Michigan Amended Return (REFUND) Opportunity: Single Member LLCs, Revenue Administrative Bulletins and SBT

The Michigan Court of Appeals recently affirmed a Tax Tribunal decision holding that a single-member limited liability company (SMLLC) treated as a disregarded entity for federal tax purposes was not required to file a Single Business Tax (SBT) return as a division of its owner (Kmart Michigan Property Services, LLC v. Department of Treasury No. 282058 (May 12, 2009).

Brief Summary of Case

Now, you may or may not have heard about this decision. The issue was whether a SMLLC was required to file as a division of its owner (causing the owner to file a SBT return), or if it could file a SBT return on its own. The Court of Appeals held that the SMLLC was a "person" subject to the SBT and could file or was required to file a separate return.

SBT AMENDED RETURN (REFUND) OPPORTUNITY

As you may know, the SBT no longer exists. It was replaced with the MBT (Michigan Business Tax). However, as long as the statute of limitations are still open, you could amend your Michigan returns and file separate returns for your SMLLCs if it would be beneficial for you to do so (meaning, refunds).

Major Points From Case

Some of the major points in the case (I think) were:

1. Michigan Revenue Administrative Bulletins deserve due deference from the courts, but are not binding legal authority, particularly if they contravene the applicable statute.

2. The Tribunal stated that the taxpayer's federal tax status was not determinative of whether it satisfied the definition of "person" under the SBT, because the SBT filing requirements are independent of the federal tax code and existed "long before the federal 'check-the-box' regulations" permitting a taxpayer to choose its entity status.

3. Because the Department of Treasury (DOT) has legal responsibility to collect taxes and is responsible for specialized service for tax enforcement, through establishment and maintenance of uniformity in definition regulation, return, and payment, the Court respected the Department's position. However, "the agency's interpretation is not binding on the courts, and it cannot conflict with the Legislature's intent as expressed in the language of the statute at issue."

4. The DOT issued RAB 1999-9 requiring SMLLCs to file as a division of its owner (if the SMLLC chose that classification for federal tax purposes).

5. DOT Bulletins are considered "interpretative statements." Therefore, taxpayers are not legally required to follow them (in other words, the bulletins can or should be followed in cases where they are not in conflict with legislative intent).

CONCLUSION (AMENDED RETURN OPPORTUNITY / Advice for Future RABs)

1. Amended return opportunities exist for single member limited liability companies who did not file separate SBT returns.

2. Do not simply follow Michigan Revenue Administrative Bulletins (RABs) guidance without confirming they are in agreement with legislative intent.

If you have any questions regarding how this applies to your situation, please contact me at leveragesalt@earthlink.net.

This blog

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States.  He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect."  For more info, visit his website: www.leveragestateandlocaltax.com

You can reach Brian at strahle@leveragesalt.com.

Connect with Brian on LinkedIn. Follow Brian on Twitter. Join the Leverage | SALT LinkedIn Group, connect and contribute with your colleagues!  

Because state and local taxes are deceptively simple and endlessly complicated.

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