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Nexus and Apportionment


A person has nexus with Michigan if the person 1) is physically present in the state for more than one day, 2) actively solicits sales in Michigan and has gross receipts of $350,000 or more sourced to Michigan, or 3) has an ownership or beneficial interest in a flow-through entity (directly or indirectly through 1 or more flow-through entities) which has substantial nexus in this state.   

“Actively solicits” means 1) speech, conduct, or activity that is purposefully directed at or intended to reach persons within this state and that explicitly or implicitly invites an order for a purchase, or 2) speech, conduct, or activity that is purposefully directed at or intended to reach persons within this state that neither explicitly nor implicitly invites an order for a purchase or sale, but is entirely ancillary to requests for an order for a purchase or sale.

“Gross receipts” is the entire amount received by the taxpayer, determined using the taxpayer’s federal method of accounting, less certain exclusions. Gross receipts includes amounts attributable to an ownership interest in a flow-through entity. 

A “flow-through entity” is a subchapter S corporation, general partnership, trust, limited partnership, limited liability partnership or a limited liability company which is not taxed as a corporation at the federal level for the tax year.


For a taxpayer whose business activities are confined solely to Michigan, the tax base is allocated wholly to the state.  A taxpayer that has business activities subject to tax within and without the state will apportion its tax base using a 100% sales factor.  Business activity is subject to tax outside of this state if the taxpayer is subject to a business privilege tax, a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax, or if the other state has jurisdiction to tax the taxpayer, whether or not that state does subject the taxpayer to tax.

The sales factor is a fraction, the numerator of which is total sales of the taxpayer made in Michigan during the tax year and the denominator of which is total sales everywhere made by the taxpayer during the tax year. 

If a taxpayer has, either directly or indirectly, an ownership or beneficial interest in a flow-through entity, the business income directly attributable to the business activity of that flow-through is apportioned to Michigan using the sales factor of the flow-through entity.

For a unitary business group, “sales” includes sales in this state of every person included in the unitary business group without regard to whether the person has nexus in this state, except that sales between the group’s members will be eliminated in calculating the sales factor.

The definition of “sales” is broadly defined to include the sale of tangible personal property, intangible property, services, and the rental, lease, licensing, or use of tangible or intangible property, including interest that constitutes business activity.  Sales of tangible personal property are sourced based on the ultimate destination at the point that the property comes to rest.  Sales from the lease/rental of tangible personal property, and income from royalties or the use of intangible property, are sourced based on where the property is used.  Sales of services are sourced according to where the benefit of the service is received. 

Special sourcing rules exist for securities brokerage services, regulated investment companies, mortgages, other loans, credit card receivables, loan servicing fees, investment and trading activities, transportation services, telecommunications services, and private communications services.