Michigan Corporate Income Tax (CIT)

Michigan imposes a 6% flat Corporate Income Tax on the apportioned business income of C-corporations under the Income Tax Act of 1967 as amended by Public Act 38 of 2011 (MCL 206.601 et seq.). Pass-through entities are not subject to CIT but may elect the 4.25% Flow-Through Entity Tax (FTE) under PA 135 of 2021 as a SALT-cap workaround. The Small Business Alternative Credit zeroes liability for qualifying small C-corps. Apportionment is single sales factor with market-based sourcing; no throwback. Filing is on Form 4891 with mandatory unitary combined returns. Pre-2012 MBT credits may keep certain taxpayers on the legacy Michigan Business Tax through 2031. Tax year 2025.

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1. Scope

1.1 Who is subject to CIT

The Michigan CIT applies to taxpayers that are C-corporations for federal income tax purposes under MCL 206.605(4) and MCL 206.611(1). A "taxpayer" for CIT purposes means a corporation, insurance company, financial institution, or a unitary business group with nexus in Michigan and that is subject to federal taxation as a C-corp.

C-corporation status is determined by federal classification:

• A corporation incorporated under state law without an S-election → C-corp → subject to CIT.
• An LLC that has elected to be taxed as a corporation on Form 8832 and has not made an S-election (Form 2553) → C-corp → subject to CIT.
• A corporation that has revoked its S-election or had it terminated → C-corp from the date of revocation/termination → subject to CIT for that period.

1.2 Who is NOT subject to CIT

The following federal pass-through entities are not subject to the Michigan CIT:

• S-corporations (federal Form 1120-S filers). The shareholders report their distributive share on Michigan Form MI-1040 individual returns. The S-corp itself may, however, elect to pay the Flow-Through Entity Tax under PA 135 of 2021 (see Section 7).
• Partnerships and LLCs taxed as partnerships (federal Form 1065 filers). Partners report on their individual Michigan returns. The partnership may elect the FTE (Section 7).
• Single-member LLCs disregarded for federal tax purposes. The income is reported on the owner's federal return; if the owner is a C-corp, the C-corp owner is subject to CIT, if the owner is an individual, the income flows to Form MI-1040.
• Sole proprietorships.
• Tax-exempt organizations under IRC §501(c), except to the extent they have unrelated business taxable income (UBTI) subject to federal Form 990-T, in which case the UBTI is subject to CIT (MCL 206.625).

1.3 Separate tax regimes (out of scope for this skill)

Two industries are subject to separate chapters of the CIT statute with different rates and bases. Do not apply the rules in this skill to:

• Insurance companies — taxed under MCL 206.635 et seq. at 1.25% of gross direct premiums written on Michigan business (with a retaliatory tax overlay). Form 4905.
• Financial institutions — taxed under MCL 206.651 et seq. at 0.29% of net capital (a franchise-style tax). Form 4908.

If the taxpayer is a bank, thrift, savings institution, or insurance carrier, refuse to proceed under this skill and refer to a specialist or to the Michigan Department of Treasury financial institution / insurance tax guidance.

1.4 Nexus

A taxpayer has substantial nexus with Michigan if it has a physical presence in the state for any period during the tax year or if it actively solicits sales in Michigan and has gross receipts of $350,000 or more sourced to Michigan in the tax year (MCL 206.621(1) — the so-called "$350k bright-line nexus" test enacted in PA 38 of 2011, predating the federal Wayfair economic-nexus framework for sales tax).

Public Law 86-272 (15 U.S.C. §§381-384) continues to protect taxpayers whose Michigan activity is limited to soliciting orders for sales of tangible personal property that are approved and shipped from outside Michigan. P.L. 86-272 does not protect:

• Services (because P.L. 86-272 is limited to tangible personal property).
• Sales of intangibles.
• Activities that go beyond solicitation (in-state inventory, installation, post-sale service, etc.).

Note: Even when P.L. 86-272 protects a taxpayer from CIT on net income, the taxpayer is still required to file a return and the Michigan receipts are still included in the denominator of the sales factor of any unitary affiliate that does have nexus. The Michigan Department of Treasury has not yet formally adopted the Multistate Tax Commission's 2021 revised P.L. 86-272 statement targeting internet activities, so the traditional P.L. 86-272 analysis still controls for Michigan as of tax year 2025.

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2. Rate and tax base

2.1 Rate

The CIT rate is a flat 6% of the apportioned tax base (MCL 206.623). Michigan has no graduated brackets and no surtax. The rate has not changed since PA 38 of 2011 took effect on January 1, 2012.

2.2 Starting point: federal taxable income

The Michigan CIT tax base starts with the taxpayer's federal taxable income as reported on federal Form 1120, Line 28 (taxable income before NOL deduction and special deductions), subject to a series of additions and subtractions in MCL 206.623 to MCL 206.625.

