Michigan Makes Changes to Tax Base Calculation for Banks

Michigan legislation changes the way banks calculate their tax base for tax years beginning after 2018. The legislation clarifies existing law and reflects departmental policy, as announced in a 2016 notice.

Tax Base

Under the legislation, a financial institution’s tax base is the total equity capital of:

– the financial institution; or

– the top-tiered parent entity, in the case of a unitary business group of financial institutions.

Previously, the law did not address the tax base in the case of a unitary business group of financial institutions.

The tax base is subject to the following deductions before allocation or apportionment:

– the average daily book value of U.S. obligations owned by unitary business group members;

– the average daily book value of Michigan obligations owned by unitary business group members; and

– the equity capital of a person subject to the insurance premiums tax, up to 125% of the minimum regulatory capitalization requirements of the member.

Top-Tiered Parent Entity

A “top-tiered parent entity” is the highest level entity within a unitary business group that must file with a regulatory agency using Federal Financial Institutions Examination Council (FFIEC) standards.

Total Equity Capital

“Total equity capital” means the amount reported on various forms designated by the FFIEC and filed with:

– the Office of the Comptroller of the Currency;

– the Federal Deposit Insurance Corporation (FDIC); or

– the Federal Reserve System.

It refers to the amount reported by the financial institution or the top-tiered parent entity. Previously, the law did not provide for the use of combined equity capital reported on federal regulatory reports.

Determination of Tax Base

For tax years beginning after 2020, financial institutions must determine their tax base as of the close of the tax year. For tax years beginning before 2021, they must determine their tax base using a five-year average.

Unitary Business Group Eliminations

Special provisions apply if a U.S. person included in a unitary business group of financial institutions or a financial institution combined return is subject to:

– the standard corporate income tax; or

– the tax on insurance companies.

Any business income or equity capital attributable to that person must be eliminated from the group’s total equity capital. Also, any sales or business attributable to that person must be eliminated from the group’s apportionment formula.

Act 460 (S.B. 361), Laws 2018, effective as noted

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