Michigan — Corporate Income / Franchise Tax

Michigan levies a corporate income tax (CIT) on every taxpayer with business activity in the state or an ownership interest in a flow-through entity that has business activity in Michigan, unless prohibited by federal law (P.L. 86-272). The tax is imposed at a rate of 6.0% on the corporate income tax base after allocation or apportionment to Michigan.

A "corporation" for CIT purposes means a person that is required or has elected to file as a C corporation under IRC sections 1361(a)(2) and 7701(a)(3). This definition adopts the federal check-the-box classification rules. Insurance companies and financial institutions are excluded from the definition of "corporation" and are subject to separate taxes—insurance companies pay a 1.25% premiums tax, and financial institutions pay a 0.29% franchise tax on net capital.

The CIT replaced the Michigan Business Tax (MBT) effective January 1, 2012. Flow-through entities such as S corporations, partnerships, and LLCs generally are not subject to the CIT, though Michigan imposes separate withholding obligations on flow-through entities with non-Michigan corporate or flow-through entity members, and flow-through entities may elect into Michigan's Flow-Through Entity Tax.

Source: MCL 206.623; MCL 206.605; Michigan Dept. of Treasury, Corporate Income Tax FAQs

Michigan apportions the corporate income tax base using a single sales factor. For taxpayers whose business activities are subject to tax both within and outside Michigan, the tax base is apportioned to Michigan by multiplying the tax base by the sales factor. The sales factor is a fraction: the numerator is total sales of the taxpayer in Michigan during the tax year, and the denominator is total sales everywhere during the tax year. The legislature expressly stated that apportionment shall be based solely on the sales factor multiplied by 100%, not on property, payroll, or any other factor.

Source: MCL 206.661; MCL 206.663

Michigan imposes the corporate income tax on a taxpayer that has nexus with the state under one of three alternative tests. First, a taxpayer has nexus if it has physical presence in Michigan for more than one day during the tax year. Second, a taxpayer has nexus if it actively solicits sales in Michigan and has gross receipts of $350,000 or more sourced to Michigan. "Actively solicits" means speech, conduct, or activity purposefully directed at persons within Michigan that explicitly or implicitly invites an order for purchase or sale. Third, a taxpayer has nexus if it has an ownership interest or beneficial interest in a flow-through entity, directly or indirectly through other flow-through entities, that itself has nexus. The CIT is subject to federal P.L. 86-272 protections.

Source: MCL 206.621

Michigan's corporate income tax base starts with the taxpayer's business income, defined as federal taxable income, and applies specified statutory adjustments before allocation or apportionment. Required additions include state and local bond interest, net operating loss carrybacks or carryovers deducted federally, and certain related-party intangible expenses. Required subtractions include dividends and royalties from non-U.S. persons and foreign operating entities, and U.S. obligation interest. For tax-exempt taxpayers, business income includes only federal taxable income from unrelated business activity.

Source: MCL 206.603(3); MCL 206.623(2)

Michigan corporate income tax annual returns are due by the last day of the fourth month after the end of the taxpayer's tax year. For calendar-year taxpayers, the original due date is April 30; for fiscal-year filers, the due date is the last day of the fourth month following the fiscal year end. Final tax liability must be remitted by the original annual due date, excluding any extension of time to file the return.

Quarterly estimated payment requirement

A taxpayer that reasonably expects its annual CIT liability to exceed $800 must file estimated returns and pay estimated tax for each quarter of the tax year. For calendar-year taxpayers, quarterly estimated returns and payments are due on April 15, July 15, October 15, and January 15 (of the following year). Fiscal-year taxpayers must file quarterly returns and make estimated payments on the corresponding due dates in their fiscal year.