This is fundamentally different from the pre-2012 Michigan Business Tax, which used a modified gross-receipts base; the post-2011 CIT is a true net-income tax that piggybacks on the federal return.

2.3 Additions to the federal base

The principal additions (MCL 206.623(2)) are:

• Interest income and dividends from obligations of other states and their political subdivisions (federal exempt under IRC §103) — added back.
• Taxes on or measured by net income, including the CIT itself if deducted federally — added back.
• Federal NOL deduction to the extent claimed on the federal return — added back (Michigan computes its own NOL).
• Royalty, interest, and other expenses paid to a related person that is not included in the same unitary business group (the so-called "intangible expense addback" — MCL 206.623(2)(g)), unless the related-party recipient is subject to tax in another state and the transaction has a non-tax business purpose.
• Bonus depreciation under IRC §168(k) — for property placed in service after September 27, 2017, Michigan conforms to current federal bonus depreciation rules under the One Big Beautiful Bill Act (OBBBA, PL 119-21, July 4 2025), which restored 100% bonus depreciation for property placed in service after January 19, 2025. No addback for conforming bonus depreciation. (Some older Michigan guidance about bonus depreciation addbacks relates only to pre-2012 MBT/SBT years.)
• Unincorporated Business Tax (UBT) addback — if the taxpayer is a member of a unitary business group and a flow-through entity in the group paid an unincorporated business or replacement tax in another state, that tax is added back when computing the CIT base of the unitary group (MCL 206.623(2)(h)).
• Flow-Through Entity (FTE) addback — if a C-corp is the owner of a partnership or S-corp that elected the Michigan FTE (Section 7), the C-corp owner adds back its share of the FTE tax paid at the entity level, because Michigan then provides a refundable credit to the owner under MCL 206.673 to avoid double taxation.

2.4 Subtractions from the federal base

The principal subtractions (MCL 206.623(3)) are:

• Interest income from U.S. obligations (federal bonds, T-bills) — subtracted (this conforms to the federal preemption under 31 U.S.C. §3124).
• Dividends-received deduction (DRD) — Michigan generally allows a 100% DRD for dividends received from a corporation in the same unitary business group (because they would otherwise be intercompany eliminations) and conforms to the federal DRD for other dividends to the extent of the federal §243 deduction allowed.
• Michigan NOL carryforward computed separately from the federal NOL.
• Income from a flow-through entity to the extent that income was already taxed via the FTE at the entity level (the C-corp owner subtracts to avoid double taxation, then claims the refundable FTE credit).

2.5 Federal income tax is NOT deductible

Unlike a handful of states (Alabama, Iowa, Louisiana, Missouri until 2022) that have historically allowed a deduction for federal income tax paid, Michigan is fully decoupled from federal income tax as a deduction. Federal income tax expense reflected in the financial statements but not in federal taxable income (because federal income tax is, of course, not deductible on the federal return either) is not deductible for Michigan CIT.

2.6 Michigan NOL

Michigan computes a separate NOL under MCL 206.623a. The rules:

• NOLs arising in tax years beginning on or after January 1, 2018 conform to the federal CARES Act / TCJA framework: indefinite carryforward, no carryback, and an 80% of taxable income limitation for years beginning after 2020 (Michigan adopted the TCJA NOL rules with rolling federal conformity).
• NOLs arising in tax years before January 1, 2018 retained a 10-year carryforward and 2-year carryback under prior Michigan law; carryforwards from those pre-TCJA years remain available subject to the original 10-year limitation.
• Michigan NOLs are computed on a post-apportionment basis (i.e., apply apportionment first, then compute the loss). This contrasts with some states that use pre-apportionment NOLs.
• NOLs do not survive a §382 ownership change to the extent the federal §382 limitation applies (Michigan conforms to §382).

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3. Small Business Alternative Credit

3.1 Statutory basis

MCL 206.671 provides the Small Business Alternative Credit (SBAC). When the taxpayer qualifies, the credit equals the entire CIT liability, reducing the tax to zero. The taxpayer still files Form 4891 and Form 4893 (the SBAC computation form), but pays no tax.

3.2 The three eligibility tests

To qualify for the 100% credit, all three of the following must be true for the tax year:

1. Business income test. Gross receipts (defined consistently with the apportioned sales factor concept) do not exceed $20,000,000 AND adjusted business income does not exceed $1,300,000 (PA 38 of 2011 indexed the figures; the $1.3M business income threshold is the binding constraint in practice and is the figure most relevant to this skill's freelancer/small-business focus).
2. Officer / shareholder compensation test. No individual shareholder owning more than 5% of the stock, and no individual officer, received total compensation and director's fees exceeding $180,000 during the tax year. "Compensation" for this purpose includes wages, bonuses, deferred comp paid out, distributions classified as compensation, and director's fees.
3. Allocated income test. The amount of business income allocated to any single shareholder or officer (the shareholder's compensation plus distributions plus distributive share, grossed up by the ratio of business income to gross receipts) does not exceed $180,000.

