I would like to share the following question received from a Michigan CPA:

QUERY:

Company A has a 12/31 year end and is owned 100% by Mr. X. 

Company B has a 2/28 year end and is 70% owned by Mr. X.

These 2 companies will meet the definition of a unitary business group for 2008.  They meet the relationship test.

Effective 3/1/08 Company B is changing to a 12/31 year end.

I think that Company A would need to file an SBT return for the 12/31/07 year end by 4/30/08.  Company B would be required to file a 10 month SBT return for the 3/1/07 to 12/31/07 period and a 2 month (Jan. & Feb. 2008) MBT return.

Then, the unitary business group would file an MBT return for the calendar year ending 12/31/08 which would include 12 months of activity from Company A and 10 months from Company B (Mar.-Dec.).

ANSWER:

The answer to your questions is dependent on which entity, Company A or Company B, is the "designated member" of the "unitary business group". 

Treasury, in FAQ U17 stated:  "The combined return of a unitary business group must include each tax year of each member whose tax year ends with or within the tax year of the designated member."

If Company A is the designated member:  The first MBT return, which is filed on a unitary combined basis, would include Company A's 12 months ending December 31, 2008 and both the two months ending February 28, 2008 (annual or actual) as well as the ten months ending December 31, 2008, the short year.

If Company B is the designated member:  The first MBT return, which is filed on a unitary combined basis, would include Company B's two months ending February 28, 2008 (annual or actual) and Company A's 12 months ending December 31, 2007 which ends within the tax year of the designated member, Company B.  The net effect is tax paid only on Company B's two months ending February 28, 2008 because the MBT does not apply to business activity which occurs before January 1, 2008.

If Company B is the designated member:  The second MBT return, which is filed on a unitary combined basis, would include Company B's ten months ending December 31, 2008 and Company A's twelve months ending December 31, 2008. 

Treasury FAQ U17 answers questions about who the "designated member" is as well as the method of accounting.

The Michigan Business Tax Act does not require each member of a unitary business group to use the same method of accounting to determine its business income.

A taxpayer that is a unitary business group must file a combined return under MCL 208.1511 using the tax year of the designated member. On the combined return, the business income of each member should reflect the accounting method the member used to compute its federal taxable income, whether cash or accrual.

"Designated member" means a member of a unitary business group that has nexus with Michigan under MCL 208.1200 and that will file the combined return required under section 511. If the member that owns or controls the other members of the unitary business group has nexus with Michigan, then that controlling member must be the designated member.

The combined return of the unitary business group must include each tax year of each member whose tax year ends with or within the tax year of the designated member.

The business income of a unitary business group is the sum of the business income of each person included in the unitary business group, other than a foreign operating entity or a person subject to the tax on insurance companies or financial institutions, less any items of income and related deductions arising from transactions, including dividends, between persons included in the unitary business group. MCL 208.1201(4).