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Michigan Business Tax
The Michigan Business Tax ("MBT") was enacted into Michigan law on July 12, 2007 to replace the former Single Business Tax ("SBT"). The tax is imposed on all "taxpayers" with Michigan nexus. The MBT consists of not one, but four different taxing regimes: a business income tax, a modified gross receipts tax, a financial institutions tax based on net capital, and an insurance companies tax based on premiums. The MBT is effective starting January 1, 2008.

For over 30 years, the SBT created much controversy among tax professionals due to its unique, one-of-a-kind taxing regime. Many practitioners considered the SBT to be too complex, unfair, and discouraging to new business development in the state. As a result, the SBT was consistently revised during its 30-year life and ultimately repealed with the enactment of the MBT. Whether the MBT will provide any less controversy than the SBT remains to be seen.

Taxable Entities
A taxpayer is defined under the MBT as a "person" or a "unitary business group." A "person" is further defined as "an individual, firm, bank, financial institution, insurance company, limited partnership, limited liability partnership, copartnership, partnership, joint venture, association, corporation, subchapter S corporation, limited liability company, receiver, estate, trust, or any other group or combination of groups acting as a unit." As such, the MBT is imposed on individuals, flowthrough entities such as partnerships, and federally disregarded entities such as single member limited liability companies. A taxpayer is also defined as a "unitary business group." A "unitary business group" is defined under the MBT as "a group of United States persons, other than a foreign operating entity, 1 of which owns or controls, directly or indirectly, more than 50 percent of the ownership interest with voting rights or ownership interests that confer comparable rights to voting rights of the other United States persons, and that has business activities or operations which result in a flow of value between or among persons included in the unitary business group or has business activities or operations that are integrated with, are dependent upon, or contribute to each other." A unitary business group is required to file a combined return as a single taxpayer under the MBT.

Nexus
Under the MBT, a taxpayer has sufficient Michigan nexus if: (1) the taxpayer has a physical presence in the state for more than 1 day or (2) the taxpayer actively solicits sales in the state and has apportioned or allocated Michigan gross receipts exceeding $350,000. As a result, the MBT nexus standard is two-pronged. Note that the active solicitation nexus standard indicates the state has moved to a broad economic nexus standard similar to a number of other states.

Filing Method
The MBT requires unitary business groups to file a combined return as one taxpayer. However, non-unitary taxpayers with Michigan nexus may file separate, stand-alone MBT returns.

Business Income Tax
Except for financial institutions and insurance companies, a business income tax ("BIT") is imposed on every taxpayer with business activity within the state. The BIT is imposed on federal taxable income derived from business activity, subject to a number of adjustments, and after allocation or apportionment to the state. 4.95%