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Michigan Business Tax
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B43. (Answer rescinded, replaced by B47) Can a taxpayer net the cost of purchased securities with the proceeds from those securities? For purposes of taxing the gain, is the cost the actual cost of the securities or the fair market value on January 1, 2008?
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Answer:
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Generally, securities, such as stocks, bonds and similar intangibles, will be
capital assets under section 1221 of the IRC unless the securities are inventory
to the taxpayer. Receipts from the sale of capital assets could be taxable in
both the business income and modified gross receipts tax bases of the MBT.
Business income is generally defined as "that part of federal taxable income
derived from business activity." MCL 208.1105(2). To the extent the capital gain
from the sale of the securities is derived from the business activity of the
taxpayer, the gain must be included in the business income tax base of the MBT.
For this purpose, the capital gain will be computed the same as it was
federally, which is proceeds from the sale minus basis. The result will flow to
the MBT return if the gain is derived from the business activity of the
taxpayer. The "cost" or basis is the acquisition cost of the asset just as it is
for federal purposes and is not the fair market value as of January 1, 2008, the
date that the MBT went into effect.
For purposes of the modified gross receipts tax base, if the securities are
sold at a gain then the proceeds of the sale of the securities minus any gain
from the sale, to the extent that the gain was included in federal taxable
income, will be excluded from the tax base.
If the securities were held for investment purposes by and are sold by an
individual, estate, trusts or family limited partnerships (FLIP) that is
specifically established for estate planning purposes, then the receipts on the
sale of the securities are not taxable in either MBT tax base. MCL 208.1105(2)
and 1111(v)(v).
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