The estimated payment made with each quarterly return must be either the estimated tax base applicable to the taxpayer for the quarter, or 25% of the estimated annual liability. The second, third, and fourth estimated payments in each tax year must include adjustments, if necessary, to correct underpayments or overpayments from previous quarterly payments in the tax year to a revised estimate of the annual tax liability. Taxpayers that calculate and pay federal estimated payments under IRC section 6655(e) may use the same methodology—the annualized income installment or adjusted seasonal installment—to calculate Michigan quarterly estimated payments.

Safe harbor from penalty and interest

Interest and penalty will not be assessed on estimated payments if either of the following conditions is met:

1. 85% safe harbor (MCL 206.681(3)(a)): The sum of the estimated payments equals at least 85% of the final liability, and the amount of each estimated payment reasonably approximates the tax liability incurred during the quarter for which the payment was made.

1. Prior-year safe harbor (MCL 206.681(3)(b)): For tax years 2013 and later, if the preceding year's CIT liability was $20,000 or less, the taxpayer may submit four equal installments that together equal the immediately preceding tax year's tax liability.

Extensions

If a taxpayer is granted a federal extension, the filing of a copy of the federal extension request together with a tentative return and payment of estimated tax by the original due date automatically extends the due date for filing the Michigan CIT return until the last day of the eighth month following the original due date (December 31 for calendar-year filers). Interest at the statutory rate is added to the amount of tax unpaid for the period of the extension. An extension of time to file is not an extension of time to pay.

The Department of Treasury may, upon application and for good cause shown, grant a discretionary extension. The state treasurer will require payment of the estimated tax liability unpaid for the tax period covered by the extension with the application. Interest accrues on the amount of tax unpaid during the extension period.

Filing threshold exceptions

A taxpayer (other than an insurance company or financial institution) whose apportioned or allocated gross receipts are less than $350,000 is not required to file a return or pay the CIT. A taxpayer whose CIT liability is $100 or less also is not required to file a return or pay the tax. A taxpayer with a tax year of less than four months is not required to file estimated tax returns or remit estimated payments.

Source: MCL 206.685; MCL 206.681

Michigan sources sales to the state under market-based rules that look to where the customer receives the benefit, not where the taxpayer performs its activities. Because Michigan apportions the corporate income tax using a single sales factor, correct sourcing of receipts to the Michigan numerator is critical to determining tax liability. The sourcing rules in MCL 206.665 are detailed and vary by transaction type.

Tangible personal property sales

Sales of tangible personal property are sourced to Michigan if the property is shipped or delivered to any purchaser within Michigan based on the ultimate destination at the point the property comes to rest, regardless of FOB point or other conditions of sale. For electricity and gas, the sale is sourced to Michigan if the contract requires delivery to the purchaser within Michigan.

Property stored in transit for 60 days or more before receipt by the purchaser (or in the case of a dock sale not picked up for 60 days or more) is deemed to have come to rest at the ultimate destination. Property stored in transit for fewer than 60 days (or a dock sale picked up before 60 days) is not deemed to have come to rest at the ultimate destination.

Services

Sales from the performance of services are sourced to Michigan based on where the recipient of the service receives the benefit of the service. All receipts from services are included in the Michigan numerator if the recipient receives all of the benefit of the services in Michigan. If the recipient receives only a portion of the benefit in Michigan, the receipts are included in the numerator in proportion to the extent that the recipient receives the benefit in Michigan.

The statute focuses on the "recipient" of the services, which in many cases is the purchaser but may be someone other than the purchaser. A taxpayer may not simply use the customer's billing address to source a sale of services without first making a reasonable and demonstrable effort, based on its books and records, to determine the location where the recipient of the service received the benefit.

Michigan Treasury's Revenue Administrative Bulletin 2015-20 provides interpretive guidelines for determining where the benefit of a service is received. Under RAB 2015-20, all the benefit of a service is received in Michigan if the service relates to real property located entirely in Michigan. If only a portion of the benefit is received in Michigan, the taxpayer must apportion the receipts proportionally. If a taxpayer is unable to determine where the benefit is received after a reasonable effort, the default rule sources the receipts to the customer's billing address.