The thresholds are not indexed for inflation; they have remained at $1.3M / $20M / $180k since PA 38 of 2011.

3.3 Reduced credit (phase-out)

If the taxpayer fails the $180,000 compensation/allocated-income test by a small margin (compensation between $180k and $400k, very roughly), MCL 206.671(2)-(4) provide a reduced credit on a sliding scale rather than a cliff. The reduced credit:

• Decreases by 15% for every $10,000 by which compensation exceeds $180,000.
• Phases out completely once any officer/shareholder hits roughly $400,000 in compensation (the formula produces a 100% reduction at that point).

In practice, because of the multiplicative effect of the reduction and the loss of the full credit, freelance-developer-scale C-corps either qualify cleanly for the 100% credit (typical) or do not qualify at all.

3.4 Disqualifications

A taxpayer is disqualified from the SBAC regardless of meeting the three tests if:

• It is a member of a unitary business group whose combined members fail any test (the tests are applied at the unitary group level, not the entity level — MCL 206.671(6)).
• It is an insurance company or financial institution (those entities have separate small-business relief under their respective regimes).
• It elected the FTE at the entity level (a flow-through that elected FTE is not subject to CIT, so the SBAC is irrelevant; the SBAC has no FTE equivalent).

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4. Apportionment

4.1 Single sales factor

Michigan apportions the tax base using a single sales factor under MCL 206.661. The factor is:

Michigan sales factor = Michigan-sourced sales ÷ Sales everywhere

The pre-2008 three-factor (property + payroll + sales) formula is fully repealed. There is no payroll factor, no property factor, and no weighted formula. This was one of the major design features of PA 38 of 2011 and conforms Michigan to the post-2010 single-sales-factor trend.

4.2 Market-based sourcing for services and intangibles

Under MCL 206.665, sales other than sales of tangible personal property are sourced to Michigan if the benefit of the service or use of the intangible is received in Michigan (market-based sourcing). This replaced the older cost-of-performance rule that had applied under SBT and earlier CIT.

For a software developer or SaaS provider:

• Selling a license or subscription to a Michigan customer for use by Michigan-based users → Michigan-sourced.
• Selling to an out-of-state customer whose end-users are nationwide → sourced pro-rata by end-user location (the regulations under R 206.665 allow reasonable apportionment of receipts when the benefit is received in multiple states).
• Selling consulting services performed remotely to a Michigan customer → Michigan-sourced (benefit received where the client uses the work product).

Michigan has not yet issued the equivalent of California's CCR §25136-2 detailed market-sourcing regulation, so practitioners rely on the statutory "benefit received" standard and the Department's Revenue Administrative Bulletins (notably RAB 2014-5).

4.3 Sales of tangible personal property

Under MCL 206.663, sales of tangible personal property are Michigan-sourced if:

• The property is delivered or shipped to a purchaser in Michigan, regardless of the f.o.b. point or other conditions of sale (the destination rule).

4.4 Throwback repealed

Michigan repealed the throwback rule when PA 38 of 2011 took effect. There is no throwback and no throwout in Michigan CIT. Sales of tangible personal property shipped from a Michigan location to a state where the taxpayer is not taxable (e.g., a state where it is protected by P.L. 86-272) are not thrown back to Michigan and are treated as "nowhere sales" that fall out of the Michigan numerator while remaining in the denominator. This is highly taxpayer-favorable for Michigan-based exporters.

4.5 Sales factor numerator and denominator definitions

• Denominator: total sales of the taxpayer (or the unitary business group) wherever sourced, excluding investment-related sales and certain other excluded items under MCL 206.667.
• Numerator: the portion of those sales sourced to Michigan under the rules above.

Hedging transactions, treasury function receipts, and securities sales are generally excluded from both numerator and denominator (MCL 206.667), preventing them from distorting the apportionment of a non-financial taxpayer.

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5. Combined / unitary returns

5.1 Mandatory unitary combined filing

Michigan requires mandatory unitary combined reporting under MCL 206.691. The Michigan CIT is one of the original mandatory-combined-reporting states. There is no consolidated election; the determination is made by the existence of a unitary business group.

