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B32. Are royalties received from a foreign entity included in the tax base of the MBT?

Yes, but generally only as part of the modified gross receipts tax component of the MBT.

Royalties - including those received from foreign persons- are included in gross receipts and the gross receipts tax base for purposes of the modified gross receipts tax. MCL 208.1111(1), 208.1203.

However, for business income tax purposes, royalties received "from persons other than United States persons and foreign operating entities, including, but not limited to, amounts determined under section 78 of the [IRC] or sections 951 to 964 of the [IRC]" are subtracted from business income "to the extent included in federal taxable income." MCL 208.1201.

Foreign entities - and foreign operating entities as defined by MCL 208.1109- cannot be included in a unitary business group. Therefore, intercompany eliminations that would otherwise remove intra-unitary business group transactions from the tax bases under are not available to royalties paid to or received by a foreign entity.