MCL 206.665 also includes special sourcing rules for specific service categories including securities brokerage services, investment management services, lending and credit card transactions, telecommunications services, and transportation services, among others. These industry-specific rules override the general benefit-received standard.

Leases and rentals of tangible personal property

Receipts from the lease or rental of tangible personal property are sales in Michigan to the extent the property is utilized in Michigan. Utilization is measured by multiplying the receipts by a fraction: the numerator is the number of days of physical location of the property in Michigan during the lease or rental period in the tax year, and the denominator is the number of days of physical location of the property everywhere during all lease or rental periods in the tax year. If the physical location during the lease or rental period is unknown or cannot be determined, the property is deemed utilized in the state where the lessee obtained possession.

Real property

Receipts from the sale, lease, rental, or licensing of real property are sourced to Michigan if the property is located in Michigan.

Royalties and intangible property

Royalties and other income received for the use of or privilege of using intangible property (including patents, know-how, formulas, copyrights, trade names, licenses, and custom computer software) are attributed to Michigan if the property is used by the purchaser in Michigan. If the intangible property is used in more than one state, the royalties are apportioned to Michigan pro rata according to the portion of use in Michigan. Intangible property is used in Michigan if the purchaser uses it in the regular course of its business operations in Michigan, regardless of the location of the purchaser's customers. If the portion of use in Michigan cannot be determined, the royalties are excluded from both the numerator and the denominator.

Effective date

MCL 206.665 was added by 2011 PA 38, effective for tax years beginning on or after January 1, 2012, when the CIT replaced the Michigan Business Tax. The statute was amended by 2014 PA 13, effective February 25, 2014.

Source: MCL 206.665; Michigan Dept. of Treasury Revenue Administrative Bulletin 2015-20

Direct answer Michigan’s Corporate Income Tax (CIT) excludes foreign (non-U.S.) corporations and "foreign operating entities" (including so-called "80/20" companies) from a unitary business group (UBG) combined return. Only U.S. persons (corporations, insurance companies, or financial institutions) are includable. Michigan requires worldwide combined reporting—there is no water’s-edge election—so the UBG includes all eligible U.S. members’ income and sales, but not those of excluded foreign entities. Intercompany transactions are eliminated only among included group members. Excluded foreign entities do not affect the UBG's sales factor, tax base, or eliminations.

Why

• Foreign persons (entities not organized under U.S. law) and "foreign operating entities" are excluded from UBGs by statute and Department guidance.
• "Foreign operating entity" is defined as a U.S. person that (a) has substantial operations outside the U.S. and (b) derives at least 80% of its income from active foreign business income (per IRC §871(l)(1)(B)). These entities are expressly excluded from the UBG filing group.
• Michigan applies worldwide combined reporting by default and does not offer a water’s-edge election. All U.S. members’ sales and business income are included in the combined base and sales factor. Intercompany transactions are eliminated only for members included (i.e., not foreign entities).
• The exclusion of foreign entities means their transactions, income, and factors have no bearing on the unitary group’s tax computations for CIT.

Source support

• MCL 206.607(3): Defines "foreign operating entity" and confirms exclusion from UBG.
• MCL 206.691: Requires UBGs to file a combined return for all includable members.
• Michigan Dept. of Treasury, CIT Unitary Business Group guidance and CIT FAQ confirm exclusion of foreign entities, elimination of intercompany only for included members, and lack of water’s-edge option.

Caution / review status Not yet human confirmed.

Source: MCL 206.607(3); MCL 206.691; Michigan Dept. of Treasury Unitary Business Groups Guidance; Michigan Dept. of Treasury CIT FAQs

The Michigan Corporate Income Tax (CIT) provides for a Small Business Alternative Credit (SBAC) under MCL 206.671, designed to provide relief to certain qualifying small businesses. The credit is formulaic and only available to corporations and entities that meet specific gross receipts, income, and compensation limits. The rules below apply for tax years beginning on or after January 1, 2012 (the CIT effective date).

