Decision on Unitary Group Stands after Michigan Supreme Court Ruling
On January 24, 2017, the Michigan Supreme Court denied the application filed by the Michigan Department of Treasury (the "Department") for leave to appeal the Court of Appeals' published decision in LaBelle Management v Michigan Department of Treasury, 315 Mich App 23; 888 NW2d 260 (2016). The Supreme Court's order concludes the matter and extinguishes the Department's appeal rights. By the terms of the Court of Appeals' May 5, 2016 stay order, the stay is no longer in effect, and the Court of Appeals' decision is now binding authority.
The Court of Appeals' opinion bars Treasury's use of the attribution rules of IRC § 318 to deem ownership or control in order to identify members of unitary business groups under section 117(6) of the Michigan Business Tax. Instead, the statutory reference to "indirect" ownership or control means actual ownership or control through an intermediary, for example, a nominee, a trustee or a subsidiary. Neither Treasury nor the taxpayer can use backwards attribution to create greater-than-50-percent ownership interests where no single shareholder actually owns or controls an interest greater than 50 percent; but if ownership or control exists through an intermediary, it is counted in determining whether the greater-than-50-percent test is met.
See our original advisory outlining details of the matter, Recent Michigan Business Tax Ruling Clarifies the Meaning of ‘Indirect’ Ownership.