integrated with, are dependent upon, or contribute to each other.
Flow of value is established when members of the group demonstrate one or more of functional integration, centralized management, and economies of scale. Examples of functional integration include common programs or systems and shared information or property. Examples of centralized management include common management or directors, shared staff functions, and business decisions made for the group rather than separately by each member. Examples of economies of scale include centralized business functions and pooled benefits or insurance. Groups that commonly exhibit a flow of value include vertically or horizontally integrated businesses, conglomerates, parent companies with their wholly owned subsidiaries, and entities in the same general line of business. Flow of value must be more than the mere flow of funds arising out of passive investment.
Businesses are integrated with, are dependent upon, or contribute to each other under many of the same circumstances that establish flow of value. However, this alternate relationship test is also commonly satisfied when one entity finances the operations of another or when there exist intercompany transactions, including financing.
In the present case, each of the limited liability companies are engaged in the same general line of business. Furthermore, each of the entities shares a common accountant and is managed by a common manager. Given this centralized management, there appears to be a flow of value between the limited liability companies. Thus, the relationship test is satisfied and the limited liability companies comprise a unitary business group.
However, the relationship test is evaluated on a facts and circumstances basis. The conclusion reached in this Q&A may differ upon the disclosure of additional or different facts.