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Revenue Administrative Bulletin 1989-49Approved: May 31, 1989
SINGLE BUSINESS TAX - CONSOLIDATED OR COMBINED REPORTING
(Replaces Single Business Tax Bulletin 1982-1)
RAB-89-49. The purpose of this Bulletin is to explain the consolidated or combined filing provisions of the Single Business Tax Act (SBTA).
The Commissioner of Revenue has broad discretion regarding whether to allow or require a group of corporate taxpayers to file consolidated returns. [MCL 208.77] To do so, the Commissioner must determine that the corporations are an affiliated group as defined in MCL 208.3(1) and meet the consolidated or combined return filing requirements as specified in MCL 208.77.
The Commissioner of Revenue may require an affiliated group of corporations filing consolidated or combined returns to selectively include or not include each and every member of the affiliated group in the return. [MCL 208.77] The Commissioner may require this treatment if it is determined that such a consolidated or combined return is necessary to maintain a consistent treatment of tax deductions and recapture amounts or other tax benefits. A consolidated or combined return that does not or will not fairly represent the extent of the group's business activities in this State will not be permitted or required. Alternatively, the Commissioner may require appropriate adjustments on separate returns that are filed by the taxpayers when they are no longer eligible to file consolidated or combined returns or request separate filing status.
Pursuant to the discretion granted the Commissioner regarding consolidated reporting, permission will be granted to file in this manner prospectively only. A request to file a consolidated or combined return must be received by the Commissioner prior to the date set for filing the annual single business tax return (or the extended due date). Late requests shall be denied.
Affiliated Group Definition
An affiliated group "means two or more corporations, one of which owns or controls, directly or indirectly, 80% or more of the outstanding capital stock with voting rights of the other corporation or corporations." [MCL 208.3(1)]
Corporation T owns 100% of the capital stock of Corporation L and 10,000 shares of Corporation J's stock. Corporation J has 12,000 share of capital stock outstanding. The affiliated group is T, L and J. Corporation T owns, directly, 83.3% of Corporation J.
Same facts as above, except Corporation J owns 100% of Corporation D. Therefore, Corporation T owns, indirectly, 83.3% of Corporation D. The affiliated group is T, L, J and D.
Consolidated or Combined Return Filing Requirements
Corporations may be included in a consolidated or combined return for single business tax purposes if during the consolidated year each corporation meets all the following conditions:
Substantial Intercorporate Transactions
Substantial intercorporate transactions are qualified transactions between a "selling member" and a "purchasing member" of the affiliated group.
Intercorporate transactions are transactions giving rise to a business activity as defined in the SBTA and connected directly with the business conducted by the members. Intercorporate transactions must be substantial in nature as such transactions relate to the total business activity of the member. The Department has established the following criteria for determining whether a member corporation has substantial intercorporate transactions:
Permission to File Consolidated or Combined Returns
An affiliated group requesting permission for consolidated or combined filing must do so on SBT Form C-8007. The request must provide the information indicated below for the taxable year that the request is being submitted:
Method of Computing Tax
An affiliated group approved for combined reporting computes its tax on a consolidated or combined basis and reports such tax on a single Form C-8000. The following are specific requirements for reporting purposes:
Where the tax is computed on the basis of consolidated or combined reporting, the Department may assess the entire amount of the tax and all additional taxes, penalty and interest computed on the basis of consolidated or combined reporting against any one or more of the taxpayers covered by a return.
Quarterly estimated tax payments shall be based upon the separate tax liability of each corporation until approval for consolidated or combined filing has been granted by the Commissioner. Applicable penalties and interest shall be assessed for any underpayment of quarterly estimated tax when the estimate is based upon the affiliated group's tax liability and taxpayer's request for consolidated or combined filing is denied.
All corporations included in the consolidated or combined return must use the same accounting period.
Corporation T operates a retail store. Its subsidiary Corporation J finances all of Corporation T's accounts receivable. The business activities of both corporations are entirely within Michigan. The intercorporate transactions are substantial to both T and J. Since Corporation J is subject to an apportionment formula as a financial organization, whether or not the corporation has activities without the State, and that formula is not applicable to Corporation T's business activity, the affiliated group of Corporations T and J is NOT eligible for consolidated or combined filing.
Corporation A owns 100% of Corporations B, C and D. Corporations A, B and C are Michigan taxpayers. Corporation A manufactures a product and has annual sales of $1 million, of which 25% is sold to Corporation B and 25% sold to Corporation D. Since Corporation D is not a Michigan taxpayer and, therefore, not an allowable member, Corporation A has intercorporate transactions equal to 25% of total sales. The only activity of Corporations B and D is selling Corporation A's products. Corporations C's only activity is renting a building to Corporation A. The Commissioner may require or permit Corporations A, B and C to file consolidated or combined returns. Corporations A, B and C each have substantial intercorporate transactions. Corporation D is not a Michigan taxpayer and, therefore, can NOT be included in the affiliated group.
Assume the same facts as in Example 2, except Corporation B sells products other than those purchased from Corporation A. Corporation B has a "cost of goods sold" plus other ordinary business deductions of $3 million of which $250,000 represents cost of products acquired from Corporation A. These transactions are no longer substantial intercorporate transactions of Corporation B. Therefore, B can NOT be a member of the affiliated group. Also, these intercorporate transactions can NOT be considered in determining A's eligibility because these transactions are not with other eligible members. Corporations A and C can NOT file a consolidated return because Corporation A does not have substantial transactions with Corporation C. (It is assumed here that the rental expense of Corporation A from Corporation C is less than 10% of Corporation A's cost of operations.)
Assume the same facts as in Example 2, except Corporation C's only activity is financing the accounts receivable of Corporations A, B and D. Corporation C is a financial organization and uses a different apportionment formula than the other corporations. Therefore, Corporation C can NOT be included in the consolidated return. The Commissioner may require or permit Corporations A and B to file consolidated or combined returns.
Assume (see below) Corporation A owns 100% of Corporations B and C and all members qualify as members of an affiliated group for the purpose of filing a consolidated or combined single business tax return. Corporation A is a Michigan taxpayer and also has plants in Ohio and New York. Corporation B is a Michigan corporation with plants in Ohio and Wisconsin. Corporation C operates only in Michigan. For purposes of calculating the sales factor, intercompany transactions have been excluded.