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The Implementation of the Michigan Flow-Through Entity Tax
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2021 PA 135 introduces Chapter 20 within Part 4 of the Income Tax Act2 to create and levy a flow-through entity tax on electing flow-through entities with business activity in Michigan, effective January 1, 2021. Generally, the flow-through entity tax allows a flow-through entity to elect to pay tax on certain income at the individual income tax rate, with members of that entity eligible to receive a refundable income tax credit equal to the tax previously paid on that income by the flow-through entity. Though the flow-through entity effectively pays tax that would otherwise be paid by its members, it does not eliminate any of the reporting or return filing requirements of those members under Part 1 or Part 2 of the Income Tax Act. Thus, the Michigan flow-through entity tax requires the reporting of complementary entity-level and member-level adjustments to fulfill the scope and intended purpose of ensuring that tax is paid only once on income in Michigan.
2 MCL 206.801 et seq.