TAXPAYER THAT ELECTED TO FILE UNDER THE MBT ACT CANNOT CLAIM
MBT BUSINESS LOSS CARRYFORWARDS ON CIT RETURNS

On February 18, 2022, the Court of Claims granted summary
disposition in favor of Treasury in International Automotive
Components Group North America, Inc., v Dep’t of
Treasury, Docket No. 21-000189-MT, holding the taxpayer
could not deduct business losses on its 2019 Corporate
Income Tax (CIT) return that were generated when it
elected to file under the Michigan Business Tax Act (MBTA).
The taxpayer was awarded Michigan Economic Growth
Authority (MEGA) credits under the MBTA beginning in the
2008 tax year. After the CIT was enacted in 2011, for tax
years beginning after December 31, 2011, the taxpayer
elected to continue to file under the MBT to claim its MEGA
credit. This election, authorized by statute, allowed the
taxpayer to file under the MBTA to “claim a certificated
credit or any unused carryforward for that tax year . . . for
each tax year thereafter until that certificated credit and
any carryforward from that credit is used up.” See MCL
208.1500(1) and MCL 206.680(1). This election required the
taxpayer to calculate its MBT liability as the “greater of” MBT
or CIT tax computed until the 2018 tax year, at which time
the MEGA credits were exhausted. The taxpayer filed its first
CIT return for the 2019 tax year and claimed a CIT businessloss carryforward.
Treasury issued a Notice of Refund Adjustment in
December 2020 denying the taxpayer’s claimed businessloss carryforward reported on its first CIT return. Treasury
contended there was no business loss from a previous CIT
return that could be carried forward since the taxpayer
was filing under the MBTA and had not filed a CIT return
for the previous year. After an informal conference
before Treasury, the hearing referee recommended
that the refund adjustment be upheld, because the
taxpayer “could not generate CIT losses until it was filing
CIT returns.” Treasury accepted the informal conference
recommendation in a July 9, 2021, decision and order. The
taxpayer appealed Treasury’s decision and order to the
Court of Claims.
On appeal, the taxpayer alleged that it calculated both
MBT and CIT business losses during the time it was paying
the “greater of” tax and that it tracked the losses on the
pertinent tax forms for the 2012-2018 tax years. The taxpayer
asserted that the 2019 business loss carryforward simply
reflected a loss that it had been tracking on its returns. The
taxpayer argued that it effectively paid tax under both
the CIT and the MBT during the years it made the “greater
of” election, with the lesser tax being applied as a credit
against the greater tax, and that since it paid both taxes, it
could carryforward such business loss into its first CIT return.
Treasury argued the MBT and CIT are separate taxes and
that taxpayers are not paying both taxes under the MBT
election, rather they are merely required to compute tax
liability according to the requirements of both acts and pay
the greater determined amount as their liability under the
MBT. Treasury argued further that the CIT does not provide
for carrying forward MBT business losses into the CIT.
The Court of Claims agreed with Treasury, noting with
respect to the MEGA credits that caused the taxpayer to
make the election under the MBTA that the Legislature
expressly provided for the preservation for tax credits
while at the same time was silent on the preservation of
business losses. The court said that the Legislature thus
knew how to preserve the parts of the previous tax scheme
upon transition to a new tax scheme it intended to keep,
and that the “plain language of the acts reveals that
the Legislature did not preserve preexisting losses in the
transition from the MBTA to the CITA.” The court also noted
that the CIT’s definition of “business loss” contemplated
allocation and apportionment adjustments to be made
under the CIT losses, and not losses under the MBT.
Finally, the court held that the taxpayer was not paying
both taxes under its election. The court stated, in allowing
taxpayers to make the “greater of” election, the MBTA
states that the taxpayer is to calculate its liability “as if
the taxpayer were subject” to the CIT. (Emphasis added).
In other words, the MBTA confirms that a taxpayer is not
actually subject to the CIT, but rather the taxpayer merely
calculates its MBT tax liability as if it were subject to the CIT.
The court noted that the CIT confirms this, as it provides that
a taxpayer making the “greater of” election is not required
to file a CIT return.
The taxpayer has appealed the Court of Claims’ decision
to the Michigan Court of Appeals.