M71. Are dividends from subsidiaries and interest income from unrelated parties included in the modified gross receipts tax base in the MBT?

Generally, interest income from unrelated parties is included in a taxpayer's modified gross receipts (MGR) tax base, with the exception of the following: (1) interest income received by a taxpayer that is an individual, estate or other person organized for estate or gift planning purposes from the taxpayer's personal investment portfolio or retirement account, or from transactions, activities and sources other than in the regular course of the taxpayer's trade or business, is excluded from gross receipts (MCL 208.1111(1)(w)); (2) interest income receipts derived from investment activity by a person that is organized exclusively to conduct investment activity solely for an individual or person related to that individual (e.g., spouse, sibling, ancestor or lineal descendent) or by a common trust fund established under the Collective Investment Funds Act, 1941 PA 174 (MCL 208.1111(1)(x)); and (3) interest income receipts derived from obligations or securities of the U.S. government, the State of Michigan, or any governmental unit of the State of Michigan are excluded from gross receipts (MCL 208.1111(1)(y)).

The inclusion of dividends a taxpayer receives from a subsidiary into the taxpayer's MGR tax base depends on whether the taxpayer is a unitary business group and whether the subsidiary is a member of the unitary business group. Dividends received from a subsidiary that is not a member of the taxpayer's unitary business group are included in a taxpayer's MGR tax base. Dividends from a subsidiary that is a member of a unitary business group taxpayer, however, are not included in the taxpayer's MGR tax base as the inter-company dividends are eliminated under MCL 208.1203(3) and MCL 208.1511.

Furthermore, dividends received or deemed received by the taxpayer from a foreign operating entity or a non-U.S. person, are excluded from gross receipts pursuant to a five year phase-in period. For tax year 2008, 50% of the amount of such dividends is excluded from gross receipts. For tax years 2009 and 2010 60% of the amount of such dividends is excluded from gross receipts. For tax year 2011, 75% of the amount of such dividends is excluded from gross receipts and for tax year 2012 and each year thereafter, 100% of such dividend receipts is excluded from gross receipts. MCL 208.1111(z).