|Michigan Business Tax|
|Mi44. Does the MBT follow the federal check-the-box regulations?|
Yes. Effective January 1, 1997, a separate business entity that is not required to be classified as a corporation for tax purposes is permitted to elect its entity classification under the federal "check-the-box" provisions of the Federal Income Tax Regulations, Treas Reg § 301.7701-3. These check-the-box regulations allow an unincorporated entity, such as a limited liability company ("LLC"), to elect to be taxed as a corporation. An unincorporated entity with at least two members that fails to elect corporate tax treatment will, by default, be taxed as a partnership. An unincorporated entity with one member that fails to elect corporate tax treatment will, by default, be disregarded as an entity separate from its owner for federal tax purposes. A single member entity, such as a single member LLC ("SMLLC"), that is disregarded for federal tax purposes will be treated as a sole proprietorship, branch, or division of its owner.
For MBT purposes, a person is defined in MCL 208.1113(3) to include various types of entities, including partnerships, corporations, and LLCs. An entity that has elected or is required to file as a corporation or partnership under the Internal Revenue Code is by definition a corporation or partnership under the MBT act. MCL 208.1107(3) and 208.1113(2). These statutory definitions effectively adopt the federal check-the-box regulations for MBT purposes.
If a SMLLC or other entity is a disregarded entity for federal tax purposes, the SMLLC or other entity will be similarly classified as a disregarded entity for MBT purposes. Consequently, the owner of the SMLLC or other entity is the MBT taxpayer, with the SMLLC or other entity treated as either a sole proprietorship or as a branch or division of its owner. MCL 208.1512(1). See Notice to Taxpayers Regarding Federally Disregarded Entities and the Michigan Business Tax, issued January 26, 2012, for further details and exceptions.