Presentation 13 Presentation 13 MBT Unitary Business Group MBT - - PowerPoint PPT Presentation

Form 4580

Presentation 13 Presentation 13

MBT Unitary Business Group MBT Unitary Business Group – – General Concepts General Concepts (Form 4580) (Form 4580)

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Form 4580

Identifying a Unitary Business Group Identifying a Unitary Business Group

As defined in MCL 208.1117(6), a "Unitary business group" means As defined in MCL 208.1117(6), a "Unitary business group" means a group of United States persons, other than a foreign operating a group of United States persons, other than a foreign operating entity, 1 of which owns or controls, directly or indirectly, mor entity, 1 of which owns or controls, directly or indirectly, more e than 50% of the ownership interest with voting rights or than 50% of the ownership interest with voting rights or

• wnership interests that confer comparable rights to voting
• wnership interests that confer comparable rights to voting

rights of the other United States persons, and that has business rights of the other United States persons, and that has business activities or operations which result in a flow of value between activities or operations which result in a flow of value between or

• r

among persons included in the unitary business group or has among persons included in the unitary business group or has business activities or operations that are integrated with, are business activities or operations that are integrated with, are dependent upon, or contribute to each other. For purposes of dependent upon, or contribute to each other. For purposes of this subsection, flow of value is determined by reviewing the this subsection, flow of value is determined by reviewing the totality of facts and circumstances of business activities and totality of facts and circumstances of business activities and

• perations.
• perations.

Form 4580

Identifying a Unitary Business Group Identifying a Unitary Business Group

A United States person is defined in IRC 7701(a)(30) as A United States person is defined in IRC 7701(a)(30) as the following: the following:

• A citizen or resident of the United States

A citizen or resident of the United States

• A domestic partnership

A domestic partnership

• A domestic corporation

A domestic corporation

• Any estate (other than a foreign estate defined under

Any estate (other than a foreign estate defined under IRC 7701(a)(31) IRC 7701(a)(31)

• Any trust (with certain jurisdiction and control

Any trust (with certain jurisdiction and control limitations) limitations)

Form 4580

Identifying a Unitary Business Group Identifying a Unitary Business Group

A foreign operating entity is a United States person that satisf A foreign operating entity is a United States person that satisfies ies each of the following: each of the following:

• Would otherwise be a part of a UBG that has at least one person

Would otherwise be a part of a UBG that has at least one person included in the UBG that is taxable in Michigan included in the UBG that is taxable in Michigan

• Has substantial operations outside the United States, the Distri

Has substantial operations outside the United States, the District ct

• f Columbia, the Commonwealth of Puerto Rico, any territory
• f Columbia, the Commonwealth of Puerto Rico, any territory
• r possession of the United States, or a political subdivision o
• r possession of the United States, or a political subdivision of

f any of the foregoing any of the foregoing

• At least 80 percent of the person’s income is active foreign

At least 80 percent of the person’s income is active foreign business income as defined in IRC 861(c)(1)(B). business income as defined in IRC 861(c)(1)(B).

Form 4580

Identifying a Unitary Business Group Identifying a Unitary Business Group

To qualify as a UBG, the related United States To qualify as a UBG, the related United States persons must satisfy both a control test persons must satisfy both a control test and one and one

• f two relationship tests.
• f two relationship tests.

The control test will be discussed on slides 6 The control test will be discussed on slides 6 through 11 and the relationship tests discussion through 11 and the relationship tests discussion will begin on slide 12. will begin on slide 12.

Form 4580

Identifying a Unitary Business Group Identifying a Unitary Business Group

Groups that satisfy the control tests are defined Groups that satisfy the control tests are defined below: below:

• Parent

Parent-

• subsidiary controlled group

subsidiary controlled group

• Brother

Brother-

• sister group

sister group

• Combined controlled group

Combined controlled group

Form 4580

Identifying a Unitary Business Group Identifying a Unitary Business Group

Excluded Ownership Interests. For purposes of Excluded Ownership Interests. For purposes of determining ownership or control under the determining ownership or control under the control test, the Department will apply IRC control test, the Department will apply IRC 1563 to exclude certain ownership interests from 1563 to exclude certain ownership interests from determination of ownership and control, except determination of ownership and control, except that the Department will again apply IRC 1563 that the Department will again apply IRC 1563 to all forms of ownership interests and not just to all forms of ownership interests and not just corporate stock. corporate stock.

Form 4580

Identifying a Unitary Business Group Identifying a Unitary Business Group

In addition to satisfying the control test, the group of In addition to satisfying the control test, the group of persons must have business activities or operations that persons must have business activities or operations that satisfy one of two relationship tests: satisfy one of two relationship tests: Relationship Tests Relationship Tests

(1) Result in a flow of value (1) Result in a flow of value between or among persons in the between or among persons in the group, group, or

• r

(2) Are integrated with, dependent upon, or contribute to each (2) Are integrated with, dependent upon, or contribute to each

• ther.
• ther.

Form 4580

Identifying a Unitary Business Group Identifying a Unitary Business Group

Notably, the ownership tests for controlled groups Notably, the ownership tests for controlled groups under the SBT differ from that under the MBT. under the SBT differ from that under the MBT. The MBT also requires members of a UBG to The MBT also requires members of a UBG to meet a relationship test not necessary for meet a relationship test not necessary for controlled groups under the SBT. Therefore, controlled groups under the SBT. Therefore, while there might be some overlap between while there might be some overlap between affiliated groups under the SBT and UBGs affiliated groups under the SBT and UBGs under the MBT, an affiliated group under the under the MBT, an affiliated group under the SBT will not necessarily be a UBG under the SBT will not necessarily be a UBG under the MBT. MBT.

