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Michigan's Initial Reaction to the 2017 Federal Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act included significant changes to the manner in which foreign-sourced income is taxed. The Michigan Department of Treasury (the "Department"), like other state taxing authorities, was required to interpret how these federal changes would impact Michigan taxpayers. In a notice dated July 2, 2018, the Department provided its initial guidance regarding Michigan's interpretation of three of the more significant changes in federal tax law. The Department also noted that its interpretations are subject to potential changes as federal law is modified or clarified by Congress, the United States Treasury Department, and the Internal Revenue Service.

The table below summarizes the Department's interpretations of (1) the foreign income repatriation requirements set forth in section 965 of the Internal Revenue Code of 1986, as amended (Code), (2) the base erosion and anti-abuse tax (BEAT), and (3) the global intangible low-taxed income (GILTI) provisions set forth in Code section 951A.

TCJA Provision Included in Michigan Income Deduction Allowed in Michigan Net Result to Michigan Taxpayer Relevant Authorities
Foreign Income Repatriation Yes. Deemed foreign dividends must be included in Michigan taxable income. Yes. Deemed foreign dividends are deductible in calculating Michigan taxable income. Likely no net effect to Michigan tax liability, but taxpayers that filed 2017 corporate income tax returns without reporting Code § 965 income as Michigan income are required to file amended returns to report the income - along with any related deduction. Code § 965; MCL 206.623(2)
BEAT No No deduction as BEAT is deemed to be a non-deductible tax. No direct effect, but lack of deduction is negative. Code § 59A
GILTI Yes. GILTI is viewed by the Department as similar to subpart F income; therefore, GILTI must be included in Michigan taxable income. Yes. GILTI is viewed by the Department to be similar to deemed foreign income; therefore, GILTI is deductible in calculating Michigan taxable income. Likely no net effect to Michigan tax liability. Code § 951A


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About this Author

Erin Haney, Tax attorney, Varnum

Erin is a member of Varnum's Tax Practice Team. As a former senior auditor for the Michigan Department of Treasury, she is experienced in Michigan tax compliance and controversy matters. Erin is also a certified public accountant, and she worked as a tax consultant for a major accounting firm prior to pursuing a career in law. During law school she served as a research assistant reviewing updates for the Guidebook to Michigan Taxes and completed an internship with the United States District Court for the Western District of Michigan.

Wayne D. Roberts, Corporate tax attorney, Varnum

Wayne is a member of Varnum’s Tax Team. His practice includes all aspects of federal and state tax planning and tax litigation. He represents both closely-held and Fortune 100 companies in tax disputes with the IRS, the Michigan Department of Treasury, and revenue departments in Pennsylvania, Indiana, Tennessee, New York, California and numerous other state and local taxing jurisdictions.