5.2 Defining the unitary business group

A unitary business group exists when (MCL 206.611(6)):

1. Common ownership test. One member, directly or indirectly, owns or controls more than 50% of the ownership interests with voting rights (or comparable rights) of the other members. The test is "more than 50%", not "at least 50%" — exactly 50% does not create a unitary group.
2. Unitary relationship test. The members have business activities or operations that result in a flow of value between them OR are integrated with, dependent upon, or contribute to each other. The flow-of-value standard derives from the U.S. Supreme Court line of cases (Mobil Oil, Container, Allied-Signal) and includes shared management, centralized purchasing, intercompany financing, and other functional integration.

If both tests are met, the entities must file as a unitary group on a single combined return. The election to file separately is not available.

5.3 Water's-edge: no foreign inclusion

Michigan's combined return is a water's-edge combined return. Members organized under the laws of a foreign country, and members with less than 20% of their property and payroll inside the United States (the so-called 80/20 test under MCL 206.691(2)), are excluded from the Michigan unitary group. This is favorable to multinational structures because foreign affiliates do not pull foreign profits into the Michigan tax base.

5.4 Mechanics of the combined return

• The unitary group files one Form 4567 (the combined return; the underlying CIT computation flows through Form 4891).
• The designated member signs the return and is the contact for all CIT matters.
• Intercompany transactions between members are eliminated when computing the combined tax base (so that intercompany sales, interest, royalties, dividends do not artificially inflate the base).
• Apportionment is computed using the combined sales factor (Michigan sales of all members divided by everywhere sales of all members, after intercompany elimination).
• The 6% rate is applied once to the combined apportioned base.
• The SBAC is tested at the unitary group level, not separately for each member.

5.5 Joining or leaving the group mid-year

When a member joins or leaves the unitary group during the year (e.g., an acquisition or disposition), the entity files a short-period CIT return for the portion of the year it was inside or outside the group. The combined return includes the member's activity for the portion of the year it was part of the unitary group.

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6. MBT legacy regime

6.1 The MBT-to-CIT transition

The Michigan Business Tax (MBT) under PA 36 of 2007 was Michigan's main business tax from 2008 through 2011. The MBT was a hybrid that combined a 4.95% business income tax with a 0.8% modified gross receipts tax, plus a 21.99% surtax (which was retroactively repealed).

PA 38 of 2011 replaced the MBT with the CIT effective January 1, 2012. However, the MBT was not fully repealed. The MBT statute remains on the books because of an unusual transition provision:

6.2 The MBT certificated credit election

Under MCL 208.1500 (the MBT statute, still in force for this limited purpose), a taxpayer that holds certain certificated credits issued under MBT — principally:

• Michigan Economic Growth Authority (MEGA) credits,
• Brownfield Redevelopment Authority credits,
• Historic Preservation Tax Credits,
• Renaissance Zone credits,
• Film Production credits issued before 2015,
• Certain anchor and battery credits issued to specific large taxpayers

— may elect to continue filing under the MBT rather than the CIT until the credit certificate expires or is fully used, but no later than tax years beginning before January 1, 2032. The original MCL 208.1500 sunset of 2031 reflected the longest-dated MEGA credit certificates.

6.3 Practical effect

A taxpayer that makes the MBT election:

• Files Form 4567 under the MBT regime (the "Continuation of MBT" suite).
• Pays the MBT 4.95% business income tax + 0.8% modified gross receipts tax in lieu of CIT.
• Claims its certificated credits against MBT liability.
• The election is all or nothing for the unitary group — the entire group must continue on MBT.

For freelance developer-scale taxpayers and the typical small-and-mid C-corp that this skill addresses, the MBT election is not relevant: the certificated credits at issue were almost entirely issued to large incumbent manufacturers, film studios, and major redevelopment projects between 2008-2011. If a client asks about MBT, confirm by checking whether they hold any MEGA, Brownfield, or other certificated credit. If they do not, the answer is simply: the taxpayer files CIT.

6.4 Refusal trigger

If a taxpayer does hold an MBT certificated credit and is considering whether to remain on MBT or move to CIT, this skill does not provide the trade-off analysis. Refuse and refer to a Michigan-specialist preparer, because the analysis depends on the remaining undrawn credit amount, the projected income trajectory, and the MBT-to-CIT recapture rules.

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7. Flow-Through Entity Tax (FTE)

7.1 Statutory basis: PA 135 of 2021

PA 135 of 2021, enacted on December 20, 2021 and codified at MCL 206.801-206.847, created the Michigan Flow-Through Entity Tax (FTE). The FTE is an elective entity-level tax on partnerships and S-corporations that allows them to deduct the Michigan income tax at the federal level (avoiding the $10,000 SALT cap on individual itemized deductions) — the classic "SALT cap workaround" structure that more than 30 states have adopted following IRS Notice 2020-75.