Form 4580

Computing Tax Liability for the UBG Computing Tax Liability for the UBG

Nexus Nexus

So long as one member of a UBG has nexus with Michigan, all So long as one member of a UBG has nexus with Michigan, all members of the UBG must be included when calculating the members of the UBG must be included when calculating the taxpayer’s business income and modified gross receipts tax base taxpayer’s business income and modified gross receipts tax base and apportionment formula. Similarly, if any member of the and apportionment formula. Similarly, if any member of the UBG has activities that go beyond the limits of PL 86 UBG has activities that go beyond the limits of PL 86-

• 272, then

272, then all members of the UBG, including those otherwise protected all members of the UBG, including those otherwise protected under PL 86 under PL 86-

• 272, must be included when calculating the

272, must be included when calculating the taxpayer’s business income and modified gross receipts tax bases taxpayer’s business income and modified gross receipts tax bases and apportionment formula. and apportionment formula.

Form 4580

UBG UBG -

• General Filing Requirements

General Filing Requirements

A standard taxpayer whose apportioned or A standard taxpayer whose apportioned or allocated gross receipts are less than $350,000 is allocated gross receipts are less than $350,000 is not required to file a return or pay the tax not required to file a return or pay the tax imposed under the MBT. As long as the imposed under the MBT. As long as the apportioned or allocated gross receipts of the apportioned or allocated gross receipts of the standard UBG equal or exceed $350,000, the standard UBG equal or exceed $350,000, the UBG is required to file a combined 4567 MBT UBG is required to file a combined 4567 MBT annual return under MCL 208.1511. annual return under MCL 208.1511.

Form 4580

UBG UBG -

• General Filing Requirements

General Filing Requirements

A UBG with apportioned or allocated gross A UBG with apportioned or allocated gross receipts greater than $350,000 but less than receipts greater than $350,000 but less than $700,000 will qualify for the Filing Threshold $700,000 will qualify for the Filing Threshold Credit under MCL 208.1411. Credit under MCL 208.1411.

Form 4580

Computing Tax Liability for the UBG Computing Tax Liability for the UBG

Modified Gross Receipts Tax Base Modified Gross Receipts Tax Base The modified gross receipts of a UBG are the sum The modified gross receipts of a UBG are the sum

• f the modified gross receipts of each member,
• f the modified gross receipts of each member,
• ther than insurance companies or financial
• ther than insurance companies or financial

institutions, included in the UBG less any institutions, included in the UBG less any modified gross receipts arising from transactions modified gross receipts arising from transactions between persons included in the UBG. between persons included in the UBG.

Form 4580

Computing Tax Liability for the UBG Computing Tax Liability for the UBG

Business Income Tax Base Business Income Tax Base The business income tax base of a UBG is the sum of the The business income tax base of a UBG is the sum of the business income of each member of the UBG, other business income of each member of the UBG, other than insurance companies or financial institutions, less than insurance companies or financial institutions, less any income and related deductions arising from any income and related deductions arising from transactions between members included in the UBG. transactions between members included in the UBG. This amount is subject to certain statutory adjustments This amount is subject to certain statutory adjustments before allocation or apportionment and the MBT before allocation or apportionment and the MBT business loss adjustment after allocation or business loss adjustment after allocation or apportionment. apportionment.

Form 4580

Computing Tax Liability for the UBG Computing Tax Liability for the UBG

Apportionment Apportionment For a UBG with business activity within and outside of For a UBG with business activity within and outside of Michigan, the tax bases are apportioned to Michigan by Michigan, the tax bases are apportioned to Michigan by multiplying them by the sales factor. The sales factor is multiplying them by the sales factor. The sales factor is a fraction of which Michigan sales of each member, a fraction of which Michigan sales of each member, without regard to nexus, are combined in the without regard to nexus, are combined in the numerator and all sales of each member are combined numerator and all sales of each member are combined in the denominator. Sales between members of the in the denominator. Sales between members of the UBG are eliminated when calculating the sales factor. UBG are eliminated when calculating the sales factor.

Form 4580

Computing Tax Liability for the UBG Computing Tax Liability for the UBG

Credits Credits Credits are computed after calculation of the modified Credits are computed after calculation of the modified gross receipts tax, the business income tax and the gross receipts tax, the business income tax and the

• surcharge. For the purposes of the MBT, “tax year”
• surcharge. For the purposes of the MBT, “tax year”

means the calendar year or fiscal year ending during the means the calendar year or fiscal year ending during the calendar year, upon which the tax base of a UBG is calendar year, upon which the tax base of a UBG is

• computed. Depending on the credits, a UBG will
• computed. Depending on the credits, a UBG will

calculate a credit on either a group or an entity basis, as calculate a credit on either a group or an entity basis, as determined by the relevant statutory provisions for the determined by the relevant statutory provisions for the respective credits. respective credits.

Other Resources Other Resources

• Other MBT Form presentations

Other MBT Form presentations

• Treasury Web site,

Treasury Web site, www.michigan.gov/MBT www.michigan.gov/MBT

• Customer Contact 517

Customer Contact 517-

• 636

636-

• 4657

4657