The Michigan Court of Appeals reversed and vacated the Tax Tribunal’s order and held that merged entities that are a unitary business group (“UBG”) must be treated as single entity for purposes of calculating the franchise tax and that corporate income tax credits carried over to the new entity. The taxpayer, Comerica, Inc., was a bank holding corporation, which owned subsidiary financial corporations. For financial corporations, the franchise tax is imposed on the financial corporation’s net capital, which means the equity capital less goodwill and obligations. The taxpayer argued that the Department of Treasury double-counted its tax base because it did not treat the taxpayer and the entity with whom it merged as a single entity. The court agreed with the taxpayer relying on its recent decision in TCF Nat’l Bank v. Dep’t of Treasury, which held that the averaging formula – adding net capital at the close of the current tax year and the preceding years at issue , and dividing the resulting sum by the total number of years at issue – of the additional franchise tax must be applied to a unitary business group as a single taxpayer rather than at the individual member level. In addition, the court reserved the Tribunal’s order that the tax credits could not be transferred because they were subject to single-assignment limitation. The Department argued that the credits were extinguished because they were assigned previously. The court disagreed and held that tax credits are property that fell within the merger statute. Accordingly, the merger did not cause the credits to be assigned but instead the credits transferred by operation of law.
Comerica, Inc. v. Dep’t of Treasury, Mich. Ct. App., No. 344754, (Apr. 16, 2020).