The Michigan Department of Treasury has issued a notice to taxpayers regarding the Michigan Court of Appeals’ decision in LaBelle Management, Inc. v Department of Treasury, No. 324062, March 31, 2016. (TAXDAY 2016/04/05, S.12) This decision eliminated constructive ownership or ownership through attribution as a means of satisfying the unitary business group (UBG) control test under the Michigan Business Tax (MBT). On January 24, 2017, the Michigan Supreme Court denied the Department’s application for appeal. (TAXDAY 2017/01/26, S.10) The notice states that since the same control test is used for both the MBT and the Corporate Income Tax (CIT), the Department views the LaBelle decision as applicable to both taxes. Penalties will not be imposed for amended UBG returns or original stand-alone returns that are a direct result of LaBelle. Interest will also be waived on returns that are a direct result of LaBelle, if they are filed by December 31, 2017.
Further, the notice states the Department views the LaBelle decision as narrowing the UBG groups to those in which ownership or control is based upon a parent-subsidiary chain of relationships. The notice provides the following example: where Corporation A owns 51% of Corporation B, which owns 51% of Corporation C, which owns 51% of Corporation D, all 4 Corporations form a parent-subsidiary controlled group under LaBelle because Corporations B and C are both permissible intermediaries through which Corporation A indirectly controls both Corporations C and D, as well as directly controlling Corporation B.