11. Is combined apportionment of income from a unitary business allowed?

Yes, in 2013 the Michigan Supreme Court held that combined apportionment of income (loss) at the entity level may be used to calculate individual taxable income at the election of the taxpayer.  Malpass v Department of Treasury, 494 Mich 237 (2013).

A taxpayer may elect to apportion each discrete legal entity’s income (loss) separately or to combine apportionment when entities are unitary.  To be a unitary business, the taxpayer must have control over the entities included in the combined apportionment filing and a flow of value must exist between the entities.  Factors that establish a flow of value include:

  • Economic realities
  • Functional integration
  • Centralized management
  • Economies of scale
  • Substantial mutual interdependence

These factors are not exhaustive or exclusive and the ability to elect combined apportionment will depend on the totality of the circumstances.