U49. Three entities, an operating farm, a trucking company, and a rental company, meet the "more than 50% ownership" test for a unitary business group.

Section 207(d) of the MBT, rather than providing a blanket exemption for an entity engaged in the production of agricultural goods, instead exempts from the MBT "[t]hat portion of the tax base attributable to the production of agricultural goods by a person whose primary activity is the production of agricultural goods." MCL 208.1207(d). Thus, an entity whose primary activity is commercial farming is exempt from the MBT only to the extent that its tax base is attributable to the production of agricultural goods. In other words, the revenue from any other non-agricultural goods producing activities conducted by the farming entity (for example, income from an on-site produce stand at which the farm's agricultural products are sold at retail) will remain in the farming entity's tax base and be subject to the MBT. The exemption provided by section 207(d) is not one that exempts the farming entity from all MBT liability or that automatically releases it from the obligation of filing an MBT return.

The agricultural exemption is, in essence, an adjustment to a taxpayer's MBT tax base. Because the term "taxpayer" under the MBT includes a unitary business group, MCL 208.1117(5), the determination whether a group of entities constitutes a unitary business group must be made at the outset, before the taxpayer's tax base is calculated. The MBT defines a unitary business group, in part, as a group of U.S. persons, one of which owns or controls, directly or indirectly, more than 50% of the ownership interests with voting or similar rights of the other U.S. persons, and whose business activities or operations (i) result in a flow of value between the members or (ii) are integrated with, dependent upon, or contribute to each other. MCL 208.1117(6). Thus, to constitute a unitary business group, the three entities in the example must meet both the ownership test and one of the two relationship tests. If the three entities satisfy both tests, they form a unitary business group, regardless of the applicability of the agricultural exemption.

A unitary business group files a single, combined MBT return which includes all members of the unitary business group. MCL 208.1511. Assuming that the three entities in the example do comprise a unitary business group, in preparing its return, each member of the group would first calculate its individual business income and modified gross receipts tax bases. The farm entity member would subtract from its tax bases the portion of each base that is related to its production of agricultural goods. MCL 208.1207(d). Each group member must then eliminate from its tax bases all intercompany transactions. MCL 208.1511. In the example given, this step would eliminate both the income received by the trucking company and the rental income received by the rental company, since all of the underlying transactions would have taken place between members of the unitary business group. The unitary business group (the taxpayer) would then calculate its business income and modified gross receipts tax bases by combining the tax bases of the group's individual members. The group's tax bases would then be allocated or apportioned, and the amount allocated or apportioned to Michigan will be subject to the MBT. If the unitary business group has apportioned or allocated gross receipts of less than $350,000, the group will not be required to file a return or pay the tax imposed by the MBT. MCL 208.1505(1).