Eligibility thresholds: To qualify for the SBAC, several statutory conditions must be simultaneously satisfied:

• The taxpayer’s gross receipts must not exceed $20 million for the tax year.
• The taxpayer’s adjusted business income (business income after certain addbacks and subtractions, as defined by MCL 206.607(1)) must not exceed $1.3 million for the tax year.
• The taxpayer must not be a "prohibited taxpayer"—meaning it is not a financial institution, insurance company, or is not owned or controlled by a person exempt from taxation under section 501 of the Internal Revenue Code (e.g., a nonprofit entity).

Compensation disqualifiers:

• The credit is not allowed if any shareholder or officer receives more than $180,000 in compensation in the tax year. This threshold is strictly applied: if any individual shareholder or officer of the taxpayer exceeds $180,000, the taxpayer is wholly disqualified from the SBAC for that year.
• For unitary business groups, the $180,000 individual compensation cap applies group-wide: if any shareholder or officer in any member entity exceeds the limit, the entire UBG is ineligible.
• The $180,000 threshold is not indexed for inflation.

Credit computation:

• The SBAC is calculated as: the tax imposed by section 623 (Michigan CIT) minus 1.8% of adjusted business income. There are additional adjustments if the taxpayer must allocate or apportion income outside Michigan.
• The credit phases out proportionally as gross receipts rise from $18 million to $20 million, and is reduced as adjusted business income rises from $1.15 million to $1.3 million (see MCL 206.671(9),(10)).

Other limitations:

• A taxpayer eligible for the SBAC cannot claim any other credit under the CIT for that tax year.
• The credit cannot reduce CIT liability below zero (no refund is allowed).

Source: MCL 206.671

For tax years beginning on or after January 1, 2025, Michigan allows a refundable research and development (R&D) tax credit against the Corporate Income Tax (CIT) under MCL 206.677.

Calculation methodology:

• For employers with 250 or more employees ('large employers'):
• 3% of Michigan Qualified R&D Expenses (MQREs) up to the base amount, plus 10% of MQREs above the base amount, capped at $2,000,000 per taxpayer per year.
• For employers with fewer than 250 employees ('small employers'):
• 3% of MQREs up to the base amount, plus 15% of MQREs above the base amount, capped at $250,000 per taxpayer per year.
• An additional credit of up to $200,000 per taxpayer per year is available—equal to 5% of MQREs used in calculating the credit—if those expenses were incurred via a written agreement with a Michigan research university.

"MQREs" are defined as "qualified research expenses" under IRC §41(b), incurred for research conducted in Michigan. The "base amount" is the average MQREs for the three prior calendar years (or fewer if less data available; zero if none).

Tentative claim requirement: Taxpayers must submit a tentative claim to Treasury:

• For MQREs incurred in calendar year 2025, the deadline is April 1, 2026; thereafter, on or before March 15 following the calendar year the expenses were incurred.
• The tentative claim must state the employer size, amount of MQREs claimed, and whether the university collaboration credit is sought.

Annual cap and proration:

• The statewide annual cap for all R&D credits (CIT and withholding) is $100 million.
• If claims exceed the cap, Treasury prorates credits. If small-employer claims are $25 million or less, those are paid in full and large employers share the rest; otherwise, proration follows one of several structures depending on the sizes of the respective claim pools (see MCL 206.677(9)–(11)). Treasury must publish proration on its website.

Claiming the credit:

• Credits are claimed (net of proration, if applicable) on the CIT annual return; any excess (beyond liability) is refundable.

Source: MCL 206.677

Michigan’s Corporate Income Tax (CIT) sales factor sourcing rules are governed primarily by MCL 206.665, which provides market-based sourcing for items other than tangible personal property. There is no statute or administrative bulletin that refers explicitly to "digital goods," "downloads," "streaming media," or cloud-based software (SaaS). However, Michigan’s statute and Revenue Administrative Bulletin 2015-20 establish sourcing approaches that practitioners must apply to these categories by analogy to services, intangibles, and software.

