E. How will composite returns be impacted by the flow-through entity tax?

Flow-through entities are permitted under the Income Tax Act to file composite returns on behalf of participating nonresident individual members.⁶² The Individual Income Tax Composite Return (Form 807) reports income and pays any tax due based on that flow-through entity’s business activities within Michigan and, as such, may satisfy the return filing and payment obligations of those participating nonresidents.⁶³  In this context, flow-through entities that elect to file and pay the flow-through entity tax must still file a composite return on behalf of participating nonresident members. The filing of a flow-through entity tax return will not satisfy the respective filing obligations of those nonresident members, as it neither reports the income of those participating nonresident members nor claims the refundable tax credit that may be applicable for that income. The filing of a composite return as permitted under Part 1 of the Income Tax Act is accordingly a separate and distinct obligation from the filing of a flow-through entity tax return as required under Part 4 of the Income Tax Act. Flow-through entities may therefore need to file both returns, if applicable.

Special instruction for 2021. Electing flow-through entities should file a flow-through entity return and, if applicable, a composite return for tax year 2021. Any estimated payments made on behalf of the nonresident members participating on the composite return will not be applied to the flow-through entity tax return. Any payments due under the flow-through entity tax must be made regardless of any previous composite return estimated tax payments.

⁶²MCL 206.315(2).
⁶³See MCL 206.315. The filing obligation of participants is fulfilled to the extent they have no Michigan income from other sources.