Insurance Companies/Financial Institutions 4. The CIT franchise tax provides financial institutions with a tax base deduction for "the average daily book value of United States obligations and Michigan obligations." MCL 206.655(1). Does "
Yes, where the premiums and discounts are reflected in the book value of the U.S. obligations.
The CIT defines United States obligations as:
all obligations of the United States exempt from taxation under 31 USC 3124(a) or exempt under the United States constitution or any federal statute, including the obligations of any instrumentality or agency of the United States that are exempt from state or local taxation under the United States constitution or any statute of the United States. MCL 206.651(s).
Michigan obligation is defined as:
a bond, note, or other obligation issued by a governmental unit described in section 3 of the shared credit rating act, 1985 PA 227, MCL 141.1053. MCL 206.651(k).
“Average daily book value” is not a defined term in the CIT or the Federal IRC. “Book value” is commonly understood to be the value at which an asset is carried on the taxpayer’s balance sheet. Black’s Law Dictionary, 8th ed. Thus, in order to reach the average daily book value of U.S. obligations a financial institution will calculate the daily value of the obligation as it appears on the institution’s balance sheet and average this value over the days in the financial institution’s tax year. If the book value of the U.S. obligation is affected by premiums and discounts on the institution’s balance sheet then these amounts will also be included in the computation of average daily book value for purpose of the tax base calculation.