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A Better Partnership
August 01, 2012

COA Opinion: Flow-through income derived by individual taxpayer from related unitary business entities, that included as foreign operation, can be combined and apportioned as a whole under the income

The Court of Appeals has published its per curiam opinion in Wheeler v. Department of Treasury, No. 302251. In this case, the Court was confronted with the question of how to properly apportion the multi-state income of a taxpayer under the Michigan Income Tax Act. In this case, the taxpayer derived his income from an S corpoation, which in turn included income from a foreign operating entity. Pursuant to the Court of Appeals' previous decisions in the Preston and Malpass cases, this Court concluded that the unitary business prinicpal does allow an individual to combine the income from multiple unitary business entities for the purpose of applying the statutory apportionment factors, and that such apportionment is proper where, as in this case, the entities are organized in a "parent-subsidiary" relationship (but is not permitted where the entities are legally separate and distinct). The Court also concluded that the fact that one of the entities was foreign-based was irrelevant for apportionment purposes and, under the facts of this case, the foreign entity and the taxpayer's S corporation consituted a unitary business.

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