Michigan Business Tax

Mi38. Are regulated investment companies subject to the Michigan Business Tax? If so, does the MBT provide a deduction for dividends paid similar to Federal Form 1120-RIC, U.S. Tax Return for Regulated Investment Companies?

Yes. Regulated Investment Companies (RIC) are subject to the MBT. An RIC is any domestic corporation that registers or files an election to be an RIC and meets specific criteria in Section 851 of the IRC. These corporations are taxable in both the business income and modified gross receipts tax bases of the MBT.

"Business income" is defined generally as "that part of federal taxable income derived from business activity." MCL 208.1105(2). This means, for the business income tax base, that the federal return flows through to the MBT return to the extent the federal return represents income from business activity. Because Form 1120-RIC allows a deduction for dividends paid (defined at IRC 561) that deduction will flow through to the MBT return. There is no additional deduction for this expense in the MBT.

The modified gross receipts tax base is gross receipts less "purchases from other firms," as defined in MCL 208.1113(6), before apportionment. MCL 208.1203(3). "Purchases from other firms" does not include the dividends paid expense. There is not a deduction for dividends paid in this tax base.