Filing Requirements 20. (Answer rescinded as of 11/19/19) Are federally disregarded entities required to withhold under the CIT?
No. Part 3 of the Income Tax Act requires a "flow-through entity" with business activity in Michigan that has more than $200,000 of business income in the tax year after allocation or apportionment to withhold a tax on the distributive share of business income of each corporation or flow-through member of the flow-through entity in an amount computed pursuant to MCL 200.623. MCL 206.703(4).
However, the definition of "flow-through entity" under Part 3 of the ITA expressly excludes entities that are classified as disregarded entities pursuant to MCL 206.699. MCL 206.701(d). MCL 206.699 states that, "[n]otwithstanding any other provision of this act, a person that is a disregarded entity for federal income tax purposes under the internal revenue code shall be classified as a disregarded entity for purposes of parts 2 and 3 of this act." Consequently, an entity classified as a disregarded entity under the CIT is not required to withhold on the distributive share of business income of its owners under MCL 206.703(4).