The election was made retroactive to tax years beginning on or after January 1, 2021, allowing taxpayers to claim a federal deduction for 2021 Michigan state income tax that had already been paid at the individual level through estimated payments and withholding. This retroactivity is unusual and was a notable feature of PA 135.

7.2 Eligible entities

The FTE election is available to:

• Partnerships filing federal Form 1065 (general partnerships, limited partnerships, LLPs, LLCs taxed as partnerships).
• S-corporations filing federal Form 1120-S.

It is not available to:

• Single-member LLCs disregarded for federal tax (no entity-level federal partnership return).
• Sole proprietorships.
• C-corporations (which are subject to CIT, not FTE).
• Publicly traded partnerships under §7704.

7.3 Rate and base

The FTE rate is 4.25% of the entity's apportioned business income (matching the Michigan individual income tax rate under MCL 206.51, not the 6% CIT rate). The base is computed at the entity level using market-based single-sales-factor apportionment (parallel to the CIT apportionment rules).

The rationale for using the 4.25% individual rate rather than the 6% C-corp rate is that the FTE substitutes for the individual income tax that the partners/shareholders would otherwise pay on their distributive shares.

7.4 Election mechanics

• The election is made by filing Form 5772 (FTE Annual Return) and paying the tax.
• The election must be made by the 15th day of the 3rd month of the tax year (March 15 for calendar-year taxpayers), with quarterly estimated payments required.
• The election is irrevocable for three tax years (MCL 206.813(2)). A 2025 election binds the entity through 2027.
• The election is made at the entity level — all members are bound by it. There is no member-level opt-out.

7.5 Credit to members

Members (partners, shareholders) of the electing entity receive a refundable credit under MCL 206.254 (for individual members) or MCL 206.673 (for corporate members) equal to the member's allocated share of the FTE tax paid by the entity. The member reports the distributive share in income on the Michigan return and then claims the refundable credit, producing the same net Michigan tax result as if the FTE had not been elected — but with the federal SALT-deduction benefit captured at the entity level.

7.6 Federal deduction mechanics

For federal purposes, the FTE is deductible by the partnership/S-corp as a business tax under IRC §164(a)(1) (state and local taxes paid in carrying on a trade or business), which is not subject to the §164(b)(6) $10,000 SALT cap on individual itemized deductions. IRS Notice 2020-75 explicitly blessed this structure. The FTE deduction reduces the federal ordinary business income of the entity, reducing the federal taxable income of every owner.

7.7 When to elect

The FTE election is generally beneficial when:

• The member is an individual who would otherwise hit the $10,000 SALT cap (almost always true for high-income members).
• The entity has stable income so that the 3-year lock-in is acceptable.
• The state Michigan tax savings at the federal level (federal marginal rate × Michigan tax) exceeds the administrative costs of the entity-level filing.

It is generally not beneficial when:

• Members are tax-exempt or out-of-state non-residents (who would not have hit the SALT cap anyway).
• The entity expects a loss in any of the next three years (the lock-in becomes burdensome).
• C-corp members (which can already deduct state tax fully and gain nothing from the workaround, and may face complications with the refundable credit mechanics).

7.8 Interaction with the OBBBA SALT cap increase

The One Big Beautiful Bill Act of July 4, 2025 (PL 119-21) raised the federal SALT cap for individuals from $10,000 to $40,000 for tax years 2025-2029 with a phase-down for AGI over $500,000. This reduces but does not eliminate the benefit of state pass-through entity taxes. For most high-income Michigan partners/shareholders, the FTE is still beneficial because Michigan income tax (4.25% of substantial flow-through income) plus property tax plus other state taxes still exceeds the new $40,000 cap. The 3-year lock-in is now somewhat less attractive because the federal benefit could change again at the end of 2029.

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8. Filing and estimated tax

8.1 Annual return

The annual CIT return is Form 4891 (Corporate Income Tax Annual Return) for a single corporation, or Form 4567 (the unitary business group return) for a combined group, with each member reported on Form 4897.

8.2 Due date

The annual return is due on the last day of the 4th month following the close of the tax year (MCL 206.681). For calendar-year taxpayers, this is April 30.

Note: this is one month later than the federal corporate return for calendar-year taxpayers (April 15). Michigan deliberately set the due date one month after the federal deadline to allow the federal return to be completed first.

8.3 Extension

A taxpayer may request an automatic 8-month extension by filing Form 4 (Application for Extension of Time to File Michigan Tax Returns) by the original due date and paying the estimated tax. The extension is for time to file only, not time to pay; underpayment of the final liability through estimated payments and the extension payment triggers interest under MCL 205.23.

8.4 Estimated tax payments

A taxpayer whose estimated annual liability exceeds $800 must make quarterly estimated payments (MCL 206.681(2)). The threshold is on the net annual CIT liability (after the Small Business Alternative Credit), so a taxpayer that qualifies for the SBAC and expects $0 liability does not need to make estimates.

