On January 19, 2023, the Michigan Court of Appeals held that a taxpayer, transitioning from the Michigan Business Tax (MBT) to the Corporate Income Tax (CIT), cannot claim prior MBT business losses on its first CIT return. For tax years 2008 through 2011, the taxpayer filed MBT tax returns and claimed employment tax credits. In 2012, Michigan replaced the MBT with the CIT, but allowed businesses to continue filing MBT returns until they had exhausted their credits. However, any such taxpayer must pay the MBT as the greater of the typical MBT amount or as if it had instead filed a CIT return. The taxpayer took this approach until it exhausted its credits in 2018. In tax year 2019, the taxpayer filed its first CIT return and claimed an MBT business loss carryforward as a deduction. The Department of Treasury denied the deduction. 

The court first held that the taxpayer had not paid CIT from 2012 to 2018, even though it paid the “greater” CIT-based amount on the MBT return. The court concluded that the CIT-based amount is “[a]n amount equal” to the CIT liability, not a CIT liability itself. The court then concluded that the CIT does not allow a deduction for MBT business losses. The CIT defines “business loss” specifically with respect to the “corporate income tax base.” In contrast, the MBT “contemplates and uses a business income tax base which contains some different additions and deductions than those in the corresponding CIT statute.” Because the taxpayer did not previously file CIT returns and pay the CIT, it had no CIT base. It therefore had no CIT losses capable of being carried forward to tax year 2019. 

Int’l Auto. Components Grp. N. Am., Inc. v. Dep’t of Treas., No. 360602 (Mich. Ct. App. Jan. 19, 2023) (unpublished).