Unitary Business Groups 14. Can a UBG with one or more fiscal year members make the election between the actual and annual method for calculating its final MBT return?

Yes, if the group's designated member (DM) is a fiscal year filer and the taxpayer continues under the CIT or the MBT after December 31, 2011.

All taxpayers must file an MBT return for the period ending December 31, 2011. MCL 208.1117(4). A fiscal year taxpayer with a tax year ending after that date is considered to have two separate tax years: the first short tax year is the part of the fiscal year ending December 31, 2011, and the second short tax year is for the part of the fiscal year beginning January 1, 2012. MCL 208.1117(4).

Fiscal year taxpayers continuing to the CIT or making the MBT election may choose between two methods of calculating the short period return ending December 31, 2011, and the return beginning January 1, 2012:

  1. Annual - The tax is computed as if the relevant tax was effective on the first day of the taxpayer's annual accounting period and the amount computed shall be multiplied by a fraction, the numerator of which is the number of months in the taxpayer's short period tax year and the denominator of which is the number of months in the taxpayer's annual accounting period (typically 12).
  2. Actual - The tax is computed by determining the tax base in the short period tax year in accordance with an accounting method satisfactory to the department that reflects the actual tax base attributable to the period. The method of accounting used in prior fiscal years will be assumed to reflect the actual tax base attributable to the period. MCL 208.1503; MCL 206.683.

The taxpayer must use the same method for its short period return ending December 31, 2011, and for its first CIT or MBT election return. MCL 208.1503; MCL 206.683.

If the taxpayer will not continue under the CIT or the MBT after December 31, 2011, it may use only the actual method for its short period return ending December 31, 2011.

For a unitary business group, the tax year of the group is the tax year of the DM. If the DM is a fiscal year filer, it will choose between the annual and actual methods and this choice will apply to all group members. All members of the UBG that continue as a group into the CIT or that make the MBT election must file consistent with the method chosen for the short period return ending December 31, 2011. If the DM is a calendar year filer, or will not continue as a taxpayer, the group must file using the actual method. MCL 208.1503; MCL 206.683.

If a member of a UBG will be a separate filer beginning January 1, 2012, that member is statutorily permitted the choice between the annual and actual methods on its first CIT return; regardless of the choice made by the member's previous UBG. MCL 206.683.

If a member was a separate filer for the period ending December 31, 2011, and joins a UBG for the first CIT return, that member should amend its short period return ending December 31, 2011, to use the same method used by the group. If, however, the member is switching groups from the period ending December 31, 2011, to the first CIT return, the member should follow the general rule and use the filing choice of the group, regardless of the method used by the member's previous group.

If a member of the MBT UBG holds a certificated credit and the group makes the MBT election, the membership of the group will not change unless there is a change to relationship or control. MCL 208.1500; MCL 208.1680. The UBG electing the MBT must file its short period return for the period beginning January 1, 2012, using the same method used on the group's short period return ending December 31, 2011. MCL 208.1503(3).

Example 1. UBG consists of three members, DM Corporation A, Member Corporation B, and Member Partnership C. DM A is a fiscal year filer. It elects the annual method for the group. The group will file its final MBT return using the annual method. DM A and Member B will file their first CIT return, as a UBG, using the annual method.

Example 2. UBG consists of three members, DM Corporation A, Member Corporation B, and Member Partnership C. DM A is a calendar year taxpayer. The DM does not have the statutory authority to choose between the annual and actual methods. The group will file its final MBT return using the actual method. DM A and Member B will file their first CIT return