1. Downloads and Digital Media: Digital goods sold as downloads (songs, movies, software, e-books, etc.) are generally not tangible personal property under Michigan law (by reference to the Michigan Sales and Use Tax Act and administrative practice). Under MCL 206.665(3), receipts from the sale of intangible property, including custom computer software, are sourced to Michigan if the purchaser uses the property in Michigan in the regular course of its business. "Use" is determined by the location where the purchaser receives the right of access or control. Where the downloaded software or media is used solely in Michigan, receipts are sourced entirely to Michigan; if used in multiple states, apportionment is required according to relative use. If the proportion cannot be determined, the receipts are excluded from both numerator and denominator. The statute and RAB 2015-20 do not separately address “off-the-shelf” digital goods, so application by analogy is standard, but not directly codified.

2. Streaming or Subscription Media (Non-Download): Ongoing access to copyrighted works (e.g., streaming video, music subscriptions) may be characterized as a license to use intangible property or as a service. MCL 206.665(4)–(5) requires that service receipts be sourced to Michigan to the extent the recipient receives the benefit in Michigan. Treasury interprets this to mean that when a customer streams or accesses media in Michigan, those receipts are includable in the Michigan numerator. For subscriptions used in multiple states, receipts must be reasonably apportioned based on the customer’s in-state versus out-of-state consumption, using books and records.

3. Cloud-Based Software (SaaS and PaaS): Michigan’s guidance does not expressly classify cloud-based software, but RAB 2015-20 (see Section IV) instructs service providers to source receipts to Michigan where the recipient receives the benefit. For cloud-based software (SaaS), if the customer’s employees access the application from locations in Michigan, those receipts are sourced to Michigan in proportion to Michigan usage. If it is impractical to determine benefit location by user, the default sourcing rule is the customer billing address.

Summary Table:

• Downloads/Installed Digital Goods: Source as intangible property receipts under MCL 206.665(3).
• Streaming/Subscription Media: Source as services or intangible usage income under 206.665(4)–(5).
• SaaS/Cloud Software: Source as services receipts under 206.665(4)–(5), with benefit received location or, if undeterminable, customer billing address.

Neither statute nor RAB 2015-20 contains a special rule just for digital goods or SaaS, but the market-based sourcing approach for services and intangible property governs computationally. Treasury has not published a dedicated sales factor treatment for digital goods, streaming, or SaaS as of this writing.

Source: MCL 206.665; Michigan Dept. of Treasury Revenue Administrative Bulletin 2015-20

Deduction of Net Operating Losses (NOLs) under Michigan CIT

Michigan’s Corporate Income Tax (CIT) provides a deduction for federal net operating loss (NOL) carryforwards, but with significant limitations and Michigan-specific rules that deviate from the federal regime.

No New Michigan NOL Generation

The Michigan CIT, effective for tax years beginning on or after January 1, 2012, does not allow taxpayers to generate, recognize, or carry forward state-specific Michigan NOLs. Taxpayers may deduct only federally recognized NOL carryforwards that were generated in tax years beginning after December 31, 2009 and before January 1, 2012 (i.e., during years when the Michigan Business Tax (MBT) was in effect and where federal NOLs from those years have not yet expired under federal law). No NOL carrybacks are allowed under the CIT.

Allowed Deduction — Only for Pre-CIT Federal NOLs

Taxpayers may claim a CIT deduction for the portion of any federal NOL carryforward arising from a tax year beginning after December 31, 2009 and before January 1, 2012, to the extent it remains available under federal law. In other words, NOLs arising after the CIT’s effective date (2012 and later) cannot be deducted under the Michigan CIT, and pre-2010 NOLs are not recognized. The deduction only applies to the extent the NOL relates to business activity that would have been attributable to Michigan under current apportionment rules — i.e., the deduction must be reduced proportionally if the business was multi-state.

