Corporate Tax Base 12. How should inter-company transactions between members of a unitary business group be eliminated when the members have different year ends?

The underlined dates were corrected on May 15, 2013. Previously, the dates read “April 1, 2011, through March 31, 2012” which are incorrect.

MCL 206.691 requires the elimination of all transactions between members of the unitary business group that affect the corporate income tax base, the apportionment formulas and for purposes of determining exemptions, credits and the filing threshold. When members of a unitary business group have different year ends, the combined return of the unitary business group must include each tax year of each member whose tax year ends with or within the tax year of the designated member of the unitary business group. “Designated member” means a member of a unitary business group that has nexus with Michigan under MCL 206.621 and that will file the combined return required under MCL 206.691. If the member that owns or controls the other members of the unitary business group has substantial nexus with Michigan, then that controlling member must be the designated member. Each member should eliminate the inter-company items of income and expense recorded on its books for that member's tax period that is included in the combined return of the unitary business group. In other words, inter-company eliminations are made on an entity basis in computing the members’ tax bases that are summed together for the combined return.

For example, a unitary business group consists of Corporation A, the designated member that reports on a calendar year, Corporation B that reports on a calendar year, and Corporation C that has a fiscal year ending March 31. In 2014, Corporations A and B eliminate all inter-company transactions between each other since they both report on a calendar year end. In computing their 2014 tax bases, Corporations A and B also eliminate all inter-company transactions with Corporation C that they recorded on their books for the 2014 calendar year.

Corporation C reports the months April 1, 2013, through March 31, 2014, on the unitary business group's 2014 CIT return. When computing its 2014 corporate income tax base, Corporation C will eliminate all inter-company transactions it has recorded on its books for the period April 1, 2013, through March 31, 2014. On the unitary business group's 2015 CIT return, Corporation C will eliminate all inter-company transactions it has recorded on its books for the periods April 1, 2014, through March 31, 2015. Corporations A and B will eliminate all inter-company transactions recorded for 2015 between each other and with Corporation C since both Corporations A and B report on a calendar year end. While timing differences will occur due to differences in each member's year end, eliminating each member's inter-company transactions that were recorded on that member's books during the periods included in the combined return will eliminate inter-company transactions from the unitary business group's tax base.