8.5 Estimated payment due dates

Quarterly estimates are due on the 15th day of the 4th, 6th, 9th, and 13th months of the tax year (MCL 206.681(3)). For a calendar-year taxpayer:

Quarter	Due date
Q1	April 15
Q2	June 15
Q3	September 15
Q4	January 15 of the following year

Each installment must be at least 25% of the safe-harbor amount, where the safe harbor is the lesser of:

• 85% of the current-year liability, OR
• 100% of the prior-year liability (provided the prior year was a full 12-month year and the taxpayer had a CIT liability).

Underpayment triggers interest under MCL 205.23 at the prevailing Treasury rate. There is no separate underpayment penalty form analogous to federal Form 2220; the interest is assessed by the Department on examination or self-reported on Form 4899.

8.6 Estimated tax form

Estimated payments are made via Form 4913 (CIT Quarterly Estimated Return) or electronically through Michigan Treasury Online (MTO). Electronic filing is mandatory for taxpayers with $480,000+ in apportioned gross receipts.

8.7 Forms summary

Form	Purpose
4891	CIT Annual Return (single corporation)
4567	Unitary Business Group Annual Return
4897	UBG member-level computations
4893	Small Business Alternative Credit computation
4900	CIT recapture of certain credits
4905	Insurance Company Annual Return
4908	Financial Institution Annual Return
4913	Quarterly Estimated Return
4	Extension Application
4899	CIT Penalty and Interest computation
5772	Flow-Through Entity Annual Return
5774	FTE Quarterly Estimated Return

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9. Local city income taxes (overview only)

Michigan is one of the few states with a robust system of local city income taxes that operate alongside the state CIT. The local taxes are levied under the Uniform City Income Tax Act (MCL 141.601 et seq.) and adopted by individual cities by local ordinance.

9.1 Cities with local income tax

As of tax year 2025, the following Michigan cities impose a city income tax that includes a corporate tax component:

• Detroit — 2.0% on resident corporations; 1.0% on nonresidents (corporate is 2.0%). Detroit is administered by the state Department of Treasury under MCL 141.501-141.787e (a 2012 transition).
• Grand Rapids — 1.5% corporate, 0.75% nonresident individual.
• Saginaw — 1.5% corporate, 0.75% nonresident.
• Lansing — 1.0% corporate, 0.5% nonresident.
• Flint, Pontiac, Hamtramck, Highland Park, Albion, Battle Creek, Big Rapids, East Lansing, Grayling, Hudson, Ionia, Jackson, Lapeer, Muskegon, Muskegon Heights, Port Huron, Portland, Springfield, Walker and several others — generally 1.0% / 0.5%.

9.2 Scope of this skill

This skill does not prepare local city income tax returns. If the taxpayer has nexus with any Michigan city that imposes a local income tax, refer to the city-specific filing instructions (Detroit Form 5297 corporate, Grand Rapids Form GR-1120, etc.). Local cities use their own apportionment formulas (most are still three-factor) and have their own due dates (most are April 30 for calendar-year corps).

The CIT does not provide any credit for local city income tax, so a Detroit-based corporation pays the full 6% state CIT plus the 2% Detroit corporate income tax on Detroit-apportioned income, for an effective combined rate of approximately 8%.

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10. Worked examples

Example 1 — C-corp small business credit qualifier

Facts. Acme Software Studios, Inc. is a Michigan C-corp incorporated in Michigan. For tax year 2025 it reports:

• Federal taxable income (Form 1120, Line 28): $400,000.
• All sales are to Michigan customers (single-state operation; 100% Michigan-sourced).
• One shareholder, who is also CEO: receives $150,000 W-2 compensation, plus $50,000 of pre-tax 401(k) elective deferrals, for total compensation of $150,000 (the 401(k) deferrals come out of wages for compensation-test purposes — they are still W-2 compensation under MCL 206.671).
• No other officers or 5%+ shareholders.
• Gross receipts: $1,200,000.

Step 1 — Compute the tax base. Federal taxable income is $400,000. No additions or subtractions (Michigan conforms to bonus depreciation, no muni bond interest, no related-party expenses, no FTE).

Step 2 — Apportion. Single sales factor: $1,200,000 Michigan ÷ $1,200,000 everywhere = 100%. Apportioned base = $400,000 × 100% = $400,000.

Step 3 — CIT before credits. $400,000 × 6% = $24,000.

Step 4 — SBAC test.

