Michigan updated its guidance on unitary business group tests under the corporate income tax. The updated guidance reflects the Michigan Court of Appeals’ decision in LaBelle Management Inc. v Department of Treasury, 315 Mich App 23 (2016). It replaces RAB 2013-1, which the Department of Treasury partially rescinded.
Unitary Business Group Tests
Under the corporate income tax law, entities qualify as a unitary business group if they meet:
- a control test; and
- one of two alternate relationship tests.
They meet the control test if one entity owns or controls more than 50% of the ownership interests of the other entities. Either direct or indirect ownership satisfies the requirement.
LaBelle Decision and the Control Test
In LaBelle, the court ruled that entities could not satisfy the control test by:
- constructive ownership; or
- ownership through attribution.
The decision turned on the meaning of indirect ownership. The court held that indirect ownership meant ownership through an intermediary.
The decision applied to a unitary business group determination under the Michigan business tax. However, because the same control test applied under the MBT and the corporate income tax, the LaBelle decision applied to both taxes.
Revenue Administrative Bulletin 2018-12, Michigan Department of Treasury, May 23, 2018, ¶402-292