Computation and Apportionment

The deduction applies only against business income under the CIT, not against other components of the tax base. Treasury instructs that apportionment applies to the income year by year. If an NOL relates to a period in which the taxpayer had sales or nexus in multiple states, only the Michigan-apportioned portion of the federal NOL can be deducted against the current year’s apportioned business income. The taxpayer must demonstrate the amount of the allowed NOL deduction with records and, if requested, a worksheet reflecting the original Michigan-apportioned amount carried forward under current rules.

No Carryback and No New NOL Deduction Generation

Michigan law does not allow for carryback of any loss to previous tax years and does not allow taxpayers to generate a fresh Michigan NOL deduction for losses sustained in tax years beginning after December 31, 2011. Excess income deductions may not be carried forward for Michigan CIT purposes. Treasury confirms that any NOL generated after the CIT’s effective date is not available as a deduction for Michigan purposes going forward.

Key Law Provisions and Guidance

• MCL 206.623(2)(f) governs the carryforward of federal NOLs into the CIT era
• MCL 206.607(3)-(4) specifies how NOLs arising in the allowable period are computed for deduction
• No carrybacks allowed (MCL 206.623(2)(f))
• Michigan Department of Treasury CIT FAQ (NOL section)

Source: MCL 206.623; MCL 206.607

Direct answer: Michigan requires taxpayers claiming an exception to the related-party interest or intangible expense addback under the Corporate Income Tax (CIT) to substantiate the claim based on the statutory exception cited in MCL 206.623(2)(j)-(k); but as of July 2026, Treasury has not prescribed a specific form, checklist, or standardized documentation procedure, nor does combined return filing for a unitary business group alter the nature of the statutory exceptions or the underlying burden of proof.

Why: The CIT statute (MCL 206.623(2)(j)-(k)) requires the addback of otherwise deductible interest or intangible expenses paid to a related member but carves out key exceptions where the taxpayer can show that the related member is subject to income tax in another state/country, or that the transaction was conducted at arm’s length and had a valid business purpose. The burden is on the taxpayer to demonstrate qualification for an exception by clear and convincing evidence. The statute does not specify forms or procedures, but administrative practice (and general audit standards per Mich. Admin. Code R 205.2001) requires contemporaneous documentation—such as copies of other states’ returns, transfer pricing studies, intercompany agreements, allocation/apportionment schedules, and relevant correspondence—sufficient to support every element of the claimed exception and to enable Treasury to trace the expense and income. There is no separate CIT form or check-box for claiming an addback exception; the taxpayer is expected to retain substantiating records and provide them on audit. Exception claims must be made and substantiated by the filing due date. In a unitary combined return, the group’s designated member files on behalf of all included members, but the statute imposes no special filing rules or documentation procedure for group filers—each expense and exception is still tracked and tested at the reporting entity level.

Source support:

• MCL 206.623(2)(j)-(k). Statute, clearly identifies both the exception conditions and the taxpayer’s burden (“clear and convincing evidence”) but is silent on documentation form.
• Michigan Dept. of Treasury, CIT FAQ: Related Member Addback and Exceptions—answers what evidence is needed and stresses the taxpayer’s contemporaneous recordkeeping burden.
• Mich. Admin. Code R 205.2001: audit standards for adequacy of corporate income tax records.

Caution / review status: Not yet human confirmed. The statute and Treasury FAQ state the substantive rule and audit expectations but are silent on any required form or procedural checklist; taxpayers must rely on general documentary sufficiency and audit best practices until formal rules are adopted.

Source: MCL 206.623(2)(j)-(k); Michigan Dept. of Treasury, Corporate Income Tax FAQ on Related Member Addback and Exceptions; Mich. Admin. Code R 205.2001