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Michigan Business Tax
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B34. How should inter-company transactions between members of a unitary business group be eliminated when the members have different year ends?
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Answer:
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MCL 208.1511 requires the elimination of all transactions between members of
the unitary business group that affect the business income tax base, modified
gross receipts tax base and the apportionment formula. When members of a unitary
business group have different year ends, the combined return of the unitary
business group must include each tax year of each member whose tax year ends
with or within the tax year of the designated member. Each member should
eliminate the inter-company items of income and expense recorded on its books
for the tax period of the member that is included in the combined return of the
unitary business group. In other words, inter-company eliminations are made on
an entity basis in computing the members' tax bases that are summed together for
the combined return.
For example, a unitary business group consists of company A, the designated
member that reports on a calendar year, company B that reports on a calendar
year and company C that has a fiscal year ending March 31. In 2008, companies A
and B will eliminate all inter-company transactions between each other since
they both report on a calendar year end. In computing their 2008 tax bases,
companies A and B will also eliminate all inter-company transactions they had
recorded on their books during the calendar year with company C.
Company C will report the months April 1, 2007 through December 31, 2007 on a
final SBT return. Only January 1, 2008 through March 31, 2008 will be reported
on the unitary group's 2008 MBT return. When computing its 2008 Business Income
and Modified Gross Receipts tax bases, Company C will eliminate all
inter-company transactions it has recorded on its books for the period January
1, 2008 through March 31, 2008. On the unitary group's 2009 MBT return, Company
C will eliminate all inter-company transactions it has recorded on its books for
the periods April 1, 2008 through March 31, 2009. Companies A and B will
eliminate all inter-company transactions recorded in 2009 between each other and
with company C since both A & B report on a calendar year end. While timing
differences will occur due to differences in each members year end, eliminating
each member's inter-company transactions that were recorded on that member's
books during the periods included in the combined return will eliminate
inter-company transactions from the unitary business group's tax base.
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