Nexus & Apportionment 10. Does the protection of Public Law 86-272 apply to financial institutions?

No. Public Law 86-272 is a federal law that prohibits a state from imposing a net income tax on an out-of-state taxpayer whose only business activity in Michigan is the solicitation of orders for sales of tangible personal property where the orders are sent outside the state for approval or rejection and are filled by shipment or delivery from a point outside the state. 15 USC 381 et seq. Financial institutions are subject to a franchise tax under Chapter 13 of the Income Tax Act. MCL 206.653. The franchise tax is levied at a rate of 0.29% on a financial institution's net capital for tax years beginning before January 1, 2018, and total equity capital for tax years beginning after December 31, 2018. MCL 206.653; MCL 206.655. This tax on net capital or total equity capital is not a net income tax. Thus, the protection of PL 86-272 does not apply to financial institutions taxed under Chapter 13.