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Michigan Business Tax
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F4. The MBT franchise tax provides financial institutions with a tax base deduction for "the average daily book value of United States obligations and Michigan obligations." MCL 208.1265(1). Does "average daily book value" include the premiums and discounts for U.S. obligations?
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Answer:
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Yes, where the premiums and discounts are reflected in the book value of the
U.S. obligations.
The MBT defines United States obligations as
all obligations of the United States exempt from taxation under 31 USC
3124(a) or exempt under the United States constitution or any federal statute,
including the obligations of any instrumentality or agency of the United
States that are exempt from state or local taxation under the United States
constitution or any statute of the United States. MCL 208.1261(s).
Michigan obligation is defined as
a bond, note, or other obligation issued by a governmental unit described
in section 3 of the shared credit rating act, 1985 PA 227, MCL 141.1053. MCL
208.1261(k).
"Average daily book value" is not a defined term in the MBT or the Federal
IRC. "Book value" is commonly understood to be the value at which an asset is
carried on the taxpayer's balance sheet. Black's Law Dictionary, 8th ed. Thus,
in order to reach the average daily book value of U.S. obligations a financial
institution will calculate the daily value of the obligation as it appears on
the institution's balance sheet and average this value over the days in the
financial institution's tax year. If the book value of the U.S. obligation is
affected by premiums and discounts on the institution's balance sheet then these
amounts will also be included in the computation of average daily book value for
purpose of the tax base calculation.
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