Taxes - B41. I am a broker/dealer in securities without any W-2 payroll. My major expense is 1099 commissions paid to sales representatives. Are these commission expenses deductible on my MBT return?

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B41. I am a broker/dealer in securities without any W-2 payroll. My major expense is 1099 commissions paid to sales representatives. Are these commission expenses deductible on my MBT return?

Business income is generally defined as "that part of federal taxable income derived from business activity." MCL 208.1105(2). To the extent that federal taxable income derived from business activity is reduced by these expenses, a taxpayer's Business Income tax base will be reduced.

The Modified Gross Receipts tax base is a taxpayer's gross receipts less purchases from other firms before apportionment. MCL 208.1203(3). "Gross receipts" are defined as the entire amount received by the taxpayer from any activity whether in intrastate, interstate, or foreign commerce carried on for direct or indirect gain, benefit, or advantage to the taxpayer or to others with certain exceptions. MCL 208.1111(1). Section 111 provides no exception for or deduction of 1099 commission expense from gross receipts of broker/dealers. Therefore, the 1099 commission expense will not reduce the gross receipts or Modified Gross Receipts tax base.

Further, commissions paid to non-employees are not compensation as defined in MCL 208.1107(2). Only commissions, wages, salaries, fees, bonuses, and other payments made in the tax year on behalf of or for the benefit of employees, officers, or directors of the taxpayer would meet the statutory definition of compensation and qualify for the compensation credit provided under MCL 208.1403. The non-employee 1099 commissions in this example do not qualify for the compensation credit.