On April 17, 2025, the Michigan Tax Tribunal held that a business with only one brick and mortar location was entitled to apportion its income on its city income tax return because it engaged in business activities outside of the city. In this case, a business with only one brick-and-mortar location (located in Lapeer, Michigan) that made all of its sales to customers outside of the city apportioned its income under the permitted three-factor formula. However, pursuant to a 2018 regulation, the City of Lapeer argued that the business was not entitled to apportion its income, resulting in a 100% business allocation percentage to the city. 

Under Michigan law, a business may apportion its net profit out of the city “[w]hen the entire net profit of a business subject to the tax is not derived from business activities exclusively within the city.” In 2018, the Lapeer City Commission approved a regulation interpreting this law: 

“The fact that a person fills orders by shipment to an out-of-city destination, when such person has no regularly maintained and established out-of-city location and engages in no out-of-city business activity, does not entitle such person to apportion part of his net profit as being earned as a result of work done, services rendered or other business activity conducted out of the City.”

Reviewing the regulation, the Tribunal concluded that merely not having a business location outside of the city did not prohibit the business from apportioning its income. Rather, it must also engage in no out-of-city business activity. The Tribunal reviewed the business’ activities and found that it engaged in business activities outside of Lapeer because of the strategic planning activities of out-of-city employees. The Tribunal also rejected the City’s argument that the business was not earning net profit as a result of these strategic planning activities. Because the business engaged in business activities outside of the City, the Tribunal concluded that the business was entitled to apportion its income. 

Vidon Plastics Inc. v. City of Lapeer, MTT Dkt. No. 23-002017 (Mich. Tax Trib. Apr. 17, 2025).