Corporate Tax Base
The CIT is levied on corporations with nexus in Michigan at a rate 6% of the corporate income tax base, after allocation or apportionment, for all corporations with business activity or an ownership or beneficial interest in a flow-through entity that has business activity in this state. Business activity is broadly defined to include the activities of a taxpayer undertaken for gain, benefit or advantage.
“Corporation” means a person that is required or has elected to file as a C corporation at the federal level. An entity that has elected to file as a corporation at the federal level will be subject to this tax along with traditional C corporations. “Corporation” does not include a financial institution or insurance company, as those regulated industries are taxed separately.
The corporate income tax base is business income with certain additions and subtractions before apportionment and a business loss deduction after apportionment. A taxpayer may use available business loss incurred under the CIT after December 31, 2011. Business income is federal taxable income. The business income of a unitary business group is the sum of the business income of each member of the group, minus items of income and expense related to intercompany transactions.
Certain entities are exempt from taxation, such as entities exempt from federal income tax. A foreign person domiciled in a subnational jurisdiction of a NAFTA member country that does not impose a business tax on a similarly situated taxpayer domiciled in Michigan is also exempt from the CIT.
Both income from and expenses for producing oil and gas which are subject to the Michigan severance tax are eliminated from the tax base to the extent the income and expenses were used in the calculation of federal taxable income.
A “flow-through entity” is an S corporation, general partnership, limited partnership, trust, limited liability partnership or a limited liability company which is not taxed as a corporation at the federal level for the tax year.
Flow-through entities (excluding trusts) reasonably expected to accrue more than $200,000 of business income are required to withhold Michigan income tax at the corporate income tax rate on the distributive share of the business income of any member that is a corporation or another flow-through entity. For more information on withholding requirements, please see the “Withholding” section of this website, which will be posted in the near future.