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B55. Limited liability companies are included in the definition of "person" under the MBT. Assuming that the federal "check the box" rules are followed, does the business income adjustment set forth at section 201(2)(e), which requires...
Generally, no. Although a limited liability company (LLC) is defined as a "person" under the MBTA, MCL 208.1113(3), if it is a single member LLC disregarded for federal tax purposes, it is similarly classified as a disregarded entity under the MBTA. MCL 208.1512(1). The owner of the LLC is the MBT taxpayer, and the disregarded entity is treated as a sole proprietorship, branch or division of its owner. Section 201(2)(e) requires the taxpayer to add back a loss or subtract income attributable to "another entity whose business activities are taxable under this section." MCL 208.1201(2)(e). A disregarded LLC's business activities would not be separately taxable under section 201; therefore, the section 201(2)(e) adjustment does not apply to an LLC that is a disregarded entity for federal tax purposes.
There are certain exceptions to the general default rule under MCL 208.1512(1) that a federally disregarded entity is similarly classified as a disregarded entity under the MBT. See Notice to Taxpayers Regarding Federally Disregarded Entities and the Michigan Business Tax, issued January 26, 2012, for details.