Corporate Tax Base 6. Under the CIT, is there a depreciation deduction? Does Michigan conform to federal depreciation rules?
To the extent applicable, federal depreciation rules are utilized for the purpose of calculating CIT liability. Although there is no specific deduction or credit for depreciation expenses under the CIT, a taxpayer receives the benefit of any depreciation deduction taken on its federal income tax return due to the inherent structure of the corporate income tax base. A CIT taxpayer's corporate income tax base is composed of the taxpayer's "business income," with certain adjustments. MCL 206.623(2). "Business income" is defined as "federal taxable income" MCL 206.603(2). "Federal taxable income" means taxable income as defined in IRC 63, except that federal taxable income shall be calculated as if IRC 168(k) and 199 were not in effect. Thus, any IRC 168(k) bonus depreciation claimed on a taxpayer's federal return will not be allowed for CIT purposes. Taxpayers should re-compute CIT depreciation using a federally accepted depreciation method that computes a depreciation amount as if IRC 168(k) was not in effect. This depreciation method must be used consistently over the life of the asset until retired or disposed of when computing CIT business income. The federal depreciation expense that is calculated as if 168(k) was not in effect is the deduction portion of the net 168(k) adjustment used in calculating CIT business income. A taxpayer must keep sufficient records to track the basis of the asset and depreciation deduction claimed for purposes of the CIT.