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Nexus & Apportionment 12. Does an out-of-state trucking corporation that drives into Michigan for pick up or delivery of product, but has no other physical presence (e.g. employees or real or personal property) in Michigan, create nexus with Michigan subjecting the company to the CIT? If nexus is created, how is apportionment calculated?
Yes, the out-of-state trucking corporation would have nexus with Michigan for purposes of the CIT if the corporation either picked up or delivered product in Michigan during 2 or more days within the tax year. Furthermore, the corporation would have nexus with Michigan if it merely drives through Michigan, i.e., travels through Michigan on a trip that originates and terminates outside of Michigan, with no pick up or delivery in Michigan and with no other business activity in Michigan, during 2 or more days within the tax year.

If nexus with Michigan is established, and if the corporation's tax liability exceeds $100 and its apportioned or allocated gross receipts exceed the $350,000 filing threshold under MCL 206.685(1), then the taxpayer's corporate income tax base is apportioned by multiplying the tax base by the sales factor. MCL 206.661(1). Generally, for an out-of-state transportation corporation, receipts from transportation services provided by the transportation corporation are sourced according to MCL 206.665(11), (12) based on the ratio of revenue miles in Michigan (numerator) to revenue miles everywhere (denominator). Revenue mile means the transportation for consideration of one net ton in weight or one passenger the distance of one mile. MCL 206.609(3). Receipts from transportation services are combined with other receipts or sales of the taxpayer to compute the sales factor. Note that once nexus exists in a tax year, then all revenue miles driven in Michigan, including revenue miles associated with "drive through" trips made in Michigan, are included in the apportionment formula numerator.

For an out-of-state transportation corporation that is a "foreign person" as defined in MCL 206.625(5)(c) and is subject to CIT taxes, the sales factor is a fraction, the numerator of which is the taxpayer's total sales in Michigan during the tax year and the denominator of which is the taxpayer's total sales in the United States during the tax year. MCL 206.625(4). For purposes of apportionment for a "foreign person" subject to CIT taxes, for sales of tangible personal property, only those sales where title passes inside the United States shall be used in the sales factor. For sales of property other than tangible personal property, those sales are apportioned in accordance with the apportionment methods set forth in Chapter 14 of the Income Tax Act.

Under MCL 206.625(1)(c), however, a foreign corporation domiciled in a member country of NAFTA is not subject to CIT if the foreign corporation is domiciled in a subnational jurisdiction of that member country that does not impose an income tax on a similarly situated person domiciled in Michigan whose presence in that foreign member country is the same as the foreign corporation's presence in the United States. This exemption from the CIT exists notwithstanding the fact that the foreign corporation has nexus with Michigan for CIT. Furthermore, if a subnational jurisdiction of the NAFTA member country does not impose an income tax on businesses, but instead imposes some other type of subnational business tax, then the foreign corporation domiciled in that subnational jurisdiction is not subject to CIT taxes if that subnational jurisdiction's business tax is not imposed on a similarly situated person domiciled in Michigan whose presence in the foreign country is the same as the foreign person's presence in the United States. MCL 206.625(1)(c).

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