• Adjusted business income $400,000 < $1,300,000 ✓
• Gross receipts $1,200,000 < $20,000,000 ✓
• Shareholder compensation $150,000 < $180,000 ✓
• Allocated income to shareholder ≈ compensation + distributive share. Even taking the full $400,000 of business income as flowing to the sole shareholder for the allocation test, the test under MCL 206.671 is computed using the statutory formula which references compensation plus a share of business income reduced by gross receipts ratio. In practice for a single-shareholder C-corp this test is the binding constraint.

Conservative calculation: allocated income = compensation $150,000 + (business income $400,000 × adjustment factor). Because the adjustment factor under MCL 206.671 reduces the business income portion when compensation is moderate, and the resulting allocated income remains below $180,000 in this fact pattern, the test is met.

Step 5 — Credit. SBAC = 100% × $24,000 = $24,000. Net CIT = $0.

Step 6 — Filing. File Form 4891 + Form 4893 by April 30, 2026. No estimated tax was required because the projected liability was below $800 after the credit. No FTE — Acme is a C-corp.

Outcome. Acme pays $0 Michigan CIT but must still file.

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Example 2 — Multistate C-corp

Facts. Velocity Robotics Corp. is a Delaware-incorporated C-corp with operations in Michigan, Ohio, and California. For tax year 2025:

• Federal taxable income (Form 1120, Line 28): $5,000,000.
• Gross receipts: $40,000,000.
• Sales by destination:
  • $10,000,000 of robot hardware shipped to Michigan customers.
  • $8,000,000 of robot hardware shipped to Ohio customers.
  • $12,000,000 of robot hardware shipped to California customers.
  • $6,000,000 of software/SaaS to enterprise customers, of which the benefit is received: $1,500,000 in Michigan, $2,000,000 in California, $2,500,000 elsewhere.
  • $4,000,000 of consulting services delivered remotely; of the engagements, $500,000 to Michigan-based clients, $1,500,000 to California clients, $2,000,000 to clients in Texas, NY, and other states.
• The company has manufacturing in Ohio and sales offices in Michigan. It does not qualify for the SBAC ($5M business income > $1.3M).
• CEO compensation $800,000; multiple shareholders.

Step 1 — Compute Michigan sales numerator.

• Tangible personal property to Michigan: $10,000,000 (destination rule, MCL 206.663).
• SaaS benefit received in Michigan: $1,500,000.
• Consulting services benefit received in Michigan: $500,000.
• Total Michigan-sourced sales: $12,000,000.

Note: Throwback does not apply. Hardware shipped from the Ohio plant to customers in states where Velocity is not taxable (e.g., a small state with no nexus) is not thrown back to Michigan.

Step 2 — Sales factor denominator. Total sales everywhere = $10M + $8M + $12M + $6M + $4M = $40,000,000.

Step 3 — Sales factor. $12,000,000 ÷ $40,000,000 = 30.0%.

Step 4 — Apportioned base. $5,000,000 × 30.0% = $1,500,000.

Step 5 — CIT. $1,500,000 × 6% = $90,000.

Step 6 — SBAC. Disqualified: business income $5M exceeds the $1.3M ceiling; CEO comp $800k exceeds the $180k ceiling. No SBAC.

Step 7 — Estimated tax. Liability > $800, so Velocity must make quarterly estimates of at least $22,500 each (≥25% of $90,000), due April 15, June 15, September 15, and January 15.

Step 8 — Local city tax. If Velocity has sales-office nexus with Detroit (i.e., a Detroit office), it also owes Detroit corporate income tax at 2.0% on Detroit-apportioned income — a separate filing not addressed here.

Outcome. Michigan CIT = $90,000, plus quarterly estimates and potential Detroit local tax.

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Example 3 — Partnership FTE election

Facts. Northern Lights Consulting LLC is a Michigan-organized LLC taxed as a partnership with two equal members:

• Partner A, Michigan resident, individual.
• Partner B, Michigan resident, individual.

For tax year 2025:

• Federal ordinary business income (Form 1065, Line 22): $600,000.
• Apportionment: 100% Michigan (all clients are Michigan).
• Each partner's distributive share: $300,000.
• Each partner already itemizes federally with property tax and state tax exceeding $40,000 (the post-OBBBA SALT cap for 2025).

Without FTE election (default).

• Partnership: no entity-level Michigan tax (pass-through, no CIT).
• Each partner: receives Schedule K-1 showing $300,000 ordinary income; reports on Form MI-1040 and pays $300,000 × 4.25% = $12,750 Michigan PIT each, total $25,500.
• Federal deduction: partner's state tax is an itemized deduction subject to the $40,000 SALT cap. With property tax and other state tax already at $40k, the additional $12,750 of Michigan PIT delivers zero federal deduction.

With FTE election.

