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Michigan Business Tax

Mi29. Are condominium, homeowners, and timeshare associations taxed under IRC 528 or IRC 277 exempt from the MBT?

Under the MBT, relevant exemptions include:

A person who is exempt from federal income tax under the internal revenue code... except the following:
* * *

(iii) The tax base attributable to the activities giving rise to the unrelated taxable business income of an exempt person. [MCL 208.1207(b).]

Under IRC 528, qualified condominium management, residential real estate management, and timeshare associations are exempt from federal income tax on their exempt function income for each year in which the taxpayer makes the proper election under IRC 528(c)(1)(E). Thus, condominium management, residential real estate management, and timeshare associations taxable under IRC 528 are generally exempt from the MBT under MCL 208.1207(b). However, condominium management, residential real estate management, or timeshare associations are subject to the MBT on any taxable income under IRC 528 – or if such associations decline to make the IRC 528(c)(1)(E) election.

In contrast, by definition, organizations subject to tax under IRC 277 are not exempt from federal income tax under the IRC. IRC 277(a). Thus, organizations subject to tax under IRC 277 are not exempt from the MBT.

The exemption language governing condominium, homeowners, and timeshare associations under the MBT is essentially identical to that used in the SBT. In other words, to the extent an association taxed under IRC 528 was exempt from the SBT, that taxpayer is likely exempt under the MBT as well.