• Partnership files Form 5772, elects FTE for 2025-2027 (3-year lock-in).
• Entity-level FTE: $600,000 × 4.25% = $25,500 paid by the partnership.
• Federal: the $25,500 reduces the partnership's federal ordinary business income to $574,500 (deductible under §164(a)(1) as an entity-level state tax; not subject to the $40k SALT cap because it is at the entity, not individual, level). Each partner's federal distributive share drops to $287,250 (savings of $12,750 each at the federal level).
• Federal tax savings: at a 35% federal marginal rate, each partner saves $12,750 × 35% = $4,462 in federal tax.
• Michigan: each partner reports their pre-FTE distributive share ($300,000) on Form MI-1040 and claims a refundable credit for their share of FTE paid ($12,750). Net Michigan tax for each partner is the same as without the election: $0 additional (the $12,750 PIT computed at the individual level is offset by the $12,750 refundable credit).
• Total combined federal + Michigan savings from FTE: $8,924 for the partnership (~$4,462 per partner).

Conclusion. The FTE election saves the partners approximately $8,900 in federal tax for 2025, with no offsetting Michigan cost. The partnership commits to the FTE for 2025-2027. The election should be made by March 15, 2025 and quarterly estimated FTE payments made via Form 5774.

Notes:

• If either partner had been a non-resident of Michigan, the analysis would still favor FTE (Michigan still allows the refundable credit to non-resident members), but the partner's state-of-residence may not give a credit for FTE paid (the credit-mechanism question depends on the home state's PTE-credit policy).
• If the LLC had elected to be taxed as a C-corp federally instead, it would owe 6% CIT (not 4.25% FTE) and would not qualify for the FTE workaround — though the C-corp itself can deduct state tax federally without SALT cap.

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11. Provenance

Statutes

• Income Tax Act of 1967, Part 2 (Corporate Income Tax), MCL 206.601 to MCL 206.713, as enacted by PA 38 of 2011 and amended through 2025.
• Flow-Through Entity Tax, MCL 206.801 to MCL 206.847, as enacted by PA 135 of 2021.
• Uniform City Income Tax Act, MCL 141.501 to MCL 141.787 (Detroit) and MCL 141.601 to MCL 141.787e (other cities).
• Michigan Business Tax Act, PA 36 of 2007, codified at MCL 208.1101 to MCL 208.1601 (retained for legacy MBT certificated credit elections only).

Regulations and bulletins

• Michigan Department of Treasury Revenue Administrative Bulletin 2014-5 (Market-Based Sourcing).
• RAB 2013-1 (CIT Nexus Standards).
• RAB 2017-14 (Unitary Business Group Determination).
• RAB 2022-1 (Flow-Through Entity Tax — initial guidance after PA 135).
• Michigan Department of Treasury "Corporate Income Tax: Frequently Asked Questions" maintained at michigan.gov/taxes.

Federal interaction

• IRS Notice 2020-75 (clarifying that entity-level state taxes paid by pass-throughs are deductible under §164 and not subject to the §164(b)(6) SALT cap).
• One Big Beautiful Bill Act, PL 119-21 (July 4, 2025) — raised individual SALT cap to $40,000 for 2025-2029, restored 100% bonus depreciation for property placed in service after January 19, 2025 (Michigan conforms via rolling-conformity Section 623 references).
• Public Law 86-272, 15 U.S.C. §§381-384.

Case law

• Container Corp. v. Franchise Tax Board, 463 U.S. 159 (1983) — unitary business standard.
• Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768 (1992) — unitary business and operational function test.
• Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425 (1980) — apportionability under the Due Process and Commerce Clauses.
• Vectren Infrastructure Services Corp. v. Michigan Department of Treasury, Court of Claims Docket No. 17-000204-MT (2019, Michigan-specific application of unitary business standard).

Out of scope / refusal triggers

This skill does not address, and any work involving these topics should be refused or referred:

• Insurance company tax under MCL 206.635 (refer to specialist).
• Financial institution tax under MCL 206.651 (refer to specialist).
• MBT continuation election analysis for taxpayers holding certificated credits (refer to specialist).
• Local city income taxes for Detroit, Grand Rapids, Lansing, Saginaw, Flint, Pontiac, and other Michigan cities (refer to city-specific preparer).
• §382 ownership change loss limitation analysis (federal specialist required).
• Transfer pricing / IRC §482 intercompany pricing analysis for the related-party expense addback (federal specialist required).
• Foreign affiliate / inclusion under water's-edge 80/20 test edge cases (specialist required).
• Tax periods prior to January 1, 2012 (pre-CIT regime: MBT, SBT — different statute, different specialist).

Where this skill provides a freelance-developer-scale answer (the typical small C-corp with under $1.3M of business income), it applies the SBAC default and produces a no-tax-due return on Form 4891 with the Form 4893 small business credit attached.

End of skill. Tax year 2025.

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